Washington State Gov. Locke OKs local tax ban for R&D firms

Gov. Gary Locke signed a law yesterday to ban local governments from taxing income of research-and-development companies, a move expected to cost the city of Seattle $1.5 million a year.

By Luke Timmerman
Seattle Times business reporter

The software and biotech industries cheered the new law, which was sponsored by Rep. Jeff Morris, D-Anacortes, and passed the House 96-0 and the Senate 41-4. Tech and biotech industry representatives said the tax ban will provide an incentive for Washington companies to stay here. They didn’t say it would spur them to create more jobs in the state.

"We really have no problem now saying that Seattle is back to being a good place to do business," said Lew McMurran, director of public and government affairs for WSA, a group of software companies. "They can’t just tax intellectual property willy-nilly now."

The new law still allows municipalities some ways to tax research companies, based on how much square footage of office space a company occupies or its number of employees.

The issue of intellectual-property tax is sensitive for Seattle. The city has been wrestling for years with ways to tax emerging tech and biotech companies. One attempt at a tax would have subjected the companies to the city’s business-and-occupation tax.

Mel McDonald, director of revenue and consumer affairs for the city, said it has been difficult to shoehorn the work done by such emerging companies into an outdated tax system and difficult to get every business to agree on what’s fair. But any time one industry gets a tax exemption, he has to explain to other businesses why they should be forced to pay for city services, police and fire protection.

Jill Nishi, the city’s director of economic development, said the issue is sensitive, but the city ultimately has gone along with the wishes of the governor and the Legislature.

"We have agreed to forgo revenue from taxation of (research and development) because these industries, in the long run, have the potential to create good-paying jobs," Nishi said.

Luke Timmerman: 206-515-5644 or [email protected]

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