An updated version of this report is available.
2024 Tax Preference Review:
Aluminum
PRELIMINARY REPORT | JULY 2024
Eric Whitaker, Geoff Cunningham, Research
Analysts
Stephanie Hoffman, Deputy Legislative Auditor; Eric Thomas, Legislative
Auditor
Legislative Auditor's conclusion
The preferences are no longer being used. All aluminum smelters in Washington have closed. Six preferences cannot be used if a new smelter opened, and two are unlikely to be used again.
Key points
| Earlier JLARC reviews
JLARC previously reviewed the four aluminum smelter preferences and the two power seller preferences in 2015. |
- The Legislature enacted eight tax preferences benefitting aluminum smelters and related manufacturing activities between 1996 and 2004. The four preferences for aluminum smelters expire January 1, 2027.
- None of the preferences have been used since fiscal year 2021. They are unlikely to be used again.
- No aluminum smelters have operated in Washington since August 2020. Employment in Washington's aluminum manufacturing industry fell by 49% when the smelters closed. The industry still employs approximately 1,100 people.
- The decline of Washington's aluminum smelting industry is consistent with a decline nationally.
- The Legislature should allow the four tax preferences with expiration dates to expire and should terminate the other four tax preferences.
About this preference
| Estimated savings: $0 (2025-27 Biennium) | Tax type: Multiple taxes |
Expiration date: Four preferences: January 1, 2027 Four preferences: No expiration date. |
Applicable statute(s): Multiple |
Executive summary
Between 1996 and 2004, the Legislature enacted eight tax preferences that benefit the aluminum industry. Four preferences are for aluminum smelters, two are for power companies that sell power to aluminum smelters, and two are for aluminum anodes and cathodes and aluminum master alloys manufacturing.
|
Anodes and cathodes: materials such as carbon, petroleum coke, coal tar, and pitch that transfer electric currents and heat to refine aluminum during the smelting process. Aluminum master alloys: aluminum combined with small amounts of other elements that change the aluminum's strength, appearance, and other properties. |
The preferences include a preferential business and occupation (B&O) tax rate, four tax credits, two tax exemptions, and a B&O tax exclusion.
Preferences have not been used since 2021 and are unlikely to be used again
Beneficiaries claimed five of the eight aluminum tax preferences between fiscal years 2015 and 2021. During this period, total beneficiary savings decreased from $13.2 million in 2015 to $661,000 in 2021. The last aluminum smelter closed in August 2020. None of the preferences have been claimed since fiscal year 2021.
The preferences are unlikely to be used again:
- Statutory definitions prevent future use of the smelter and power seller preferences.
- The anodes and cathodes preference could be used by a new smelter, but market conditions make it unlikely that a new smelter will operate in Washington.
- One business in Washington produces aluminum master alloys, but its manufacturing process does not qualify for the preference.
Aluminum manufacturing employment decreased, but the industry still employs 1,100 people
The Legislature's stated objective for the four aluminum smelter preferences is to preserve jobs in Washington's aluminum manufacturing industry.
Between 2015 and 2022, the number of jobs in Washington's aluminum manufacturing industry declined from 2,155 to 1,093. Most of the job losses occurred when Alcoa closed its Wenatchee Works and Intalco Works smelters.
Decline of aluminum smelting in Washington mirrors the industry's decline nationally
Between 2000 and early 2024, the number of aluminum smelters operating in the United States decreased from 23 to four. Contributing factors include:
- Increasing energy costs and growing energy demand from other industries.
- Increasing aluminum production by China and other countries.
- Aging infrastructure.
Legislative Auditor's recommendations
The Legislature should allow four preferences to expire and terminate four others:
- Allow the four tax preferences for aluminum smelters to expire on January 1, 2027.
- Terminate the two tax preferences for power companies selling to aluminum smelters.
- Terminate the tax preferences for aluminum anodes and cathodes and aluminum master alloy producers.
You can find additional information in the Recommendations section.
Commissioner's Recommendation
Available on Citizen Commission website October 2024.
Part 1.
Aluminum tax preferences
Between 1996 and 2004, the Legislature enacted eight tax preferences that benefit aluminum smelters, companies that sell power to aluminum smelters, and certain aluminum manufacturing activities.
The preferences include a preferential business and occupation (B&O) tax rate, four tax credits, two tax exemptions, and a B&O tax exclusion.
Appendix A provides more information about each preference.
Figure 1: Legislature enacted eight tax preferences
| Preference type | Preference | Year enacted | Direct beneficiaries |
|---|---|---|---|
Preferential B&O tax rate |
Aluminum manufacturing and wholesaling | RCW 82.04.2909 |
2004 |
Aluminum smelters |
B&O tax credit |
Aluminum smelter property taxes | RCW 82.04.4481 |
2004 |
Aluminum smelters |
Sales and use tax credit |
Aluminum smelter purchases | RCW 82.08.805 and 82.12.805 |
2004 |
Aluminum smelters |
Natural gas use tax exemption |
Aluminum smelter use of natural gas | RCW 82.12.022(5) |
2004 |
Aluminum smelters |
Public utility tax credit |
Aluminum smelter purchases of power | RCW 82.16.0498 |
2004 |
Power sellers |
B&O tax credit |
Aluminum smelter electricity or natural gas purchases | RCW 82.04.4482 |
2004 |
Power sellers |
Sales and use tax exemption |
Aluminum production anodes and cathodes | RCW 82.08.02568 and 82.12.02568 |
1996 |
Aluminum producers |
B&O exclusion |
Aluminum master alloy producers | RCW 82.04.110(2)(b) |
1997 |
Master alloy producers |
Source: JLARC staff analysis
Four preferences available to aluminum smelters share a public policy objective and expiration date
The 2015 Legislature identified a public policy objective when it extended the four aluminum smelter preferences. The preferences are intended to preserve employment in Washington's aluminum manufacturing industry.
