Leveling The Playing Field For Manufacturing Businesses

Leveling The Playing Field For Manufacturing Businesses
SB 5888 would reduce the general business and occupation (B&O) tax rate for Washington manufacturers. Proponents argue the measure would strengthen competitiveness for those businesses and encourage job growth. Photo: Erikabarker

A new Senate bill would encourage competitiveness and promote job creation for smaller and medium-sized manufacturing businesses by reducing their general business and occupation (B&O) tax rate. That is according to industry stakeholders testifying on SB 5888 during its first public testimony in front of the Senate Ways and Means Committee this week. However, one key lawmaker has expressed reservations about the change in light of recently announced industry job dismissals.

According to the National Association of Manufacturer’s website, there is a $1.81 economic return for every dollar spent on manufacturing nationally. In 2015, manufacturing workers earned $81,289 annually, on average, and 92 percent were eligible for health insurance benefits.

Washington businesses pay a B&O gross receipts tax rate depending on the company’s classification of operations, which is then taken as a percentage from its gross income. Although the current general B&O rate for manufacturing is 0.484 percent, it varies greatly depending on a business’ specification.

According to the bill report, the B&O rate is 0.294 percent for manufacturing timber or wood products; 0.138 percent for wood biomass fuel manufacturing; and 0.275 percent for manufacturing semiconductor materials.

SB 5888 would reduce the general manufacturing B&O tax rate and the processing for hire B&O tax rate to 0.2904 percent.

Considering The ‘Backbone of Our Economy’

Prime sponsor is State Sen. Michael Baumgartner (R-6). Cosponsors include State Sens. Steve Hobbs (D- 44), Dean Takko (D-19), Mike Padden (R-4), and President Pro Tempore Tim Sheldon (D-35).

“Wouldn’t it be wonderful if we could incentivize all our manufacturers, even the little guys, the medium and small manufacturers” who “are the backbone of our economy. If we extend that same tax rate this legislature did in such a hurried fashion because it was so important, we could do that for the big guys, but also do that for the little guys,” Baumgartner told the committee Wednesday, April 19.

“A couple years ago, we all wanted more aerospace engineering and manufacturing in this state realizing that by extending a reduced tax rate for manufacturing for the aerospace industry we could have more aerospace jobs,” he added, referencing SB 5828.

That bill set a tax rate of 0.2904 percent B&O for that sector beginning in 2008. The measure passed the House and Senate with strong majorities.

Treating All Manufacturers Equally 

However, Democratic Assistant Floor Leader Christine Rolfes (D-23) cited concern with lowering the tax rate for more manufacturers, referencing Boeing’s announcement this week to lay off “hundreds of engineering employees” in Washington and other states.

According to Rolfes, Baumgartner spoke to “how these tax breaks were good for business and could create jobs, (yet) here we have the most generous tax package the legislature has ever passed and we still aren’t getting job growth in this state.”

Baumgartner responded, “I think it’s all the more important reason to support the little guys and the medium manufacturers for that same tax rate…we shouldn’t be so reliant on Boeing. Boeing is a great company, aerospace is great for the state, but it shouldn’t be more important than the guy making widgets down the road.”

He added, “Obviously, by reducing this tax rate we will have more medium and small business manufacturing, it will diversify our economy and actually make us safer…right now, we just want to treat everybody fairly and we want to increase manufacturing in this state.”

Supporting Competition, Job Retention

Also in agreement was Bill Stauffacher. He is lobbyist for the Pacific Printing Industries (PPI) Association, representing commercial printers in the northwestern U.S. and Hawaii. He added PPI’s sector is the largest for small business manufacturing in Washington.

“We have competitive pressure from printing industries out of state who routinely have Washington state businesses shop for printing out of state…we also compete with…radio and TV advertising where there is no sales tax on their advertising products, where our direct mail advertising is subject to the retail sales and use taxes in the state.”

He added, “Bottom line for us, we are supportive of anything that can be done to reduce that margin to help us compete and keep those jobs.”

Also in agreement was Dan Coyne, lobbyist for the Northwest Food Processors Association.

“5888 would help food processors who are not under a preferential right now be more competitive right now in the marketplace.”

According to Eric Lohnes, the bill would bolster the efforts of existing manufacturers in the state. He is Government Affairs Director for the Association of Washington Business.

“If there is an opportunity to provide some relief for manufacturing in Washington, such as this bill provides, we think this is a wise step in the right direction…these are businesses that compete both nationally and globally and it’s important that they operate in a cost-competitive environment,” added Lohnes.

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