Focus on Washington

Is Washington the next Silicon Valley? Possibly, possibly not. Regardless, the state has a wealthy portfolio of household name companies including Amazon, Microsoft, and Starbucks. Other popular companies headquartered in Washington include T-Mobile USA, Eddie Bauer, Nordstrom, Costco Wholesale, REI, and Tully’s Coffee. Roughly 1 out of 3 people in Washington have a college degree and over 90% of Washingtonians have graduated high school. To top that all off, Seattle is considered one of the most educated cities in the nation. Over 53% of the population over the age of 25 hold a bachelor’s degree. We assume that all the coffee is the reason for a productive economy and talented workforce. This month, we decided to travel back to the west coast and put our focus on the Evergreen State!

Business Climate                                                                                                       

The aerospace industry makes huge contributions to Washington’s economy and provides thousands of jobs for engineers, scientists, and manufacturers. The state is home to over 1,350 aero-space related companies which contribute to the 1300+ aircraft produced annually. The top employer in Washington is The Boeing Co. with over 85,000 fulltime employees (nearly half of their employees are based here.) The Company’s Commercial Airplane division and manufacturing operations are based in Washington. An estimated 150,000 in-state (direct and indirect) jobs are supported by Boeing’s existence in Washington.

The information and communication technology industry is popular in Washington. This industry includes telecommunication, software design, and data management. As stated before, some of the technology companies in the state are Microsoft and Amazon. Asides from these mega giants there are also 14,000 software companies that employ over 160,000 people.

Agriculture makes up 13% of Washington’s total economy. The state’s climate is ideal for farming. Did you know that over 57% of the apples in the United States are from Washington? In 2013, Washington is the #1 producer of apples in the nation accounting for almost 3 million tons of apples. They lead the nation in other fruit crops (grapes, sweet cherries, and pears), green peas, carrots, and red raspberries. The agriculture industry has over 160,000 employers working for 37,000 farms growing 300 different commodities. The grapes and climate in Washington are also perfect for the production of wine. The Evergreen State ranks second in the US (behind California) for wine production and is home to over 850 wineries.

Taxes

According to the Tax Foundation’s 2015 State Business Tax Climate Index, Washington ranked favorably at 11th out of 50. Their high ranking can be attributable to having no personal income taxes. The state’s unemployment tax (19th) and property tax (23rd) rankings were also favorable and contributed to the ranking.

On the other hand, Washington’s least favorable tax is the sales tax. The state relies heavily on the collections of sales tax and collected almost $8.4 billion for FYE 2013. The state’s sales tax rate is 6.5%, which is higher than the national median of 5.95%. The average local sales tax rate is 2.38% and the rate in Seattle (the most populated city in Washington) is 9.5%. The combined sales and excise tax collections per person is $2,586, which is the 4th highest nationally.

Washington has no corporate income tax, but is still ranked modestly at 28th out of 50 for corporate income taxes. Instead of enforcing a corporate tax, the state has a gross receipts tax known as the business and occupation (B&O) tax. This tax is charged on the gross proceeds of sales or gross income (not net income). The tax rate varies depending on how a business is classified and the highest rate is 1.5%, but most rates fall below 1.0%. The top two classifications in 2013 were Retailing (40.6% of total businesses, 0.471% tax rate) and Service & Other Activities (34.3% of total businesses, 1.5% tax rate). Public service businesses (transportation, energy, water, etc.) pay the public utility tax in place of the B&O tax. The rates for public service businesses are slightly higher than the B&O tax.

With low tax rates this must be a great tax system for corporations, right? Many Washington companies (and out of state companies doing business in Washington) are not fans of the B&O tax because it’s taxed on gross receipts, so regardless if a profit is made or not, a tax will be enforced. In addition, certain business operations may fall under one classification and others in another so it becomes a complicated process.

Tax Credits & Incentives

Main Street Tax Credit ProgramThe Main Street Program was created to help communities revitalize the economy, appearance, and image of their downtown commercial districts. Creators of the program believe that a developed downtown district is key to the economy and culture of a city or town. Businesses can earn a tax credit against B&O tax if they make contributions to designated revitalization programs (credit of 75% of approved contribution) or towards the Main Street Trust Fund (credit of 50% of approved contribution). Business can donate up to $250,000 (and if the program is run by an organization that is a 501(c)3 they can also claim a charitable contribution deduction). Interested businesses must file a donation request and be approved by the Washington State Department of Revenue. The tax credit must be used in the year following when the donation was made. It cannot be carried forward and no refund will be given if credit exceeds the business’ B&O tax liability.

B&O Tax Credit for Washington Customized Training Program: Businesses interested in receiving training via the Washington Customized Training Program can receive a B&O tax credit up to 50% of the total amount paid for the program. The State Board for Community and Technical Colleges (SBCTC) administers the program and assists businesses expanding or locating in Washington through a revolving loan fund. A business will partner with an eligible training institution (such as a community college or technical college) and then apply to the SBCTC to receive the loan. The maximum loan amount is $500,000. After the training, 25% of the loan must be paid back to the SBCTC and the additional 75% over the next 18 months. Credits may be carried forward up until July 1, 2021.

On a final note, Boeing received a tax break of almost $9 billion from the Washington government to offset their tax liabilities.

Random Facts

  • In 1983, the first Costco warehouse location was opened in Seattle.
  • Seattle was the first city in the US to play a Beatles song on the radio.
  • The world’s first soft-serve ice cream machine was located in an Olympia Dairy Queen.
  • Bertha Knight Landes was the mayor of Seattle in 1926 to 1928. She was the first female mayor of a major American city. Since then, Seattle has never had another female mayor.
  • In the NFL only 11 players are allowed on the field per team. The 12th man is a term referring to the fans to which several professional and collegiate sports teams, including the Seattle Seahawks have adopted in honor of their fans. For the 2014 Super Bowl, in Seattle Starbucks sold tall brewed coffee for only 12 cents to customers wearing Seahawks colors.
  • However, Seattle is known to love all of their sports. Starbucks CEO Howard Schultz used to own the Seattle Supersonics of the NBA until he sold them away (now the Oklahoma City Thunder), which many sports fans disapproved. Maybe this was his form of an apology? 

    Photo Credit: A. Larson via Flickr

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