Are Washington’s tax policies going far enough to help the state’s economically distressed communities?
In the summer of 2010, right at the lowpoint of the Great Recession, Washington State implemented a tax incentive program intended to bolster manufacturing activity in economically distressed regions of the state. The program offers sales and use tax deferrals to firms engaged in manufacturing and R&D activities, provided they occur within “high unemployment counties” or so-called Community Empowerment Zones (CEZs).
Some who live in the qualifying counties question the basis for limiting tax abatements to manufacturing and research. While expressing appreciation for the tax incentives extended by the state to Clallam and other high unemployment counties, Bill Greenwood, Executive Director of the Clallam County Economic Development Corporation, commented that “there’s little reason why the incentives should not also flow to service providers that are expanding and hiring.” In Clallam County, which currently qualifies for the incentives, the unemployment rate in September 2015 was 7.7 percent. Greenwood used the example of a local veterinarian expanding her practice by building a new hospital. “She’s going to increase the number of employees by 200%. She’ll need to pay huge construction costs and purchase lots of equipment, but she’s ineligible for incentives that would save her over ten percent of her costs. That’s big money. It’s more than the profit margin of a lot of business around here.”
If an employer wants to create a new facility that will support jobs in a distressed county, why should the available tax incentives exclude them?
Greenwood sees an opportunity to spread awareness of the programs to those who might want to take advantage of it. “We have to get the word out face-to-face,” Greenwood said, commenting that he speaks to many business owners who are not at all aware of the available savings through these programs.
So far this “qualifying counties” program has received less participation than the much broader “rural county” program which it replaced. 18 companies claimed their sales tax deferral in the 2013 calendar year. As of 2014, the cumulative impact of these incentives in terms of foregone sales tax revenue was $4.7 million. Companies receiving the deferral employed 3,437 people.
Entrepreneurs can discover available incentives by speaking with their local EDCs or by reviewing the materials made available by state revenue and commerce agencies. [See resource listing at bottom of this post]
High Unemployment Counties
Qualifying counties are those counties with an unemployment rate at least 20 percent higher than the statewide rate based on a three year average published by the Employment Security Department. Via the Department of Revenue: “Businesses making investment decisions need to be aware that the list of eligible counties is updated every two years.” The current list of eligible counties has been in place since July 1, 2014 and is set to expire on June 30th, 2016. It includes 15 counties:
- Clallam County
- Clark County
- Columbia County
- Cowlitz County
- Ferry County
- Grays Harbor County
- Klickitat County
- Lewis County
- Mason County
- Pacific County
- Pend Oreille County
- Skamania County
- Stevens County
- Wahkiakum County
- Yakima County
Community Empowerment Zones
CEZs are areas within cities, designated by the Department of Commerce, that suffer from high unemployment and low incomes relative to the county in which they’re situated. The following cities have designated CEZs: Bremerton, Duwamish, Spokane, Tacoma, Yakima, and White Center.
One tax exemption is exclusive to CEZs. It extends Sales & Use Tax deferrals businesses that establish a corporate headquarters within a CEZ. The program has yet to attract any firms.
Some tax incentives target a broad “rural” category that includes 31 of Washington’s 39 counties. As of July 1, 2010, only 8 counties are not classified as rural counties: Benton, Clark, King, Kitsap, Pierce, Snohomish, Spokane, and Thurston.
Businesses located in rural counties (as well as CEZs) qualify for B&O tax credits when they hire new employees. But, as with the tax abatements for “high unemployment counties,” the benefit only applies to manufacturing and research activities. Rural counties also qualify for server farm tax exemptions. The exemptions apply to purchases of server equipment, power infrastructure and the labor to install them
- Department of Revenue. Incentive Programs: Deferrals, Exemptions, and Credits.
- Department of Revenue. Descriptive Statistics for Tax Incentive Programs: 2014 Report to the Legislature. December 1, 2014.
- Department of Revenue. Synopsis of Tax Incentives. September 29, 2015.
- Department of Revenue. Tax Incentives Overview. January 2015.
- Washington State Department of Commerce. Business Services.