Accountable USA - Washington

Washington seems bound and determined to make up for the loss of its timber sector by eliminating major taxes for its remaining industries via tax subsidies.  This is treacherous fiscal policy in a state already lacking an income tax (so those Microsoft millionaires pay nothing), though it does have a gross receipts levy called the Business & Occupation Tax. In 2009, tax-based subsidies reduced state revenues by $239 million; most benefit high-tech and aerospace companies.  The Department of Revenue administers no fewer than nine different tax subsidies for these industries.

Boeing is a major recipient of tax subsidies in the state. The 2003 deal that landed the first production line for the 787 Dreamliner aircraft promised the company up to $3.2 billion in tax subsidies over the life of the facility, including breaks from the Aircraft Pre-production Expenditures Business and Occupation Tax Credit (see below).  Other tax breaks have been enacted to please some of the state’s other large corporations, such as the program that reduces sales tax for equipment at computer server farms built by the likes of Microsoft.

State-enabled local tax breaks, such as tax increment financing, are also used to subsidize new development and redevelopment.  The Safeco Field baseball park was built for the Seattle Mariners with more than $300 million in local tax revenue, and a comparable amount of public money financed nearby Qwest Field for football’s Seattle Seahawks (see below).

In addition to the Aircraft Pre-production Expenditures Business & Occupation Tax Credit, major state tax expenditures are also made through the following programs:  The High Technology Business & Occupation Tax Credit for Research & Development Spending, the High Technology Sales & Use Tax Deferral/Waiver, and the Business & Occupation Credit for New Employees in Manufacturing and Research & Development in Rural Counties and Community Empowerment Zones. 

Calls for transparent economic development practices date back to 2001, when Washington Citizen Action (now Washington Community Action Network) released a report criticizing the state’s hazy spending.  The state began disclosing the names of some types of subsidy recipients in 2006, following the enactment of major new aerospace tax subsidy programs for Boeing.  Washington provides online recipient disclosure in three of the five programs that Good Jobs First examined: aircraft production tax credits, high technology tax credits and high technology sales and use tax deferrals/waivers.  The state provides no online information about the identities of recipients of film tax credits or employer credits provided for hiring in rural counties and Community Empowerment Zones.

Key Subsidy Programs

Subsidy Program Recent Annual
Cost
Online Recipient
Disclosure
Recipient Disclosure
Score
Job-Creation/
Job-Quality Score**
Monitoring/
Enforcement Score***

Aerospace Manufacturer Preferential Tax Rate

a B&O tax rate reduction for manufacturers

$90.5 million (FY2015)
51/100
not included
not included

Aerospace Non-Manufacturing Tax Incentive

a B&O tax credit for expenditures made by other aerospace businesses

$99.8 million (FY2015)
51/100
10/100
28/100

Data Center Sales and Use Tax Exemption

exemption from retail sales/use tax is provided for qualified equipment and electrical power infrastructure for data centers

$16.7 million (FY2015)
51/100
not included
not included

High Technology Research and Development B&O Tax Credit

credits against the business and occupation tax for increased R&D expenditures

$16.6 million (FY2015)
13/100
10/100
28/100

High Technology Sales and Use Tax Deferral

deferral of sales and use taxes on construction and machinery investments made by high-tech firms; taxes are eventually waived for companies that don't move away

$19.3 million (FY2015)
13/100
10/100
38/100

* The score is derived from the Good Jobs First report Show Us the Subsidized Jobs (January 2014).

** The score is derived from the Good Jobs First report Money for Something (December 2011).

*** The score is derived from the Good Jobs First report Money-Back Guarantees for Taxpayers (January 2012).

Major Subsidy Deals

Boeing (2003)

Boeing’s association with Washington State dates back to the company’s founding in 1916, but when it was making plans in the early 2000s for an new, energy-efficient passenger jet, the 7E7 Dreamliner, it forced the state to compete with around 19 others for a $500 million plant and up to 1,200 jobs. Eager to preserve his state’s status as a center of aerospace production, Gov. Gary Locke proposed massive tax breaks for the company and pressured the legislature to approve them on short notice in a special session. Locke got his way, and Boeing ended up with a package of research & development tax credits and cuts in Business & Occupation taxes (the state’s substitute for a corporate income tax), sales taxes and property taxes that together were estimated to be worth $3.2 billion over 20 years.

As a result, the aerospace industry, which had been the state’s biggest source of business tax revenue, would see much of its tax liability disappear. The state also raised gasoline taxes to fund transportation improvements, overhauled the unemployment insurance system to reduce costs for employers and tightened up on workers compensation claims. Boeing responded favorably to all this, selecting its long-time assembly operation in the Seattle suburb of Everett as the production site for the Dreamliner. It later emerged that the state also gave Boeing $32 million for training costs plus other “sweeteners.” In 2009 Boeing announced that it would locate a second Dreamliner assembly line in South Carolina. (Key sources)

Seattle Mariners (1995) and Seattle Seahawks (1997)

In the mid-1990s John Ellis, head of an investor group that had purchased the Seattle Mariners, began warning that the baseball team might leave town if it did not get a new stadium financed mostly with public money. Ellis insisted that making improvements to the aging Kingdome, where both the Mariners and the city’s Seahawks football team played, would not be sufficient. A bond referendum was rejected by King County voters in 1995, but shortly thereafter the state legislature approved a plan for using about $275 million from a lottery and miscellaneous taxes to pay for a new $310 million ballpark. The public share later rose to about $340 million. As the price tag for the project subsequently rose to more than $500 million, the Mariners tried but failed to get taxpayers to foot the additional costs.

The ballpark, dubbed Safeco Field after naming rights were sold to the insurance company, opened in 1999. During this period a similar process played out with the Seahawks.  In 1996 Microsoft co-founder Paul Allen agreed to purchase the team to prevent it from being moved to Los Angeles, but the billionaire insisted on public financing for about three-quarters of the cost of a new $425 million stadium to replace the Kingdome. Allen spent more than $6 million campaigning successfully for a 1997 referendum on the issue. The stadium, which opened in 2002, was renamed Qwest Field in 2004 after naming rights were sold to the telecommunications company. (Key sources)

Walmart in Washington

  • At least 1 Wal-Mart location has received subsidies worth about $1 million in Washington.
  • At least 3 Wal-Mart locations in Washington have challenged their property tax assessment.
  • Wal-Mart was found to have more workers than any other employer in the state relying on publicly-funded health insurance. This shows how taxpayers end up subsidizing Wal-Mart’s policy of providing low wages and inadequate benefits.

For more information, see the Washington page of Wal-Mart Subsidy Watch.