The Legislature extended the aluminum smelter preferences three times. They currently expire on January 1, 2027.
Four other preferences do not have an objective or expiration date
The Legislature has not added a public policy objective for the two power seller preferences or the two preferences for aluminum manufacturing activities. None of these preferences have expiration dates.
Statute defines eligibility for many of the aluminum preferences
When the 2004 Legislature enacted the four preferences for aluminum smelters and the two preferences for power companies selling to aluminum smelters, it defined "aluminum smelter" and "direct service industrial customer."
- An aluminum smelter is the manufacturing facility of any direct service industrial customer that processes raw material into aluminum.
- A direct service industrial customer is an industrial customer (e.g., owner of a smelter) with a contract with the Bonneville Power Administration (BPA) to purchase power as of May 8, 2001.
These requirements limit future beneficiaries for the four aluminum smelter and two power sellers tax preferences. If a new smelter opened in Washington, it would not qualify for the preferences based on the aluminum smelter definition and the date identified in the direct service industrial customer definition. See Appendix A for more details.
Statute also limits beneficiaries for the aluminum master alloys preference. To be eligible, a master alloys producer must use aluminum provided by their customer. See Appendix A for more details.
Part 2.
Savings
Between fiscal years 2015 and 2022, fewer than three beneficiaries claimed the preferences in each year. Taxpayer confidentiality restrictions prevent disclosure of beneficiary savings when there are fewer than three beneficiaries. However, the power company claiming the PUT credit, Alcoa, allowed Joint Legislative Audit and Review Committee (JLARC) staff to disclose beneficiary savings and employment information. Alcoa is the parent company of the Wenatchee Works and Intalco Works aluminum smelters.
None of the eight aluminum preferences have been used since 2021
Beneficiaries claimed five of the eight preferences between 2015 and 2021. None of the eight tax preferences have been claimed since 2021.Figure 2: Beneficiaries have not claimed preferences since 2021
| Preference | Beneficiaries | Fiscal years claimed |
|---|---|---|
Preferential B&O tax rate for manufacturers, wholesalers, and processors for hire |
Alcoa's Wenatchee Works and Intalco Works smelters |
2015-2021 |
B&O tax credit for property taxes paid |
Alcoa's Wenatchee Works and Intalco Works smelters |
2015-2021 |
Sales and use tax credit for property purchased to be incorporated into buildings and other structures |
Alcoa's Wenatchee Works and Intalco Works smelters |
2015-2021 |
Use tax preference for natural gas delivered through a pipeline |
No beneficiaries |
Not claimed |
Public utility tax credit for a power seller selling to an aluminum smelter |
Alcoa Power Generating, Inc. |
2015-2021 |
B&O credit for a power seller selling to an aluminum smelter |
No beneficiaries |
Not claimed |
Sales and use tax exemption for purchases of anodes and cathodes |
Alcoa's Wenatchee Works and Intalco Works smelters |
2015-2019 |
B&O exclusion for aluminum master alloy producers |
No beneficiaries |
Not claimed |
Source: JLARC staff analysis of tax preference use, fiscal years 2015-2022
Beneficiary savings declined to zero since 2015
Between fiscal years 2015 and 2022, the estimated beneficiary savings for the five preferences claimed declined to zero. Alcoa was the only beneficiary of these five preferences. Since none of the preferences have been used since 2021, there were no beneficiary savings in 2022.
Figure 3: Estimated taxpayer savings for five tax preferences declined to zero. The preferences are no longer being claimed.
Source: JLARC staff analysis of Department of Revenue confidential tax return data, fiscal years 2015-2022
No aluminum smelters currently operate in Washington. Most preferences cannot be used again.
Washington no longer has active aluminum smelters. Alcoa closed its Wenatchee Works facility in 2016 and its Intalco Works facility in 2020.
Statute defines an aluminum smelter as a facility converting raw material to aluminum that is a direct service industrial customer of BPA as of May 8, 2001. This means that the aluminum smelter and power seller tax preferences cannot be used in the future because there are no longer aluminum smelters that meet the statutory requirements.
The preferences for anodes and cathodes and master alloys are also unlikely to be used again.
- JLARC staff estimate that Alcoa's Intalco Works smelter last claimed the anodes and cathodes in 2019. Intalco closed in 2020 and aluminum smelting no longer occurs in Washington.
- The aluminum master alloys preference is designed for a specific manufacturing process. The only company in Washington producing master alloys currently uses a different process, making it ineligible for the preference.
