Yakima County Development Association - State Tax Incentives for Business Need Overhaul

Jonathan Smith

The President’s Pen is a weekly blog written by Jonathan Smith, New Vision’s President and CEO about local economic development projects and initiatives. It also covers economic trends, workforce issues, business climate policies, and manufacturing news. 



State Tax Incentives for Business Need Overhaul

August 30, 2010

Washington State’s toolkit to support new or growing businesses is paltry at best.  Our state simply does not have a modern mix of thoughtfully designed incentives that can support key industries or companies.  Given the economic challenges facing our state now is the perfect time to reform state incentive policy.  As lawmakers reopen tax and spending discussions and attempt to fix another budget hole we should have the courage to also reexamine current incentives and look for change and improvement.

Tax incentives in Washington State are always somewhat limited by our State Constitution which prohibits the lending or gifting of funds to private companies.  This exclusion means the state cannot give away the farm to business, but it does not mean we cannot do more to support business growth.

The bigger challenge is that we have created a broad mix of tax incentives over the last few decades to help a wide variety of Washington industries.  Each year lawmakers tend to add a few new incentives, but rarely do legislators go back to clean up or eliminate older incentives.

It will not be easy to go back and eliminate or scale back older incentives.  Each program has a built-in constituency that will likely scream loudly if their tax breaks are threatened.  At the same time though, we must have the guts to exchange older marginal incentives for newer tools that can better impact economic development.

Other states offer effective breaks that we should consider:

    • Incentives that can be monetized.  Oregon offered incentives that alternative energy companies could sell to help them fund their enterprises.  These programs helped the state become a magnet for emerging companies within this sector.  Missouri also offers incentives that translate into cash. 
    • Discretionary and/or negotiated incentives:  Some states like Michigan and Utah offer key growing companies incentives based on the specific firms’ tax impacts.  Tailoring incentives based on a company’s specific taxes generated provides both flexibility and accountability; And 
    • Worker Training funds.  Many states provide more funding and flexibility to companies that are hiring and training new employees.

At a time when we are paying new taxes on bubble gum, candy and bottled water it is obvious that lawmakers are willing to tinker with our state tax code.  In this environment I hope our legislators also have the fortitude to reopen the book on state business tax incentives.  We need to quit adding marginal tax incentives incrementally and instead develop a deeper more effective tool kit that helps our industries of the future grow and compete.

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"We have never found it a significant obstacle to attract high-quality, national-level talent to the Valley. " - Lonnie Gienger, President & CEO, Wilkinson Corporation