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The Greater Marysville Tulalip Chamber of Commerce

2008 Legislative Agenda

 

 

 

The Greater Marysville Tulalip Chamber of Commerce believes the following items are the highest priority issues facing business in the 2008 Washington State Legislature.  These priorities will shape our policies and guide our 2008 legislative lobbying efforts directed at advancing and/or defending the needs of the business communities we serve.

 

Priority Index

Education

Electric Energy

Global Climate Change

Healthcare

Land Use GMA

Economic Development and Infrastructure Financing

Municipal Tax Fairness

Oil & Gas Energy

Budget Policy

Property Tax Reform

Regulatory Reform

Research and Development Tax Incentives

Staffing Industry B & O

State Death Tax

State Tax Appeals Reform

Streamlined Sales Tax

Tax Classification for Environmental Remediation

Transportation

Unemployment Insurance

Water Resources

Workers’ Compensation

Workforce Training

Labor & Employment Law

Paid Family Leave

 

EDUCATION

Washington State’s competitiveness rests on the cornerstone of a well-educated and technically competent workforce.  Thus, it is imperative that Washington’s children be ensured a quality education. 

 

K-12 EDUCATION

 

Initial WASL (Washington Assessment of Student Learning) scores for the class of 2008, the first that must demonstrate proficiency in reading, writing, and mathematics as one requirement for graduation, show great progress in reading and writing achievement, but slower progress in math.  These results demand a coordinated, statewide focus on math, including a critical examination of everything from math curriculum and instruction to the recruitment, support, and training of math teachers. 

 

Additionally, the WASL standards only represent the minimum skills students will need to be successful, regardless of their vocational or educational plans after high school, and the commitment made to standards-based education must be maintained.  Washington’s schools must strive to give our students the knowledge and skills they need for whichever path they choose – entry into the job market, starting their own business, or postsecondary education.  

 

HIGHER EDUCATION

 

In today’s world, the skills required for success in college are also the skills required in the workplace, and Washington’s economic competitiveness is based in large part on a highly successful system of higher education.  Washington has established a commitment to higher education and research, but it is continually in jeopardy as other budget priorities, principally health care, erode our ability to fund these institutions.  It is critical that a plan to support our economic success and global competitiveness provide for a successful system of higher education and associated research.        

 

The 2007 legislative session saw great strides in the right direction.  Commitments were made to fund high demand enrollments and investments in research for nanotechnology, global health, biotechnology, life sciences, and information technology. 

 

GMTCC’s POSITION

 

Ensure quality K-12 education through standards-based programs, including the WASL and Certificate of Academic Achievement, and urge the State Board of Education to increase graduation course requirements to reflect real-world expectations.

 

• Ensure that no high school graduate needs remediation in reading, writing or math before beginning post-secondary education or vocation-spending training.
• Support the enhancement of Career Technical Education (CTE) programs in high schools to ensure alignment with economic development trends and higher education opportunities.
• Ensure a commitment to improving mathematics and science education and achievement, including accelerating recruitment, training and compensation strategies to address the shortage of qualified math and science teachers.
• Ensure that students are given meaningful opportunities to learn by requiring K-12 system accountability and granting state education agencies authority to intervene in the persistently lowest performing schools.
• Encourage counseling and guidance programs that enhance student retention and adequately prepare graduating high school students for collegiate studies as well as entrance into the workforce or vocational training.
• Support the preservation and continuation of General Fund-State funding for higher education.
• Encourage policies, including flexibility in tuition setting and robust financial aid that support additional enrollment of Washington students at both state and independent institutions, in high demand programs that are critical to the state’s economic growth.
• Improve K-12 and higher education alignment and establish a system of metrics to measure performance and focus resources, including measuring student retention and reduction of dropout rates.
• Support and encourage the development of a four-year university with a polytechnic focus that will increase accessibility for Snohomish County residents and future well being of the State of Washington in a global economy.