Status of the Intalco Works facility
Efforts to revive Alcoa's Intalco Works aluminum smelter since its closure in 2020 have been unsuccessful. A prospective buyer backed out after failure to negotiate a power purchase contract.
In January 2024, a new company began exploring the potential to convert the facility into a green hydrogen plant. News reports note that a challenge for this project may be finding sufficient and affordable electricity.
Part 3.
Employment
The Legislature's objective for the four aluminum smelter preferences is to preserve jobs in Washington's aluminum manufacturing industry.
Employment in Washington's aluminum manufacturing industry has decreased. The industry still employs about 1,100 people.
|
Primary aluminum smelting: Producing aluminum from raw materials. Secondary aluminum smelting: Recycling aluminum scrap to form new products. |
The aluminum manufacturing industry consists of primary and secondary smelting, alloying, and manufacturing aluminum products. The aluminum smelter preferences are intended to benefit primary aluminum manufacturing.
At the start of 2015, the aluminum manufacturing industry employed 2,155 people, including 1,025 at Alcoa's two smelters. Between 2015 and 2022, employment in the aluminum manufacturing industry declined by 1,062 jobs (49.3%).
Job losses in the industry were greatest when Alcoa closed its Wenatchee Works and Intalco Works facilities in 2016 and 2020.
Additional detail about employment at the aluminum smelters is available in Appendix B.
Figure 4: Decreases in Washington's industry employment coincide with the closure of the aluminum smelters
Note: Job counts from both sources are as of December 31. In addition to primary and secondary smelting, the aluminum industry includes jobs related to aluminum rolling, drawing, and extruding and manufacturing aluminum sheets and plates.
Source: JLARC staff analysis of Department of Revenue's Annual Tax Performance Report (ATPR) and U.S. Census's Longitudinal Employer-Household Dynamics (LEHD) data for NAICS 3313, 2014-22
Part 4.
Industry decline
The decline of primary aluminum smelting in Washington is consistent with a decline nationally.
- Between 1980 and 2021, domestic production of primary aluminum fell 82%.
- Between 2000 and 2021, the number of aluminum smelters operating in the United States decreased from 23 to six. As of January 2024, only four smelters remain in operation nationally.
Multiple factors contributed to the decline in aluminum smelting
Energy costs and demand have increased
Energy accounts for up to 40% of the cost of aluminum production. The U.S. has a relatively high cost of energy compared to other countries.
Washington's growing population and economy have created more demand for power. When it operated the Intalco Works aluminum smelter in Ferndale, Alcoa regularly renegotiated its power purchase agreement with Bonneville Power Administration (BPA) to remain competitive.
Overseas competition
Producers of primary aluminum in other countries more than doubled their output since 2000. By 2021, China had become the leading aluminum supplier, accounting for 57% of the global supply. This increased production contributed to price volatility in the global aluminum market, making it difficult for U.S. smelters to remain competitive.
Older facilities
Aluminum smelters in the U.S. tend to be older and costlier to operate. In Washington, the Wenatchee Works and Intalco Works smelters opened in 1952 and 1966. Newer smelters in Asia and the Middle East use more energy-efficient technology.
Recommendations
The Legislature should allow four preferences to expire and terminate four others:
- Allow the four tax preferences for aluminum smelters to expire on January 1, 2027.
- These preferences were enacted to help preserve employment in Washington's aluminum manufacturing industry. In 2020, the last aluminum smelter closed, and these preferences would not be available to a new aluminum smelter.
- Terminate the two tax preferences for power companies selling to aluminum smelters.
- These preferences do not have an expiration date and would not be available to power sellers if a new aluminum smelter began operating in Washington.
- Terminate the tax preferences for aluminum anodes and cathodes and aluminum master alloy producers.
- With the closure of the last aluminum smelter in 2020, no business currently uses the sales and use tax exemption for anodes and cathodes. Additionally, no business claimed the aluminum master alloys exclusion during the study period.
Legislation Required: Yes to terminate preferences.
Fiscal Impact: No.
Implementation Date: Depends on legislative action.
Letter from Commission Chair
Available on Citizen Commission website October 2024.
Commissioners' Recommendation
Available on Citizen Commission website October 2024.
Current Recommendation Status
JLARC staff follow up on the status of Legislative Auditor recommendations to agencies and the Legislature for four years. The most recent responses from agencies and status of the recommendations in this report can be viewed on our Legislative Auditor Recommendations page.
Appendices
Appendix A: Tax preference details | Appendix B: Aluminum smelter employment | Appendix C: Applicable statutes | Appendix D: Study questions & methods | Appendix E: Audit authority | Appendix F: Study process
Appendix A: Tax preference details
The eight tax preferences include a preferential B&O tax rate, four tax credits, two tax exemptions, and a B&O exclusion.
- Six preferences were originally enacted in 2004 as a package to assist aluminum smelters in response to rising energy costs that resulted from the energy crisis of 2000-01.
- Four preferences directly benefit aluminum smelters.
- Two preferences directly benefit power sellers and indirectly benefit aluminum smelters by encouraging power companies to reduce the cost of power sold to smelters.
- Two other preferences were originally enacted in the mid-1990s and target specific aluminum manufacturing activities.
