Hello Readers,

By now you are aware of the large gap between projected revenues and projected spending that state legislators have to close when writing the state operating budget. The deficit is now over $5 billion and could reach $6 billion by next year. While it is heartening to hear Gov. Gregoire come out against tax increases, it is quite likely that the legislature will be looking for new sources of tax revenue to close the budget gap.

Often, lawmakers look to "close tax loopholes" when faced with budget problems. What the tech industry should be concerned about is that state policymakers will go after tax incentives for R&D that are widely used by all types of tech companies in our state.

By way of background the state offers two tax incentives for R&D. One is the B&O credit and the other is the sales tax deferral/exemption. The B&O credit can be taken if an entity has taxable revenue and performs qualified R&D in Washington. The sales tax deferral/exemption is used to defer sales tax on the construction of a R&D facility or for qualified R&D equipment. You can learn more about both of these incentives on the Dept. or Revenue website, here:  http://dor.wa.gov/content/FindTaxesAndRates/TaxIncentives/IncentivePrograms.aspx

Here is a list of those who have used tax credits:  https://fortress.wa.gov/dor/efile/content/doingbusiness/myaccount/TaxIncentiveReporting/rptAnnualSurveyPDList.aspx?TaxYear=2007&TIGrp=3

DOR annually sends a report on all tax incentives to the fiscal committees of the legislature. This report, which is attached, details the use of the B&O credit and the sales tax deferral for R&D. In it you will see that 508 separate entities took advantage of the B&O credit, saving $19.8 million in B&O taxes. This averages out to $39,000 per entity. The maximum credit that can be taken is $2 million. There is a lot of other interesting information about the B&O credit for R&D in the report.

The sales tax deferral/exemption does not have a cap on how much sales tax can be deferred so the amount of tax savings is quite substantial at $127.3 million for 2007. However, that equates to approximately $1.4 billion in construction and equipment purchases, which generates jobs, additional economic activity and tax revenue for local and state government. Just to keep it in perspective, Microsoft employees alone generate over $120 million a year in state and local sales tax. 91 separate entities use this R&D tax incentive, including such non-profits such as the Fred Hutchinson Cancer Research Center and the Benaroya Research Institute at Virginia Mason.

The WTIA lobbies on behalf of the tech industry in Olympia and we defend these valuable tax incentives on a regualr basis. Next year will be more difficult with the budget gap looming. We need your membership and involvement to ensure that lawmakers know how important these are to your survival and success.