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ELECTRIC ENERGY

 

BACKGROUND  Washington’s economy has been built on abundant, reliable and inexpensive electric energy. Based primarily on hydropower, the “energy advantage” enjoyed by the Pacific Northwest  has allowed traditional manufacturing facilities to provide family-wage jobs, meet strict environmental regulations, offset high transportation costs and still compete successfully in the global marketplace.

 

In recent years, aluminum, oil, pulp & paper, steel, food processors and other traditional
manufacturers have been joined by high-tech firms in requiring large, reliable amounts of electricity. In some cases, power costs account for over half the operational expenses at a facility. Unfortunately, Washington has lost its energy advantage, and these businesses are now struggling to compete.

 

Energy prices skyrocketed during the West Coast energy crisis in 2000-01 and retail electric rates for many business customers remain higher than other regions in North America and around the world. The crisis was described as the “perfect storm” by Bonneville Power Administration (BPA) officials — a combination of failed  electric industry restructuring in California, market manipulation, reduced hydropower, and a failure to construct adequate new generation and transmission capacity. Utilities and their ratepayers are still carrying that burden, and there appears to be only very limited price relief in sight.

 

Available BPA hydropower can no longer meet growing regional demands, and hydro production is being further restricted by litigation and efforts to protect Endangered Species Act-listed salmon runs on the Columbia-Snake River system.  Additionally, most of the region’s non-federal dams are facing a costly federal re-licensing process. To ensure the protection of low-cost hydro power for this region, the state should work concurrently with and support F.E.R.C. in balancing economic and environmental interests during the hydroelectric re-licensing process, and any mitigation requirements must be directly related to re-licensing.   Generation costs for other existing and new resources also remain relatively high.

 

Finally, volatile natural gas prices have contributed to the cancellation or delay of several new combined-cycle combustion gas turbine plants planned for the region.

 

Recognizing the disastrous impacts additional energy price hikes would have on Washington’s economy, our congressional delegation, state lawmakers and Governor Gregoire all strongly opposed recent federal efforts to push BPA rates higher by requiring market rates or dedicating excess revenues to early debt reduction. Against this backdrop, it is vital that Washington public policy encourages development of a reliable supply of affordable energy and ensures that its laws and regulations enhance, rather than impede, the development of affordable energy supplies and necessary infrastructure.

 

GMTCC’s POSITION

 

• GMTCC believes that the State’s Energy Strategy must remain a guiding
  document, not a governing document.  Any efforts to review or update the state strategy must include broad-based stakeholder participation.
• GMTCC believes market forces will deliver alternative energy technologies (including, but not limited to, wind power, solar power, nuclear power, biomass and fuel cells) as they become cost effective, and supports state incentives, not mandates, removing regulatory barriers, and voluntary programs to hasten that development.
• GMTCC believes the state should affirmatively facilitate the siting and development of electric transmission and gas transportation infrastructure that is essential to accommodate economic growth.

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GLOBAL CLIMATE CHANGE

 

BACKGROUND   Climate change is an important international issue with global ramifications. In Washington State, laws addressing climate change have been implemented, such as mandating the use of bio fuels, requiring automobile manufacturers to reduce CO2 emissions from vehicles and requiring CO2 mitigation for new and expanding power plants.

 

Western states governors have entered into an agreement supporting market-based policies to reduce greenhouse gas emissions and providing credit for actions to reduce greenhouse gas emissions.

 

In addition to CO2, greenhouse gases include methane, nitrous oxide, ozone, chlorofluorocarbons, hydrofluorocarbons and perfluorinated carbons.

 

Emissions of greenhouse gases in Washington State are significantly lower than most other states. This is due in part to our successful hydropower system, and its zero emissions of CO2.

 

Washington state businesses and industries nationwide have initiated their own efforts to cut greenhouse gas emissions, ahead of potential legislation and regulatory requirements. These voluntary efforts, which include increasing energy efficiencies, reducing perfluorocarbons, nitrous oxide and other greenhouse gases, using lighter weight materials and increasing the recyclability of manufactured products have resulted in a net reduction of billions of metric tons of greenhouse gases.