The four preferences available to aluminum smelters share common definitions, public policy objectives, expiration dates, and a requirement that beneficiaries complete the Department of Revenue (DOR) Annual Tax Performance Report (ATPR). The definitions establish the criteria for who can claim these preferences.
- An aluminum smelter is the manufacturing facility of any direct service industrial customer that processes raw material into aluminum.
- A direct service industrial customer is an industrial customer (e.g., owner of a smelter) that contracts for the purchase of power with the Bonneville Power Administration (BPA) for direct consumption as of May 8, 2001.
The Legislature added a tax preference performance statement in 2015. These preferences were categorized as ones intended to create or retain jobs and reduce structural inefficiencies in the tax structure. The Legislature also added a public policy objective: to help preserve jobs in Washington's aluminum manufacturing industry.
All four aluminum smelter preferences are scheduled to expire January 1, 2027.
Aluminum manufacturing and wholesaling – preferential B&O tax rate (RCW 82.04.2909 )
Provides a reduced B&O tax rate of 0.2904% rather than the standard manufacturing rate of 0.484% for qualifying aluminum smelters that manufacture aluminum, processors for hire, and aluminum smelters wholesale of aluminum they produce.
Fewer than three business locations claimed this preference each year between fiscal years 2015 and 2022.
Aluminum smelter property taxes – B&O tax credit (RCW 82.04.4481)
A B&O tax credit may be taken for property taxes paid by a direct service industrial customer, provided the property is reasonably necessary for an aluminum smelter. The credit may be carried over for one year and can be taken for property taxes paid through December 31, 2026.
Fewer than three business locations claimed this preference each year between fiscal years 2015 and 2022.
Aluminum smelter purchases – sales and use tax credit (RCW 82.08.805 and 82.12.805)
Provides a credit for sales and use tax paid on personal property used at an aluminum smelter, tangible personal property incorporated into buildings or other structures at an aluminum smelter, and labor and services rendered with respect to such personal property, buildings, and structures. The exemption is taken in the form of a credit against the taxpayer's B&O liability.
Fewer than three business locations claimed this preference each year between fiscal years 2015 and 2022.
Aluminum smelter use of natural gas – exemption (RCW 82.12.022(5))
Purchases of brokered natural gas by an aluminum smelter from an out-of-state supplier are exempt from the use tax if the gas is delivered through a pipeline.
No businesses claimed this preference between fiscal years 2015 and 2022.
Figure 5: Beneficiary savings, four aluminum smelter tax preferences
Fiscal year |
B&O preferential rate for manufacturing and wholesaling |
B&O credit for property taxes paid |
Sales and use tax credit for aluminum smelter purchases |
Natural gas use tax exemption |
|---|---|---|---|---|
2015 |
$1,242,000 |
$1,930,000 |
$773,000 |
Not claimed |
2016 |
$666,000 |
$784,000 |
$509,000 |
Not claimed |
2017 |
$517,000 |
$790,000 |
$406,000 |
Not claimed |
2018 |
$395,000 |
$979,000 |
$415,000 |
Not claimed |
2019 |
$612,000 |
$1,112,000 |
$462,000 |
Not claimed |
2020 |
$755,000 |
$955,000 |
$453,000 |
Not claimed |
2021 |
$70,000 |
$67,000 |
$100,000 |
Not claimed |
2022 |
Not claimed |
Not claimed |
Not claimed |
Not claimed |
Note: Alcoa, the parent company of the Wenatchee Works and Intalco Works aluminum smelters, granted permission for JLARC staff to disclose confidential beneficiary savings.
Source: JLARC staff analysis of DOR confidential tax return data, fiscal years 2015-2022
The two power seller preferences, although enacted via the same bill that created the aluminum smelter preferences in 2004, do not have a public policy objective, expiration date, and do not require beneficiaries to complete additional reporting such as DOR's ATPR. Definitions of "aluminum smelter" and "direct service industrial customer" limit the use to power sellers selling to aluminum smelters who are a customer of BPA as of May 8, 2001.
Aluminum smelter purchases of power – public utility tax credit (RCW 82.16.0498)
A PUT credit is provided for income from the sale of electricity or gas to an aluminum smelter. The power seller must reduce the price paid for power by the aluminum smelter by the amount of the credit claimed. Additionally, the credit does not apply to amounts received from the remarketing or resale of electricity originally obtained for smelting aluminum.
One business claimed this preference between fiscal years 2015 and 2022.
Aluminum smelter electricity or natural gas purchases – B&O tax credit (RCW 82.04.4482)
A B&O tax credit is provided for income derived from the sale of electricity or gas to an aluminum smelter. The power seller must reduce the price an aluminum smelter pays by the amount of the credit claimed. Additionally, the credit does not apply to amounts received from the remarketing or resale of electricity originally obtained for the purpose of smelting aluminum.
No businesses claimed this preference between fiscal years 2015 and 2022.
