The state legislature has passed SB 6690, a measure that removes aerospace industry tax incentives in order to avoid possible retaliatory tariffs. The bill cleared the state Senate on March 10 in a 43-5 vote and the House on March 11 with a 73-24 vote.
Floor debate on the issue highlighted not only the growing concerns about the impact of the coronavirus to the state economy but also the division among legislators regarding both the aerospace incentives that were first passed in 2003 and the concept of applying a similar preferential rate for all in-state manufacturers.
“In my district I represent tens of thousands of people who work in the aerospace sector,” bill sponsor and Majority Floor Leader Marko Liias (D-21) told colleagues. “The livelihood of our whole community depends on a healthy aerospace industry here in our state.”
The 2003 tax incentive package was passed to encourage Boeing plane production to continue in Washington. A review last year by the Joint Legislative Audit & Review Committee (JLARC) found that the incentives had accomplished most of their goals, adding that the legislature should clarify the objectives. SB 6690 raises the B&O tax rate from .357 percent to .484 percent. However, the bill allows the current rate to be reinstated if the disputes between the U.S. and the European Union within the World Trade Organization are resolved.
While Liias described the bill as reflecting “a balanced conversation” and lawmakers such as Sen. John Braun (R-20) argued that the incentives have led to increased plane production and a larger aerospace workforce, Majority Caucus Vice Chair Bob Hasegawa (D-11) sponsored an amendment that would have permanently eliminated the preferential tax rate.
He told colleagues on the Senate floor: “We should really evaluate the preference on its merits…learn from lessons in the past and make sure that a preference is well crafted to suit the people of the state of Washington into the future.”
The proposal was opposed by Majority Leader Andy Billig (D-3), who said while he didn’t necessarily disagree with Hasegawa, “this program is not just about Boeing, but also about all of the suppliers…in every corner of our state. We want to make sure that our rate stays competitive.”
Others such as Sen. Doug Ericksen (D-42) sponsored a bill amendment similar to that included in the 2017-19 operating budget that lowers the B&O tax rate for all manufacturers to that paid by the aerospace industry. The provision in the operating budget was later vetoed by Governor Jay Inslee.
Ericksen said that this would resolve the WTO disputes and protect the state’s economic health. “I’m not sure if anybody’s paying attention out there, but the economy is going to be in very difficult straits here in the very near future. The world economy is slowing. So why today of all days…would we come forward and raise taxes in Washington state on the very people who are creating the jobs that we want to keep here in Washington?”
Also in favor of the amendment was Sen. Mike Padden (R-4). He said back in 2003 “I wanted to have that (B&O tax rate) apply not just to Boeing and the other aerospace industry, but also to all the other smaller manufacturers throughout our state.”
However, the amendment was ruled out of order by Senate President Cyrus Habib, and a motion by Padden to defer a vote on the bill was rejected.
SB 6690 requires Inslee’s signature to become law.