At last week’s Board of Directors meeting, the WTIA revised its position on tax incentives for Research and Development (R&D) that are under discussion in Olympia as part of the state budget negotiations. 

WTIA’s previous position was that the R&D tax incentives should be made permanent with no additional reporting requirements and no additional changes in eligibility or limitations on the use of R&D tax incentives. 

While the WTIA Board of Directors and members would certainly prefer that these valuable tax incentives are renewed without conditions, that is an unlikely outcome based on the state’s economic and political picture. 

The revised position can be found on the WTIA website here: https://www.washingtontechnology.org/advocacy/policy-priorities.aspx 

The position was updated to seek renewal for an additional ten years for both components of the R&D incentives—the B&O credit and the sales tax deferral.  Additionally, the WTIA will oppose limiting eligibility to use the incentives based on company revenue.  WTIA also recognizes that accurate reporting to determine economic effectiveness of incentives is important.  We will support changes to reporting and surveys that allow for more accurate assessment and economic analysis. 

One of the problems encountered during the debate over the efficacy of the R&D tax incentives was the faulty report from JLARC, http://www.leg.wa.gov/JLARC/AuditAndStudyReports/2012/Documents/2012TaxPreferenceReviewsProposedFinalReport.pdf, found at this link.  The tools and methodology used in the analysis of the R&D tax incentives are flawed.  Yet too many state legislators have heard that the R&D incentives don’t work, based on this flawed analysis. 

WTIA government affairs staff has been meeting with state lawmakers to discuss the value and importance of keeping R&D incentives on the books.  It is an uphill battle since most legislators just see more tax revenue they can collect.  Their job is to fund K-12, higher education, social services, corrections and everything else the state does.  Many, if not most, care less about the ability of tech-based industries to have an economic development tool than they do about trying to get more money into the K-12 system.

Many legislators have also tied funding higher education, especially STEM related degrees, to R&D tax incentives.  WTIA is often told that we have to “give up” tax incentives for R&D in order for the legislature to fund more computer science and engineering degrees.  This is a false choice.  If tax incentives to do R&D in Washington expire or are repealed, how does that help higher education?  In legislators’ minds, it means the tax money not now collected will be used to increase higher education, particularly in computer science and engineering.

It is the legislature’s job to fund education—not the technology industry’s job.  The tech industry pays hundreds of million annually in B&O taxes, hundreds of millions in sales taxes, millions more in property, utility and other taxes.  The tech industry pays the highest average salaries in the state, usually with good benefits.  The IT sector grew jobs all through one of the worst recessions in memory.  We have done our share to keep the economy going and we are simply asking for a continuation of a successful policy. 

Forty-three other states and numerous Canadian provinces all have some kind of financial incentives for R&D.  Other nations, like Northern Ireland for example, give cash grants for setting up R&D facilities or creating tech jobs in their country.  Washington is facing stiff competition for the tech industry we already have, much less for future growth.  We cannot be complacent.

All these facts do not mean that WTIA is unwilling to discuss changes to the parameters of the R&D tax incentives.  We are happy to have discussions with lawmakers that preserve an important and valuable tool for all types of tech companies to keep their R&D operations in Washington.  

The WTIA Board of Directors also re-emphasized its support for the production of more STEM degrees from Washington’s public universities.  See link above; the higher education position is just below the R&D incentives on the WTIA website. 

The reality today is that regions have to compete on both the talent side and on the economic development side.  You cannot have a thriving technology based economy without both, plus a supportive infrastructure that includes investment capital, mentorship and other resources to help companies start and grow.  There is no tech “hotspot” that doesn’t have one or more major research universities (think Stanford, Columbia, MIT, CalTech, Georgia Tech) and some kind of financial incentive, whether it is tax related or some kind of other economic incentive. 

But we reject the “either/or” notion that the legislature cannot expand STEM degree production without closing off tax incentives for R&D.  Both need to be maintained and STEM degrees expanded.  The marketplace continues to validate that computer science and engineering are valued and needed.  The legislature needs to take the necessary steps at both the K-12 and higher education level to ensure that Washington citizens are prepared for the opportunities in technology that are here right now and likely to be here in the future.