Figure 6: Beneficiary savings, power sellers PUT and B&O tax credits
Fiscal year |
Power sellers public utility tax credit |
Power sellers B&O tax credit |
|---|---|---|
2015 |
$2,412,000 |
Not claimed |
2016 |
$1,893,000 |
Not claimed |
2017 |
$804,000 |
Not claimed |
2018 |
$997,000 |
Not claimed |
2019 |
$457,000 |
Not claimed |
2020 |
$808,000 |
Not claimed |
2021 |
$424,000 |
Not claimed |
2022 |
Not claimed |
Not claimed |
Note: Alcoa, the parent company of the power company claiming the PUT credit, granted permission for JLARC staff to disclose confidential beneficiary savings.
Source: JLARC staff analysis of DOR confidential tax return data, fiscal years 2015-2022.
The two aluminum preferences for manufacturing-related activities do not have public policy objectives, expiration dates, and do not require beneficiaries to complete additional reporting such as DOR's ATPR.
Aluminum production anodes and cathodes – sales and use tax exemption (RCW 82.08.02568 and 82.12.02568)
In 1996, the Legislature exempted anodes and cathodes from the sales and use tax. These include ingredients such as carbon, petroleum coke, coal tar, pitch, and similar substances used in manufacturing aluminum.
JLARC staff estimate this preference was last used in fiscal year 2019, the last year the Alcoa's Intalco Works aluminum smelter reported income from manufacturing.
Aluminum master alloy producers – B&O exclusion (RCW 82.04.110(2)(b))
This preference defines producers of aluminum master alloys as processors for hire rather than manufacturers regardless of the portion of aluminum provided by their customers. This results in a reduced B&O tax liability:
- Manufacturers pay B&O tax on the higher total value of the finished product.
- Processors for hire pay B&O tax based on a lesser amount: the charge to the customer (in this case, for producing the aluminum master alloy).
This exclusion addresses a specific process used to produce aluminum master alloys called toll manufacturing. Under this process:
- A customer provides the master alloy producer with ordinary aluminum.
- The producer adds certain ingredients such as grain refiners or hardening elements to alter the properties of the aluminum. This modification facilitates production of another aluminum-based product further down the supply chain.
- Once complete, the producer returns the alloyed aluminum to the customer.
Prior to enactment of this preference in 1997, DOR's rule stipulated a producer's tax liability was based on the value of the end product, which included the value of the customer's aluminum, rather than only the charges for converting ordinary aluminum into a master alloy. According to the final bill report, in the case of aluminum master alloy production, the value of the products manufactured may be greater than the income of the business.
No businesses claimed this preference between fiscal years 2015 and 2022.
Figure 7: Beneficiary savings estimates, anodes and cathodes sales and use (SUT) exemption and aluminum master alloys exclusion
Fiscal year |
Anodes & cathodes SUT exemption |
Aluminum master alloys exclusion |
|---|---|---|
2015 |
$6,875,000 |
Not claimed |
2016 |
$3,828,000 |
Not claimed |
2017 |
$2,760,000 |
Not claimed |
2018 |
$3,361,000 |
Not claimed |
2019 |
$726,000 |
Not claimed |
2020 |
Not claimed |
Not claimed |
2021 |
Not claimed |
Not claimed |
2022 |
Not claimed |
Not claimed |
Note: Alcoa, the parent company of the Wenatchee Works and Intalco Works aluminum smelters, granted permission for JLARC staff to disclose confidential beneficiary savings
Source: JLARC staff analysis of DOR confidential tax return data, fiscal years 2015-2022
Appendix B: Aluminum smelter employment
Each beneficiary of the four aluminum smelter preferences must file an ATPR with DOR. One of the required categories of information is a count of employees. This tally reflects a business's self-reported count of employees at the end of each calendar year (December 31).
Figure 8: Aluminum smelter employment
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|---|---|---|---|
| Intalco Works | 576 | 561 | 569 | 536 | 693 | 697 | 680 | 54 | -- |
| Wenatchee Works | 482 | 464 | 409 | 10 | -- | -- | -- | -- | -- |
| Total Employment | 1,058 | 1,025 | 978 | 546 | 693 | 697 | 680 | 54 | -- |
Source: JLARC staff analysis of DOR data and previous JLARC reports on these tax preferences. Alcoa, the parent company of the Wenatchee Works and Intalco Works aluminum smelters, granted permission for JLARC staff to publish this data.
Appendix C: Applicable statutes
This appendix provides the current statutes that govern the tax preferences that comprise this review.
Tax on aluminum smelters.
(1) Upon every person who is an aluminum smelter engaging within this state in the business of manufacturing aluminum; as to such persons the amount of tax with respect to such business is, in the case of manufacturers, equal to the value of the product manufactured, or in the case of processors for hire, equal to the gross income of the business, multiplied by the rate of .2904 percent.
(2) Upon every person who is an aluminum smelter engaging within this state in the business of making sales at wholesale of aluminum manufactured by that person, as to such persons the amount of tax with respect to such business is equal to the gross proceeds of sales of the aluminum multiplied by the rate of .2904 percent.
(3) A person reporting under the tax rate provided in this section must file a complete annual tax performance report with the department under RCW 82.32.534.
(4) This section expires January 1, 2027.
[ 2017 c 135 § 12; 2015 3rd sp.s. c 6 § 502; 2011 c 174 § 301. Prior: 2010 1st sp.s. c 2 § 1; 2010 c 114 § 108; 2006 c 182 § 1; 2004 c 24 § 3.]
