Washington currently ranks fifth in the nation for innovation related to research and development (R&D), according to a 2016 study by the Milken Institute State Technology and Science Index. However, in a 2015 study by Chief Executive Networks, Washington failed to make the top ten states in terms of technology job growth. The situation is similar with the state’s life science, which has suffered employment decline since 2012 after a decade of strong job growth.
A recent report on the state’s life science industry concluded that “Washington continues to be among the best in the nation in attracting federally-funded research; however, the state lags in translating that research into industry-led R&D and related job growth.”
Silicon Valley Of Space
Washington lawmakers have introduced legislation to change that, while also aiding the state’s commercial-space business. In recent years space entrepreneurs, such as Amazon CEO Jeff Bezos’s Blue Origin, have appeared in the Puget Sound region. Last year, Associate Director Saadia Pekkanen at the University of Washington (UW) Henry M. Jackson School of International Studies referred to the region as the “the Silicon Valley for space.”
HB 1894 would restoring expired tax incentives originally created in 1994. It would make available gross business receipts (B&O) tax credits for companies engaging in qualified R&D. It would also provide state and local sales tax deferrals for high-tech R&D facilities, and certain types of machinery and equipment. These incentives would start next year and last until 2027.
The legislation is backed by top-ranking House lawmakers from both parties and received a unanimous “do pass” recommendation on March 9 from the House Technology and Economic Development Committee. Industry leaders testifying at a February 9 public hearing stressed the need for tax relief in order to continue their work.
“We’re at a critical point in the industry,” Marc Cummings said. He is the Vice President of Public Policy and External Affairs for Life Science Washington.
Keeping Washington Industry Competitive
“Public policy does make a big difference here,” he added. “The good news is, we don’t need to out-compete other regions in terms of the size of these incentives, but we do need a baseline in place that keeps the industry competitive. Bringing these tax credits back is absolutely essential to the industry.”
Also in support of the bill is the UW School of Medicine, which receives the most National Institutes of Health (NIH) research funding of any public university in the country. At the February 8 public hearing, UW Government Relations Director Ian Goodhew said the previous tax credits helped with the creation of several R&D facilities in Seattle.
The bill is sponsored by House Majority Leader Rep. Pat Sullivan (D-47) at the request of the Office of Financial Management. It is cosponsored by Minority Floor Leader J.T. Wilcox (R-2) and State Reps. Vandana Slatter (D-48), Drew Stokesbary (R-31), Vincent Buys (R-42), Majority Floor Leader and Vice Chair Gael Tarleton (D-36), Tana Senn (D-41), Larry Haler (R-8), Roger Goodman (D-45), and Derek Stanford (D-1).
At the March 9 executive session, Chair Rep. Jeff Morris (D-40) said that “this is a reasonable way to focus the limited resources we have in this policy area for bioscience. We’ve also had hearings here about the nascent organic growth going on in our space exploration community, and I think this is a reasonable step for us to help them in their growth as well.”
Committee member State Rep. Mark Harmsworth (R-44) agreed. “I think this is going to definitely encourage businesses, particularly the biometric-type businesses in our state.”
Reviving Expired Business Tax Credits
Under HB 1894, businesses claiming a tax credit or deferral for commercial-space must be registered with the state Department of Revenue be “actively engaged in advanced spacecraft manufacturing,” according to the bill report. Businesses could claim the B&O credit if their R&D spending meeting the bill’s criteria exceeded 0.92 percent of their taxable revenue. Sales tax deferrals would be limited to $1 million per project. The Joint Legislative Audit and Review Committee (JLARC) would be tasked with evaluating the tax incentives’ impact on industry job growth before state lawmakers decide whether to renew them after 2027.
Longer Road To Profit-Yielding
These credits are vital for new companies, says Margaret McCormick, Ph.D. She is the Chief Executive Officer for Matrix Genetics, a Seattle-based biotechnology company focused on producing products from algae. At the February 8 public hearing she told committee members that “the first thing as a life science company you do is buy about a million dollars’ worth of equipment.” She added that without the tax credits “you have to pay B&O tax, even though profitability is a long, long time away and the investment and equipment (costs) are so great.”
Other HB 1894 proponents such as Mila Lobanova further emphasized the additional time and investment needed before their companies can finally sell their product and turn a profit. She is Senior Vice President of Finance and Operations for Blaze Bioscience, company currently developing cancer-treatment technology for children.
“We’re a privately held company and financed by individual investors as well as grants and research collaboration,” she said. “We’re not profitable, and we’re not expected to be profitable until we bring our technology to the market.”
Jean Leonard is a lobbyist for the Washington Space Partnership, a three-company coalition. She told committee members they’re exploring the possibility of asteroid mining.
“As you all know, when we have tax incentives we can continue to create and develop this nascent industry in Washington state,” she said.