Lowry signs bill to extend manufacturing tax incentives

COSMOPOLIS - Washington's ability to attract new manufacturers to the state got another boost today when Gov. Mike Lowry signed into law a measure that will exempt them from paying sales or use taxes on repair and replacement parts and labor on machinery and equipment.

During a ceremony at the Weyerhaeuser pulp mill in Cosmopolis, Lowry said Senate Bill 6656 which is expected to save Washington manufacturers about $20 million a year is the latest in a series of targeted tax incentives that he has proposed to help both new and established companies.

"I don't think anyone can question that Washington's tax incentives are contributing mightily to this state's economic strength, continuing diversification and job growth," Lowry added. "The bill I'm signing today will help us continue along that very successful path."

The new law extends the sales and use tax exemption on the purchase of manufacturing machinery and equipment that was enacted at the governor's request in 1995. Both the initial legislation and the extension were recommended by a manufacturing task force that concluded that Washington's high sales tax was a significant barrier to capital investment in this state.

Although much of the focus of last year's measure has been on the new companies it has helped attract including Intel, BHP Steel and most recently a $1.2 billion investment by Taiwan Semiconductor Manufacturing Company the governor said the sales tax exemption also substantially benefits existing companies that need to upgrade and expand to remain competitive and preserve family wage jobs.

For example, Lowry said, the Weyerhaeuser mill in Cosmopolis, which produces microcellulose used in food, filtration, film and fabric products, provides 320 jobs that pay an average of $38,000 a year.

"Any tax incentive that helps small and large companies alike afford to keep their doors open will help preserve jobs," Lowry said. "This measure tax incentive will make it easier for Washington manufacturers to stay in business, compete for business, and maintain a strong workforce."

Lowry noted that the new law will move Washington up to fourth from fifth among 12 competing states in terms of the 10-year tax burden imposed on pulp and paper mills and lumber and wood manufacturers. Other industries, including the electrical equipment, instruments and petroleum sectors, also will benefit, he said.

"The manufacturing machinery and equipment exemptions we adopted last year lowered a major barrier to capital investment in this state, and put us back on the economic development map," Lowry said. "In the last year, six major manufacturers have announced plans to invest more than $3 billion in investment, and thousands of existing manufacturers are investing in upgrades and expansions. And I think we've only seen the beginning."

The new law applies to repairs and replacement parts, including labor and services related to installing, repairing, cleaning, altering or improving machinery and equipment. It will take effect June 6, 1996.

Lowry is scheduled to take action Friday on a related bill, House Bill 2484, that would extend the sales and use tax exemption to machinery and equipment used for research and development by manufacturers and processors for hire.

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For more information, contact the Governor's Communications Office at 360-753-6790.

Targeted Economic Development Tax Incentives, 1994-1996

High-Tech Incentives
Companies engaged in research and development in five high-tech areas are allowed B&O tax credits for qualifying R&D expenditures and can defer paying sales or use tax on the construction of R&D and pilot-scale manufacturing facilities. Qualifying areas include biotechnology, electronic device technology, advanced materials, advanced computing and environmental technology.Results: In 15 months, 44 companies apply for construction of $610 million in facilities, and 139 companies apply for $12 million in B&O tax credits based on $584 million in qualifying R&D. Job creation impact to be determined but should reach into the thousands based on preliminary review.
Distressed Areas Incentives
Existing program is enhanced to exempt, rather than just defer, sales or use taxes on the purchase of machinery, equipment and facilities used for manufacturing. Program covers 22 distressed counties and five new community empowerment zones. Taxes are deferred and then forgiven if program requirements, including the creation of at least one new job for each $750,000 of qualifying investment, is met.Results: In a single year, 121 companies make $331 million in investments, creating 3,355 new jobs in areas of high unemployment (more companies than in the first nine years of the distressed areas program combined). After program is further enhanced in July 1995, 59 more companies announce $426 million in investments and thousands of additional jobs.
Manufacturing Tax Incentives
Machinery and equipment directly used in manufacturing is exempted from sales and use taxes. The 1994 sales tax deferral on high-tech R&D and pilot-scale manufacturing facilities becomes an exemption. Jobs creation requirement is eliminated from the distressed areas legislation, except under certain circumstances such as companies hiring from community empowerment zones or from adjoining distressed counties.Results: Six major manufacturers, including Intel, SEH America, Matsushita, BHP Steel, Ponderosa Fibres, Taiwan Semiconductor and Hewlett Packard, announce plans for $3.2 billion in investments and the creation of up to 9,000 new jobs. At least 10,000 others invest in machinery such as printing presses, laser-powered cutting devices and advanced milling machines. Overall job creation should easily meet projections of 45,000 new jobs within nine years.
Manufacturing R&D Incentives
The sales and use tax exemption on manufacturing machinery and equipment is extended to cover items used for research and development into new products. Washington further reduces its barriers to new investment while attracting industries that pay among the highest wages.
Manufacturing Repairs and Replacement
The sales and use tax exemption on manufacturing machinery and equipment is extended to cover the material and labor costs of repairing and installing replacement parts on machinery and equipment directly used for manufacturing. The economic life of factories is extended, preserving existing jobs.