SELECTED NOTES:
Effective date—2017 c 135: See note following RCW 82.32.534.
Findings—Tax preference performance statement—2015 3rd sp.s. c 6 §§ 502-506: "(1) The legislature finds that the aluminum industry in Washington employs over one thousand people. The legislature further finds that average annual wages and benefits for these employment positions exceed one hundred thousand dollars and that each of these employment positions indirectly generates an additional two to three jobs within the state. The legislature further finds that the aluminum industry generates substantial taxes for local jurisdictions. The legislature further finds that the aluminum industry was severely impacted by the global economic recession. The legislature further finds that the London metal exchange, where aluminum is traded as a commodity, is extremely volatile and substantially impacts the profitability of the aluminum industry. The legislature further finds that for the aforementioned reasons, the industry continues to struggle with profitability, putting the continued employment of its Washington workforce in jeopardy.
(2)(a) This subsection is the tax preference performance statement for the aluminum industry tax preferences in RCW 82.04.2909, 82.04.4481, 82.08.805, 82.12.805, and 82.12.022, as amended in this Part V. The performance statement is only intended to be used for subsequent evaluation of the tax preference. It is not intended to create a private right of action by any party or be used to determine eligibility for preferential tax treatment.
(b) The legislature categorizes this tax preference as one intended to accomplish the general purposes indicated in RCW 82.32.808(2) (c) and (d).
(c) It is the legislature's specific public policy objective to promote the preservation of employment positions within the Washington aluminum manufacturing industry as the industry continues to grapple with the lingering effects of the economic recession and the volatility of the London metal exchange.
(d) To measure the effectiveness of the exemption provided in this Part V in achieving the specific public policy objective described in (c) of this subsection, the joint legislative audit and review committee must evaluate the changes in the number of statewide employment positions for the aluminum industry in Washington." [ 2015 3rd sp.s. c 6 § 501.]
Credit—Property taxes paid by aluminum smelter.
(1) In computing the tax imposed under this chapter, a credit is allowed for all property taxes paid during the calendar year on property owned by a direct service industrial customer and reasonably necessary for the purposes of an aluminum smelter.
(2) A person claiming the credit under this section is subject to all the requirements of chapter 82.32 RCW. A credit earned during one calendar year may be carried over to be credited against taxes incurred in the subsequent calendar year, but may not be carried over a second year. Credits carried over must be applied to tax liability before new credits. No refunds may be granted for credits under this section.
(3) Credits may not be claimed under this section for property taxes levied for collection in 2027 and thereafter.
(4) A person claiming the credit provided in this section must file a complete annual tax performance report with the department under RCW 82.32.534.
[ 2017 c 135 § 18; 2015 3rd sp.s. c 6 § 503; 2011 c 174 § 302. Prior: 2010 1st sp.s. c 2 § 2; 2010 c 114 § 118; 2006 c 182 § 2; 2004 c 24 § 8.]
Exemptions—Personal property used at an aluminum smelter.
(1) A person who has paid tax under RCW 82.08.020 for personal property used at an aluminum smelter, tangible personal property that will be incorporated as an ingredient or component of buildings or other structures at an aluminum smelter, or for labor and services rendered with respect to such buildings, structures, or personal property, is eligible for an exemption from the state share of the tax in the form of a credit, as provided in this section. A person claiming an exemption must pay the tax and may then take a credit equal to the state share of retail sales tax paid under RCW 82.08.020. The person must submit information, in a form and manner prescribed by the department, specifying the amount of qualifying purchases or acquisitions for which the exemption is claimed and the amount of exempted tax.
(2) For the purposes of this section, "aluminum smelter" has the same meaning as provided in RCW 82.04.217.
(3) A person claiming the tax preference provided in this section must file a complete annual tax performance report with the department under RCW 82.32.534.
(4) Credits may not be claimed under this section for taxable events occurring on or after January 1, 2027.
[ 2017 c 135 § 29; 2015 3rd sp.s. c 6 § 505; 2011 c 174 § 305. Prior: 2010 1st sp.s. c 2 § 4; 2010 c 114 § 128; 2009 c 535 § 620; 2006 c 182 § 4; 2004 c 24 § 11.]
Exemptions—Personal property used at an aluminum smelter.
(1) A person who is subject to tax under RCW 82.12.020 for personal property used at an aluminum smelter, or for tangible personal property that will be incorporated as an ingredient or component of buildings or other structures at an aluminum smelter, or for labor and services rendered with respect to such buildings, structures, or personal property, is eligible for an exemption from the state share of the tax in the form of a credit, as provided in this section. The amount of the credit equals the state share of use tax computed to be due under RCW 82.12.020. The person must submit information, in a form and manner prescribed by the department, specifying the amount of qualifying purchases or acquisitions for which the exemption is claimed and the amount of exempted tax.
(2) For the purposes of this section, "aluminum smelter" has the same meaning as provided in RCW 82.04.217.
(3) A person reporting under the tax rate provided in this section must file a complete annual tax performance report with the department under RCW 82.32.534.
