AWB: Hi-Tech Tax Incentives at Risk

Source:  Association of Washington Business Alert, October 25, 2011.

Unless lawmakers act, things are about to change dramatically in Washington for job opportunities to help our economy recover and grow.  Washington prides itself on our success in attracting and retaining the technology industry among the at least 35 states competing for these high-wage jobs.  Whether its computing, devices and materials or biotechnology and environmental technology – these efforts benefit society world-wide and create a significant ripple effect for jobs and opportunity.

Historically, states use a low tax base, tax incentives or a combination of these to lure the high tech industry.  The incentives Washington relies on since 1994 are set to expire in 2015 and are no longer funded beyond that date.  484 firms claimed the B&O tax credit during calendar year 2009. These companies will immediately experience a tax increase when the incentive expires.Not much of a business model for the Department of Commerce to convince potential and current customers to be in Washington!

[See a list of cleantech organizations that benefited from this law here.]

High Tech Equal High Wages

Labor groups and some democrat lawmakers are arguing to end tax incentives without realizing their benefits. This comes despite annual reports from companies who utilize these incentives that document increased employment with high wages, health care and retirement benefits. For example, 84% of the jobs in this industry are full-time. Nearly 68,000 of these jobs earn more than $60,000 a year and a mere 3400 of these jobs earn less than $30,000 with benefits.  Heightened scrutiny is already on these companies through annual reports and public disclosure and the results are self-explanatory.

In the 2011 session, lawmakers passed Engrossed Substitute House Bill (ESHB) 2088 to allow businesses to voluntarily donate all or part of their high technology credit to the Opportunity Expansion Program. This became effective June 6, 2011.  While this is certainly an option, it should not be seen by lawmakers as a viable approach for attracting, retaining and growing this important industry.

Research shows that the R&D tax credit has been a cost-effective policy tool. For example, a Congressional Office of Technology Assessment concluded “For every dollar lost in tax revenue, the R&D tax credit produces a dollar increase in reported R&D spending, on the margin.” Other studies have found even greater benefits, with the economic benefit-to-tax cost ratio between 1.3 and 2.0.

“Improve America’s Competiveness…Make the Research and Development tax credit permanent so that firms can rely on it when making decisions to invest in domestic R&D over multi-year timeframes.”  President Obama

The reason to attract these jobs is clear.  The high technology industry is a business that routinely or periodically engages in:

  • Designing, developing or formulating new/improved products
  • Functionally enhancing existing products or formulas
  • Improving production/fabrication processes (e.g., improving through-put, decreasing labor, increasing yield, improving quality)
  • Developing plans to manufacture engineered/designed products
  • Developing software applications
  • Designing & constructing tooling, molds, dies, & fixtures
  • Prototyping
  • Pursuing production process improvements
  • Assisting customers with technical problem-solving
  • Designing and constructing tooling or fixtures
  • Developing software for internal use or for sale to customers
  • Applying for patents

At the state level, R&D tax credits have the added benefit of boosting the business climate for high-tech investment, and since high-tech jobs pay more than 75 percent more than non-high-tech jobs, this is a good investment. The Joint Legislative Audit Review Committee (JLARC) will conduct a review of this incentive before its expiration; unfortunately, this report may come too late as other states aggressively compete for these high wage-high benefit jobs.  AWB is launching a review of this incentive this fall to submit to lawmakers in the 2012 session. The review will include a comparison of all state R&D incentives, their benefits, and how to improve the incentive to grow jobs. In 2012, we will ask lawmakers to make this incentive permanent because waiting and losing more jobs is not the answer.

How You Can Help:

  1.  Call your legislator at 1-800-562-6000 and tell them don’t wait on protecting the expiring R&D tax incentive.
  2. Donate to AWB’s research fund to bring current data to lawmakers to guide decisions in the 2012 session.

AWB Contact:

For more information please contact Amber Carter at amberc@awb.org. To help the R&D study, make checks payable to AWB c/o R&D Study and send to PO Box 658, Olympia WA 98507. For credit card payments, contact AWB at 1-800-521-9325.

Links:

http://www.itif.org/files/ExpandR&D.pdf

Improve America’s Competitiveness http://www.whitehouse.gov/agenda/technology/ <http://www.whitehouse.gov/agenda/technology/>

High Technology R&D Tax Incentive Study: 2003 2000 1997 1994 http://dor.wa.gov/Content/AboutUs/StatisticsAndReports/2003/High_Tech_RandD_Study_2003/default.aspx

Descriptive Statistics for Select Tax Incentives: 2010 2009 2008 2007 2006 2005 http://dor.wa.gov/docs/reports/2010/DescriptiveStatistics2010.pdf

DOR High Technology Industry Fact Sheet

http://dor.wa.gov/docs/pubs/excisetax/incentprogs/hitechfortxdeferral.pdf

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