 

GMTCC’s POSITION

 

• Climate change is a global issue with no single solution and should be addressed at a national level to avoid placing businesses in Washington State at a competitive disadvantage. State government actions to address climate change will only confound a reliably functioning economic system and thwart individual efforts by businesses to adapt to the demands of society.

 

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HEALTH CARE

BACKGROUND   Health care costs continue to rise at paces far in excess of inflation, causing many employers to reduce the benefits they provide to their employees, drop existing coverage, or refrain from purchasing new coverage.  The high costs of health care coverage have a direct impact on the number of uninsured in the state, and an expensive health care market makes Washington unattractive to new and existing businesses who want to provide good employee benefits. Exorbitant health care costs also erode the ability of the state to provide other vital services without raising taxes.

 

Private and public entities should continue efforts to address the major problems associated with rising health care costs.  Citizens should adopt healthier lifestyles.  And, they should be more aware of the costs and efficacy of their treatments.   Government policies should be revised to reduce unnecessary regulations, most particularly mandated benefits.  Insurers should be permitted to offer affordable basic health care plans, free of many of these mandates, along with those that may contain more options.   In addition, the availability of consumer driven health plans, such as Health Savings Accounts, should be expanded, allowing employees greater control of and accountability for their health care decisions.

 

GMTCC’s POSITION

GMTCC supports health care policy that: 

• Encourages the availability of low cost, flexible health plans

• Supplies information to consumers currently isolated from cost

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LAND USE GMA

 

BACKGROUND   The goals and requirements of the Growth Management Act (GMA) form the basis of local land use planning and regulation in Washington State.  After 15 years of experience under the GMA, however, many critical questions remain as open now as they did upon the law’s landmark enactment.  Such questions involve:

 

• Interaction of GMA requirements and goals with local permitting decisions and the efficiency and predictability of the local permitting process;
• Land use regulations that protect important habitat and ecological functions (“critical areas”) while protecting property rights and adequate developable land to meet housing and economic growth;
• The need for, and time in which to perform, periodic updates of comprehensive plans and development regulations by local governments;
• Concerns over the timeliness and process of appeals of local governments’ planning, regulating, and permitting decisions.

 

Specifically, problems continue to exist with the application of Best Available Science in protecting critical areas, which have been highlighted with recent decisions of the Growth Management Hearings Boards.

 

As a result of these and other issues, GMTCC supported a five piece land use agenda for the 2007 legislative session proposed by AWB.  This agenda included legislation addressing problems with transportation concurrency and impact fees under the GMA; improving the GMA’s Industrial Land Banks statute; addressing the conflict between overreaching Critical Area Ordinances and agricultural lands; requiring local jurisdictions to provide for adequate residential, commercial and industrial buildable lands; and requiring additional notice requirements by government when its power of eminent domain is exercised.  GTMCC saw two of the five priorities become law including the Industrial Land Banks bill and a greater notice requirement for eminent domain proceedings.  GMTCC preferred an agricultural land exemption from new Critical Area Ordinances but supported the 2 ½ year stay which will allow continued negotiations in search of an equitable solution.  Ultimately, much work remains to be done to return to the intent of the GMA – to manage growth, not prevent it.

 

GMTCC’s POSITION

 

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ECONOMIC DEVELOPMENT & INFRASTRUCTURE FINANCING

 

BACKGROUND   Rural and urban communities in Washington need private-sector investment to create economic opportunity. All across Washington, opportunities for development and redevelopment could invigorate stagnating economies by creating jobs, stimulating the redevelopment of blighted areas in the inner city, and promoting more efficient land use.

 

To generate these economic benefits, public-sector investment is necessary.  Publicly owned infrastructure is a critical part of many economic vitality projects.  Without it, private investment sometimes cannot move forward.  Government must provide basic infrastructure such as water and sewer systems, sidewalks and streetlights, street and road improvements, parking and other basic services. Private sector investment is also necessary for other services such as telecommunications and internet access.

