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Washington Basic Business Taxes

Feb/Mar 09
Corporate income tax:
The state levies no corporate income tax.

Unitary, inventory tax:
The state has no unitary or inventory tax.

Income tax:
There is no personal income tax in the state.

Interest, dividend, and capital gains taxes:
There are no interest, dividend, or capital gains taxes.

Business and Occupation Tax:
Washington State's business and occupation tax (B&O) is based on gross receipts. Virtually all businesses are subject to B&O tax, including corporations, partnerships, sole proprietors, and nonprofit corporations. The only major exempt activities are farming and the sale or rental of real estate.

Business & Occupation Tax Credit Incentives:
• High Technology Business & Occupation Credit :
Who: Advanced computing, advanced materials, biotechnology, electronic device technology, environmental technology.
What: An annual credit of up to $2 million for high technology businesses that perform R&D in specific high technology categories.
• Business & Occupation Tax Credit for New Jobs:
Who: Manufacturing, R&D, or computer service firm.
What: A $2,000 or $4,000 (if wages exceed $40,000) credit against the business and occupation tax is available for each new employment position created and filled by specific industries in rural counties and community empowerment zones.
• Business & Occupation Tax Credit for Job Training Services:
Who: Manufacturers, R&D (excluding light and power businesses) that locate in qualifying rural counties or community empowerment zones.
What: 20 percent of the cost spent on job training. Limited to $5,000 annually.
• Business & Occupation Tax Credit for New Jobs in Programming or Software Manufacturing:
Who: Software manufacturers or programming businesses in rural counties.
What: Eligible for $1,000 per year for every new employment position, up to five years.
• Information Technology Help Desk Services Business & Occupation Tax Credit:
Who: Help desk services are telephone or electronic communications supplying technical assistance for computer software and hardware.
What: Third party help desk service firms in rural counties are eligible for a 100 percent tax credit on income received.

International Services Business & Occupation Tax Credit:
Who: Firms engaged in international services.
What: May receive a tax credit of $3,000 per year for every new employment position, for up to five years. Firms must be located in community empowerment zones or designated contiguous groups of census tracks within the city or cities.

Retail Sales and Use Tax:
The state sales tax is 6.5 percent. Local governments may also levy the sales tax, adding 0.5 to 1.7 percent to the base rate. In addition to most tangible products, the following services are subject to retail sales tax: cleaning, repairing, altering or improving real property, and landscaping. Manufacturers, high-tech firms, warehousing and distribution firms locating or expanding in distressed areas may qualify for a Sales and Use Tax Exemption.

Sales and Use Tax Exemptions:
• Manufacturing Machinery Sales & Use Tax Exemption:
Who: Manufacturers, processors for hire, manufacturers who perform R&D.
What: Exempts sales and use tax on machinery and equipment used directly in manufacturing or research operations. Includes installation, maintenance, and repairs in most cases.
• Rural County Sales & Use Tax Deferral:
Who: Manufacturers, R&D (excluding light and power businesses) that locate in qualifying rural counties or distressed areas.
What: Defers or waives sales and use tax on machinery and equipment, cost of expansion or modernization of existing facility if floor space or production capacity is increased; construction costs for qualified leased building.
• High-Technology Sales & Use Tax Deferral:
Who: Advanced computing, advanced materials, biotechnology, electronic device technology, environmental technology.
What: Defers or waives sales and use tax associated with new R&D or pilot scale manufacturing operations, or expanding, renovating or quipping an existing facility to current operation.
• Electricity Generating Equipment Sales & Use Tax Exemption:
Who: Firms producing energy.
What: Provides a sales and use tax exemption for machinery and equipment used directly in generating electricity using fuel cells, wind, solar or landfill gas energy, and for the labor and services necessary to install such equipment, but only if the purchaser develops a facility capable of generating not less than 200 watts of electricity.

Warehouse Tax Incentive:
Who: Wholesalers, retail distribution centers, third-party warehousers; 200,000 sq ft or greater or grain elevator with at least 1 million bushels storage capacity.
What: Exempts 100 percent of state sales tax associated with construction of qualifying structures; 50 percent exemption for acquisition costs of qualifying equipment.

Custom Computer Software Property Tax Exemption:
Who: Software companies.
What: Software designed for a specific need for a single person or group of persons is exempt from property tax. Included in the definition is modification of canned computer software.

Co-generation & Energy Conservation Public Utility Tax Deduction:
Who: Firms producing energy.
What: A public utility tax deduction is allowed for costs of producing energy through (1) co-generation facilities as defined in RCW 82.35.020 or (2) renewable energy resources such as solar energy, wind energy, hydroelectric energy, geothermal energy, wood and wood wastes, municipal wastes, agricultural products and wastes, and end use waste heat.

Straw Board Base Products Exemption and Credits:
Who: Firms producing energy.
What: Sales and use tax exemptions, property tax exemptions, and business and occupation tax credits for structures and equipment used to reduce field burning of cereal grains and field and turf grass grown seed.

Life Sciences Discovery Research Fund SB 5581:
Known as "Bio 21," the bill is designed to expand biotechnology research by building upon Washington's existing life sciences technology. The Life Sciences Discovery Fund Authority is created to manage a dedicated account in the State Treasury that will be funded by earmarking $350 million in tobacco settlement monies. The Authority must develop strategies to leverage these funds with public and private entities through a grant program. It is expected that the research will result in the creation of thousands of new jobs and health care innovations. Applicants for the grants must meet the following criteria:
• the potential to improve health outcomes and lower health care costs; the potential for leveraging additional funding;
• the potential to provide health care benefits or benefit human learning and development;
• the potential to stimulate health care delivery, biomedical manufacturing, and life sciences related employment in the state;
• the geographic diversity of the grantees within Washington; evidence of potential royalty income and contractual means to recapture such income; and
• evidence of public and private collaboration.

Alternate Energy Development:
A recent report by the Washington State University Energy Program recognized the solar electric industry as one of the state's important growth industries. Two bills passed the legislature which provide incentives that will encourage further development of alternate energy resources within the state:
• Solar Energy Systems SB 5111: Most manufacturing businesses in the state pay the general manufacturing business and occupation (B&O) tax of 0.484 percent times the value of their product. Under the terms of this bill, the B&O tax for businesses manufacturing solar energy systems or the silicon components of these systems is set at a rate equal to the value of the product multiplied by 0.2904 percent until June 30, 2014. Taxes paid in manufacturing these systems are granted as a B&O tax credit.
• SB 5101 Renewable Energy Incentives: Investment cost recovery incentives are authorized under this act to support renewable energy projects. Individuals, businesses, or local governments who generate electricity, on their own property, with an anaerobic digester or a wind or solar energy system may apply to their light and power business for the incentive payment.

Washington State Contact:
Washington State Business and Project Development
Department of Community, Trade and Economic Development
2001 6th Avenue, Suite 2600
Seattle, WA 98121
(206) 256-6100

Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.

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