(4) Credits may not be claimed under this section for taxable events occurring on or after January 1, 2027.
[ 2017 c 135 § 29; 2015 3rd sp.s. c 6 § 505; 2011 c 174 § 305. Prior: 2010 1st sp.s. c 2 § 4; 2010 c 114 § 128; 2009 c 535 § 620; 2006 c 182 § 4; 2004 c 24 § 11.]
Natural or manufactured gas—Use tax imposed—Exemption.
(1) A use tax is levied on every person in this state for the privilege of using natural gas or manufactured gas, including compressed natural gas and liquefied natural gas, within this state as a consumer.
(2) The tax must be levied and collected in an amount equal to the value of the article used by the taxpayer multiplied by the rate in effect for the public utility tax on gas distribution businesses under RCW 82.16.020. The "value of the article used" does not include any amounts that are paid for the hire or use of a gas distribution business as defined in RCW 82.16.010(2) in transporting the gas subject to tax under this subsection if those amounts are subject to tax under that chapter.
(3) The tax levied in this section does not apply to the use of natural or manufactured gas delivered to the consumer by other means than through a pipeline.
(4) The tax levied in this section does not apply to the use of natural or manufactured gas if the person who sold the gas to the consumer has paid a tax under RCW 82.16.020 with respect to the gas for which exemption is sought under this subsection.
(5)(a) The tax levied in this section does not apply to the use of natural or manufactured gas by an aluminum smelter as that term is defined in RCW 82.04.217 before January 1, 2027.
(b) A person claiming the exemption provided in this subsection (5) must file a complete annual tax performance report with the department under RCW 82.32.534.
(6) The tax imposed by this section does not apply to the use of natural gas, compressed natural gas, or liquefied natural gas, if the consumer uses the gas for transportation fuel as defined in RCW 82.16.310.
(7) The tax levied in this section does not apply to the use of natural or manufactured gas by a silicon smelter as that term is defined in RCW 82.16.315.
(8) There is a credit against the tax levied under this section in an amount equal to any tax paid by:
(a) The person who sold the gas to the consumer when that tax is a gross receipts tax similar to that imposed pursuant to RCW 82.16.020 by another state with respect to the gas for which a credit is sought under this subsection; or
(b) The person consuming the gas upon which a use tax similar to the tax imposed by this section was paid to another state with respect to the gas for which a credit is sought under this subsection.
(9) The use tax imposed in this section must be paid by the consumer to the department.
(10) There is imposed a reporting requirement on the person who delivered the gas to the consumer to make a quarterly report to the department. Such report must contain the volume of gas delivered, name of the consumer to whom delivered, and such other information as the department may require by rule.
(11) The department may adopt rules under chapter 34.05 RCW for the administration and enforcement of sections 1 through 6, chapter 384, Laws of 1989.
[ 2017 3rd sp.s. c 37 § 707; (2017 3rd sp.s. c 37 § 706 expired January 1, 2018); 2017 c 135 § 27; 2015 3rd sp.s. c 6 § 506; 2014 c 216 § 304; 2011 c 174 § 304. Prior: 2010 1st sp.s. c 2 § 5; 2010 c 114 § 127; 2006 c 182 § 5; 2004 c 24 § 12; 1994 c 124 § 9; 1989 c 384 § 3.]
Credit—Sales of electricity or gas to an aluminum smelter.
(1) A person who is subject to tax under this chapter on gross income from sales of electricity, natural gas, or manufactured gas made to an aluminum smelter is eligible for an exemption from the tax in the form of a credit, if the contract for sale of electricity or gas to the aluminum smelter specifies that the price charged for the electricity or gas will be reduced by an amount equal to the credit.
(2) The credit is equal to the gross income from the sale of the electricity or gas to an aluminum smelter multiplied by the corresponding rate in effect at the time of the sale for the public utility tax under RCW 82.16.020.
(3) The exemption provided for in this section does not apply to amounts received from the remarketing or resale of electricity originally obtained by contract for the smelting process.
(4) For the purposes of this section, "aluminum smelter" has the same meaning as provided in RCW 82.04.217.
[ 2004 c 24 § 13.]
Credit—Sales of electricity or gas to an aluminum smelter.
(1) A person who is subject to tax under this chapter on gross income from sales of electricity, natural gas, or manufactured gas made to an aluminum smelter is eligible for an exemption from the tax in the form of a credit, if the contract for sale of electricity or gas to the aluminum smelter specifies that the price charged for the electricity or gas will be reduced by an amount equal to the credit.
(2) The credit is equal to the gross income from the sale of the electricity or gas to an aluminum smelter multiplied by the corresponding rate in effect at the time of the sale under this chapter.
(3) The exemption provided for in this section does not apply to amounts received from the remarketing or resale of electricity originally obtained by contract for the smelting process.
[ 2004 c 24 § 9.]
Exemptions—Sales of carbon and similar substances that become an ingredient or component of anodes or cathodes used in producing aluminum for sale.
The tax levied by RCW 82.08.020 shall not apply to sales of carbon, petroleum coke, coal tar, pitch, and similar substances that become an ingredient or component of anodes or cathodes used in producing aluminum for sale.
[ 1996 c 170 § 1.]