 

48 other states have been successful in using Tax-Increment Financing (TIF) to fund needed infrastructure.  Most of the cities and counties in our state face challenges funding infrastructure to support economic growth.  TIF would provide an additional tool for them to use to provide jobs and revenue growth.  Using TIF, a local community establishes a given area to invest in infrastructure to serve a development.  The proposal recognizes that the development likely would not occur without that infrastructure investment.  TIF funds and local funds build the infrastructure, selling bonds to finance a large development.  New tax revenues generated by the developments pay off bonded debt.  In 2006, there was an experiment with a form of tax increment financing – now called Local Infrastructure Financing Tool (LIFT).  Funding under LIFT is available for very few projects.

 

The Job Development Fund, Community Economic Revitalization Board, Local Infrastructure Financing Tool and many other programs exist to promote economic and infrastructure development.  These are among more than 86 different programs administered by 12 different agencies, making our system very complex and difficult to access.  Greater coordination and additional investment need to occur to make sure that state and local infrastructure meet the demands for business growth.  A study committee on public infrastructure programs and funding structures will review these and other economic development-related infrastructure programs and makes recommendations to the legislature January 1, 2008.

 

GMTCC’s POSITION

 

• Develop strategic plan on state and local economic development and infrastructure needs including an analysis of existing programs.
• Support stable funding for existing programs with a proven record of success and eliminate those programs that are not successful.
• Expand the LIFT program to a full tax-increment-financing (TIF) program.
• Improve the links at the state, local and federal levels for economic development and infrastructure financing tools.
• Establish new and provide liberal application of existing tax incentives to promote economic development and infrastructure expansion.

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MUNICIPAL TAX FAIRNESS

 

BACKGROUND   Many of the state’s cities impose business and occupation (B&O) taxes and/or a public utility tax.  Over the years, each city enacted its own definitions and tax classifications through various ordinances.  This led to a complicated and confusing situation in which taxpayers are confronted with differing interpretations of the tax laws from the state to the local level and among the cities.  As a result, the legislature in 2003 required adoption of a model B&O ordinance by the state’s cities that impose a B&O tax (EHB 2030).

 

Forty cities impose B&O taxes on the gross receipts of activities conducted by businesses without any deduction for the costs of doing business.  A city with a B&O tax imposes the tax on a business if the city determines that there is nexus.  Currently, if nexus is established, some cities assert a B&O tax on the entire value of the transaction or particular activity involved without regard to the place where the transaction or business activity occurs.  GMTCC supports taxation of gross receipts only in the city where the transaction or business activity occurs.  Under the adopted model ordinance,
taxpayers may be treated as having nexus even where the taxpayers’ only activity is delivering into a city using its own trucks or acting on its behalf.  GMTCC supports a requirement of a significant physical presence in the jurisdiction as a prerequisite to taxation by that city.

 

The cities adoption of a model code as required by EHB 2030 allows for unacceptable deviations that eliminate B&O tax consistency among the cities.  Short of a true model code, the requirement that taxes be apportioned among jurisdictions and collected by the Department of Revenue (Department) is the best way to eliminate multiple taxation and ensure consistent B&O tax administration.  Therefore, GMTCC supports the immediate imposition of mandatory municipal B&O tax apportionment and collection to be administered by the Department. 

 

GMTCC’s POSITION

 

• Ensure that, where a business performs activities in multiple jurisdictions, municipal B&O taxes are apportioned so a business is taxed only on the transaction or business activities performed within the taxing jurisdiction and collectively at no more than 100 percent of its gross receipts taxable in Washington.
• Support the transfer of the duty to collect and administer municipal B&O and public utility taxes to the state Department of Revenue.  This would lessen the taxpayers’ reporting burden, ensure consistent application of B&O taxation and increase tax compliance for local jurisdictions.
• Support a model municipal B&O code that is consistent with the state B&O code and that is applied consistently among jurisdictions.

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OIL & GAS ENERGY

 

BACKGROUND   A variety of factors impact the price of gasoline, diesel, natural gas, liquefied natural gas, propane, heating oil and jet fuel in Washington, but none more than market forces.  Oil and gas trade on an international market; they are commodities, the price of which is driven by the price of crude oil in the longer term and determined by the laws of supply, demand and competition in the shorter term. When supply falls short or demand increases, the market will reflect those changes. Recently, increased global demand spawned by tremendous growth in such countries as China and India, coupled with economic expansion and heightened use of petroleum products in North America, have led to an increase in international oil prices. In the Western states and in Washington in particular, there are additional market factors to consider. Washington has no oil production capacity of its own, limited pipeline capability, and refineries are operating at near maximum capacity. In addition, due to our unique geographic, economic and social factors, Washington generally exceeds the national average for oil and gas consumption per capita.

 

While it may be politically popular to blame producers, wholesalers and retail companies for rapidly rising costs or price gouging, this does not offer a solution.  Some policy makers have responded by instituting price caps and price controls. These approaches are misguided. Artificially holding down the price of petroleum products will constrain supply, which makes a bad situation worse. Given the high demand for petroleum products and a constricted supply, price controls heighten the risk of a return to long gas lines and/or “sold out” signs at service stations. 

 

Additionally, despite exponentially growing demand, there hasn’t been an oil refinery built in the region in over 35 years, although many west coast oil and gas reserves remain untapped. Most of the Western states do not benefit from pipeline or other access to oil and gas supplies from Texas or the Gulf States. It is, therefore, more difficult to import gasoline and fuel components during supply shortages.

 

Several alternatives exist for addressing the problems of increasing costs and protecting consumers. One alternative is to increase supply.  Washington needs more oil, natural gas and liquefied natural gas infrastructure such as refineries, marine terminals and pipelines to meet consumers growing demand for oil and gas products. Another alternative is to decrease demand by educating the consumer on the benefits of voluntary conservation. Additionally, government should remove state and local regulatory barriers, encourage companies to expand capacity, and provide incentives to companies to continue research and development of alternative and renewable fuels.

 

GMTCC’s POSITION

 

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BUDGET POLICY

(combines previous Spending Limit & POG Objectives)

 

BACKGROUND The state operating budgets passed in recent years have raised warning signals for the business community.  This comes despite progress made with the passage of the constitutional rainy day fund in 2007.  Principles established by Initiative 601 have been ignored, or simply altered when convenient.  Lawmakers have deviated from using the award winning Priorities of Government (POG) budget process.  Government growth is at an all time high and spending exceeds revenues. 

 

Initiative 601, passed in 1993, initially put the brakes on state spending by tying growth in expenditures to the annual rate of inflation and population.  New taxes would first need a two-thirds vote of the legislature and then a vote of the people if the tax increase caused spending to exceed the limit.  In the years immediately following the passage of Initiative 601, the state had budgets that were more fiscally responsible.

 

The POG process was established in 2002 following the recession caused by the 911 terrorist attacks.  POG was created to best spend taxpayer dollars while achieving the results that are most important to its citizens.  The POG  process is unique by departing from the traditional incremental budget approach that focuses on adjustments to existing spending levels.  To be effective, the POG process must be used so that government buys only the services it can afford or is required to fund such as education.

 

In the fall of 2007, voters once again responded to a call for greater fiscal accountability with Initiative 960 seeking among other goals, reenactment of the two-third vote for new taxes from Initiative 601.  Voters have consistently asked lawmakers to spend within the state’s means. 

 

The economy is cyclical with its ups and downs.  State revenues, which come from taxes on business owners and individuals, follow that same cycle.  When tax revenues fall short of spending come from taxes on business owners and individuals, follow that same cycle.  When tax revenues fall short of spending levels, past remedies were to increase taxes and cut programs regardless of which party was in charge.  While the recently passed constitutional rainy day fund is a step in the right direction, more fiscal restraint is needed to ensure long-term sustainability for our state budget and a viable economy for employers and our state citizens to prosper in the future.