Exemptions—Use of carbon and similar substances that become an ingredient or component of anodes or cathodes used in producing aluminum for sale.
The provisions of this chapter shall not apply in respect to the use of carbon, petroleum coke, coal tar, pitch, and similar substances that become an ingredient or component of anodes or cathodes used in producing aluminum for sale.
[ 1996 c 170 § 2.]
"Manufacturer."
(1) Except as otherwise provided in this section, "manufacturer" means every person who, either directly or by contracting with others for the necessary labor or mechanical services, manufactures for sale or for commercial or industrial use from his or her own materials or ingredients any articles, substances, or commodities.
(2)(a) When the owner of equipment or facilities furnishes, or sells to the customer prior to manufacture, all or a portion of the materials that become a part or whole of the manufactured article, the department shall prescribe equitable rules for determining tax liability.
(b) A person who produces aluminum master alloys is a processor for hire rather than a manufacturer, regardless of the portion of the aluminum provided by that person's customer. For the purposes of this subsection (2)(b), "aluminum master alloy" means an alloy registered with the aluminum association as a grain refiner or a hardener alloy using the American national standards institute designating system H35.3.
(3) A nonresident of this state who is the owner of materials processed for it in this state by a processor for hire shall not be deemed to be engaged in business in this state as a manufacturer because of the performance of such processing work for it in this state.
(4) The owner of materials from which a nuclear fuel assembly is made for it by a processor for hire shall not be subject to tax under this chapter as a manufacturer of the fuel assembly.
(5) For purposes of this section, the terms "articles," "substances," "materials," "ingredients," and "commodities" do not include digital goods.
[ 2009 c 535 § 405; 1997 c 453 § 1; 1971 ex.s. c 186 § 1; 1961 c 15 § 82.04.110. Prior: 1955 c 389 § 12; prior: 1949 c 228 § 2, part; 1945 c 249 § 1, part; 1943 c 156 § 2, part; 1941 c 178 § 2, part; 1939 c 225 § 2, part; 1937 c 227 § 2, part; 1935 c 180 § 5, part; Rem. Supp. 1949 § 8370-5, part.]
Appendix D: Study questions
This study aimed to answer the following questions, which were presented to JLARC in September 2023 (view here).
- To what extent have the preferences been used since JLARC's 2015 review? How much have beneficiaries saved?
- How has employment in Washington's aluminum manufacturing industry changed?
- What are the racial and ethnic characteristics of those that benefit from the preferences and their employees?
- What local, national, and international factors may have contributed to changes in Washington's aluminum manufacturing industry?
Methods
The methodology JLARC staff use when conducting analyses is tailored to the scope of each study, but generally includes the following:
- Interviews with stakeholders, agency representatives, and other relevant organizations or individuals.
- Site visits to entities that are under review.
- Document reviews, including applicable laws and regulations, agency policies and procedures pertaining to study objectives, and published reports, audits or studies on relevant topics.
- Data analysis, which may include data collected by agencies and/or data compiled by JLARC staff. Data collection sometimes involves surveys or focus groups.
- Consultation with experts when warranted. JLARC staff consult with technical experts when necessary to plan our work, to obtain specialized analysis from experts in the field, and to verify results.
The methods used in this study were conducted in accordance with Generally Accepted Government Auditing Standards.
More details about specific methods related to individual study objectives are described in the body of the report under the report details tab or in technical appendices.
Appendix E: Audit authority
The Joint Legislative Audit and Review Committee (JLARC) works to make state government operations more efficient and effective. The Committee is comprised of an equal number of House members and Senators, Democrats and Republicans.
JLARC's nonpartisan staff auditors, under the direction of the Legislative Auditor, conduct performance audits, program evaluations, sunset reviews, and other analyses assigned by the Legislature and the Committee.
The statutory authority for JLARC, established in Chapter 44.28 RCW, requires the Legislative Auditor to ensure that JLARC studies are conducted in accordance with Generally Accepted Government Auditing Standards, as applicable to the scope of the audit. This study was conducted in accordance with those applicable standards. Those standards require auditors to plan and perform audits to obtain sufficient, appropriate evidence to provide a reasonable basis for findings and conclusions based on the audit objectives. The evidence obtained for this JLARC report provides a reasonable basis for the enclosed findings and conclusions, and any exceptions to the application of audit standards have been explicitly disclosed in the body of this report.
Appendix F: Study process
View guide to JLARC Tax Preference Reviews here.
JLARC members on publication date
SenatorsBob Hasegawa Liz Lovelett Mark Mullet, Chair Ann Rivers Jesse Salomon Shelly Short Lynda Wilson, Secretary Keith Wagoner |
RepresentativesEmily Alvarado Stephanie Barnard April Berg Jake Fey Keith Goehner Stephanie McClintock Ed Orcutt, Vice Chair Gerry Pollet, Assistant Secretary |
Citizen Commission for Performance Measurement of Tax Preferences
Voting membersDr. Grant D. Forsyth, Chair Andi Nofziger-Meadows, Vice Chair Ronald L. Bueing Dr. Sharon Kioko James Orr |
Non-voting membersMark Mullet, JLARC Chair Pat McCarthy, State Auditor |