 

 

GMTCC’s POSITION

 

• Establish the Priorities of Government/Price of Government process as the standard method for development of state budgets.

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PROPERTY TAX REFORM

 

BACKGROUND In recent years, property taxes in Washington have increased dramatically. The causes are varied: isolated surges in some real estate markets, infrequent property reevaluations, voter-approved levies and expanding local government budgets.

 

In 1997, the Legislature approved property tax legislation that was ultimately placed on the November ballot as Referendum 47. Washington voters overwhelmingly approved the measure, which made sweeping changes to the property tax collection system. 

 

Referendum 47 limits increases in property tax collections to inflation.  To exceed inflation, a jurisdiction’s legislative body must, by supermajority vote, determine a “substantial need.”  No jurisdiction can exceed 6% growth in collections without a public vote.  Districts with populations less than 10,000 are exempted from these limits.

 

GMTCC’s POSITION

 

• Preserve and affirm the principle of assessing and valuing all property uniformly and equitably at 100 percent of its true and fair market value.
• Strengthen statutory limitations to prevent taxing districts from increasing their property tax collections beyond the rate of inflation without a vote of the people.
• Ensure that the property tax burden is not shifted from one class of taxpayer to another.
• Use surplus, non-emergency fund revenues to gradually reduce the state property tax levy.
• Provide full tax disclosure by requiring that property tax notices and levy ballot measures include comprehensive information for taxpayers.
• Require that real estate be revalued every year to more accurately reflect market value, equitably distribute the property tax burden, increase predictability for taxpayers and local governments and improve overall administrative efficiency.
• Expand deferral programs for all property taxpayers in danger of being taxed out of their property and homes that do not qualify for exemptions or deferrals under current law.
• Ease the unreasonably high “burden of proof” placed on taxpayers that challenge property valuations.
• Implement options, such as alternative dispute resolution, for taxpayers that appeal their property tax valuations.

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REGULATORY REFORM

 

BACKGROUND Since the mid-1990’s, there has been significant changes to the rulemaking process in Washington state. Unfortunately, these changes have not been enough to reduce the regulatory burden facing employers.

 

In 1995 landmark regulatory reform legislation, HB 1010, was passed to:  Require state agencies to base new rules on specific criteria and specific legislative authority. Require state agencies to justify the need for new rules which exceed federal standards.  Encourage state inspectors to stress education before enforcement.  To allow small business to recover limited attorney fees for successfully challenging a state rule and to require state agencies to coordinate new rules with existing local, state and federal laws.

 

Despite these reforms, Washington State continues to be a heavily regulated state, putting us at a competitive disadvantage. In the 2001 report from Governor Locke’s Competitiveness Council, regulatory reform was highlighted as why our state is non-competitive. Recommendations to increase legislative authority, appoint a secretary of regulatory reform, establish timely permit decision making, create a pilot program for permit streamlining, require DOE to formally promulgate its 401 certification rules, expand the Master business license program to cities, ensure the state’s energy policy maintains Washington’s competitive advantage in supplying low-cost reliable electricity to the region, and changing the venue in which agency rule challenges are brought are some of the recommendations the Council made.     

The legislature passed several of these recommendations in the 2003 session that were vetoed by Governor Locke. Other bills that were signed into law, such as the requirement for notice of new rules, did not fully implement the Competitiveness Council recommendations since it only applied to a limited number of agencies.

 

The benefits of HB 1010 have not been fully realized by the business community. In addition many Administrative Procedures Act (APA) questions were raised in the WE CARE v. Department of Labor and Industries case before the state Supreme Court however these questions were not answered as a result of I-841 passing the ballot and the case being declared “moot”.  Ongoing efforts for meaningful regulatory reform through legislative and administrative changes are still needed.

 

GMTCC’s POSITION

 

• Regulatory Climate: Support legislation to improve the regulatory climate in Washington, including:
• Requiring agencies to have legislative authority and to cite specific text of law when creating new rules
• Clarifying the level of burden of proof that an agency has in demonstrating the need for rulemaking.
• Office of Regulatory Assistance (ORA): Support the reauthorization and reasonable funding of the ORA to target agency-specific reforms to reduce the regulatory burden facing employers, including:

• Using technical assistance as the preferred solution to compliance issues rather than enforcement.
• Consolidating permit processing, creating clear deadlines and streamlining land use and environmental appeals.
• Implementing methods for increased electronic transactions such as licensing, compliance obligations, list serves, and web pages for public forums.
• Continuing the use of sunset provisions for ongoing accountability to determine the effectiveness of the Office.
• Governor’s Signature of Significant Rules: Support legislation to require the signature of the Governor on significant rules as defined in RCW 34.05.328 before they become effective.
• Equal Access to Justice: Expand the existing equal access to justice laws for small businesses who successfully challenge a state agency action in Superior Court to all counties in Washington State and for other appeals to state agency actions or rules.
• Contested case proceedings: Amend the Washington Administrative Procedures Act (APA) to enhance objectivity and independence in contested case decision making.
• Support amendments to RCW 43.21C to categorically exempt from SEPA both multiple and single family housing inside urban growth boundaries in those jurisdictions where environmental review has been performed in conjunction with the adoption of a comprehensive plan and where GMA development regulations are present.

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  RESEARCH & DEVELOPMENT TAX INCENTIVE

 BACKGROUND   In 1994 the Legislature enacted tax incentives to encourage additional research and development (R&D) investment in the high-technology sector.  The legislation allows businesses that conduct activities in advanced computing, advanced materials, biotechnology, electronic device technology or environmental technology to take a credit against the business and occupation (B&O) tax and an exemption from sales and use taxes on construction of R&D and pilot scale manufacturing facilities. Originally, a firm qualified for the high technology B&O tax incentives on all R&D spending if the firm’s spending on research and development exceeded 1.92 percent of B&O taxable amount.  For-profit firms were entitled to take a credit equal to 1.5 percent of R&D spending whereas the credit was equal to 0.484 percent of the R&D expenditures for nonprofit organizations.  A maximum of $2 million in credit was available each year to an eligible firm.  Legislation passed in 2004 (ESHB 2546) extended the sunset date of the R&D tax incentive laws to January 1, 2015.  Unfortunately, ESHB 2546 also reduced R&D tax incentives for many Washington employers in amounts up to and in some cases exceeding 70 percent.  In 2005, the legislature passed legislation (ESHB 2314) that over a period of four years returns the R&D B&O tax incentive rate to 1.5 percent.  This change was a good start.  However, the R&D tax incentives are still calculated on the amount of R&D expenditures after subtracting 0.92 percent from the calculation of the taxable amount.

 

These R&D tax incentives were created by the legislature in 1994 to increase R&D investments and to attract and preserve high-paying Washington jobs.  The 0.92 percent deduction significantly reduces the R&D tax incentive available to Washington employers.  Moreover, the 0.92 percent deduction made to the R&D tax incentives by the 2004 legislature disproportionately impacts smaller companies with lower R&D investments and manufacturing activities. 

 

Without the full incentives in place, many companies cannot or will not continue to invest in R&D activities in Washington State.  This is not the time to place more Washington jobs at risk.  GMTCC supports elimination of the 0.92 percent deduction from the taxable amount in order to return the R&D tax incentive laws to the form that worked successfully for 10 years prior to passage of ESHB 2546.

 

GMTCC’s POSITION

 

• Restore the R&D tax incentive calculation to the amount and form originally approved by the legislature in order to attract and preserve jobs for Washington’s citizens.
• Lessen the penalty for the late filing of the complete annual survey.

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STAFFING INDUSTRY B&O

BACKGROUND   The temporary staffing industry employs over 40,000 people in Washington State and pays an annual payroll of over $1 billion.  The industry has created over one million new jobs in Washington State in the past 7 years.

Prior to December of 2002, most companies in the industry paid business and occupation (B&O) tax at the rate of 1.5 percent on the gross income derived from fees paid by clients for personnel services net of wages, payroll taxes and benefits paid to contracted workers.  That method of taxation was supported through audit by the state Department of Revenue (Department).

 

In December of 2002 the state Supreme Court issued a decision that disallowed the deductions for pass-through wages previously authorized by the state.  As a result, the B&O tax must now be paid on revenues that include the amounts for wages and payroll taxes.  The staffing industry, faced with a B&O tax increase that, for some companies, exceeds 500 percent, drafted legislation in each of the past three years that would have created a definition of “staffing company” and assessed a lower tax rate on gross revenue that is comparable to the taxes paid prior to the court decision.  Efforts to pass the proposed legislation failed. 

 

In addition, the Department has issued a new directive requiring the collection of sales tax by staffing companies when a worker performs a task that is considered a retail service.  There remains tremendous confusion in the differences in statutes, policies and industry practices in the collection and remission of sales tax.  In one instance, the Department has said that the industry will pay B&O tax at the services rate of 1.5%.  In another instance, it has said that if the event preformed by the employee is retail by definition the company can pay at the retail B&O rate and must collect sales tax.

 

The current situation has created confusion and has resulted in misapplication of the law and large penalties for the industry.  While the staffing industry has agreed that in those

instances where the customer is actually performing retailing activities it should collect the retail sales tax, or a resale certificate as appropriate.  The current policy of the DOR continues to create confusion, costs, and must be clarified.

 

GMTCC’s POSITION

 

• The staffing industry is in the business of providing temporary staff to expand or augment another business’ operation.  The preferred and most fair B&O tax calculation of the staffing industry is a definition of the industry and single tax classification that reflects the function of the industry.
• If the DOR continues a policy of multiple B&O tax calculations and rates for the staffing industry, it should be based on the predominate activity of the business client utilizing the temporary worker and not on the worker’s individual assigned tasks.

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STATE DEATH TAX

 

BACKGROUND   Through an initiative in 1981, Washington voters overturned the state inheritance tax.  However, a credit allowance on the federal estate tax allowed the state to continue a limited “estate tax,” known by employers as the “death tax.”  In 2001, the federal government passed a law to phase out the federal estate tax by 2010 and the state credit no longer exists.

 

After the change in federal law in 2001, the State continued collecting taxes and in February 2005, the State Supreme Court ruled unanimously in Hemphill et al v. Department of Revenue that the state had no authority to collect this money and would have to reimburse it retroactively.  In response, the 2005 Legislature passed a new state estate tax, ESB 6096.  The business community fought the passage of this legislation, but was unsuccessful.  However, the legislation did establish a deduction for family owned farms.

 

In 2007, Initiative 920 was validated with more than 400,000 signatures to repeal the estate tax but was ultimately not passed by the voters.  Attorneys are now advising their clients of the seriously negative effects of the estate tax on business and other assets in Washington.  Some employers have already left Washington.  Others are considering moving.  Legislation introduced in the 2007 legislative session attempted to provide a deduction from the estate tax for family held business similar to what already exists for farmers.  The legislation received a public hearing in the House but failed to pass after the democrat majority expressed an unwillingness to change the law so soon after Initiative 920 to repeal the entire state estate tax was defeated.

 

By the time the owner of a family business dies, he or she has already paid federal, state and local taxes on their income several times – B&O taxes, excise taxes, license fees, social security taxes, federal income taxes, sales taxes, state and local property taxes, etc.  When small businesses prepare for the estate tax often the result is under-investing

in the company, hurting future economic growth, the ability to create jobs and the resulting taxes that are paid.  Lawmakers should eliminate the estate tax to protect family owned business.

 

GMTCC’s POSITION