HB 1995
In CommitteeHouse
Tax preferences
Concerning tax preferences.
This status may be delayed. See Action History below for the latest updates.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill repeals 34 specific tax credits and exemptions (e.g., for aluminum smelters, semiconductor manufacturers, and aircraft-related activities), expands the definition of 'retail sale' to include many recreational and service activities (e.g., gym memberships, golf instruction, fishing charters), and establishes new or extended preferential tax rates for certain agricultural, wood product, and manufacturing activities. It also adjusts exemptions for nonprofit and public facilities.
- Repeals 34 specific tax preferences, including credits and exemptions for aluminum smelters, silicon smelters, semiconductor manufacturers, aircraft-related activities, and other targeted industries.
- Expands the definition of 'retail sale' to include more services and activities—such as gym memberships, golf instruction (with exceptions), shooting sports, fishing/hunting charters, and various recreational activities—making them subject to B&O tax.
- Reduces the B&O tax rate from the standard rate to 0.138% for certain agricultural and wood product manufacturing and wholesale activities (e.g., dairy, seafood, fruits/vegetables, wood biomass fuel), effective July 1, 2035, with conditions like out-of-state transport.
- Clarifies and expands exemptions for athletic/fitness facilities, allowing certain charges (e.g., physical therapy, private club use, school use) to be excluded from retail sale taxation, while other charges (e.g., general facility access) remain taxable.
- Extends and modifies preferential tax rates for commercial airplane manufacturing, timber, and other industries, with some rates set to expire between 2030 and 2045.
Who is affected
- Food and wood product manufacturers — Businesses that manufacture or process dairy products, seafood, fruits, vegetables, or wood biomass fuel will now pay a lower tax rate (0.138%) on those activities instead of the standard business and occupation (B&O) tax rate, but only if they meet specific conditions (e.g., selling to out-of-state buyers).
- Heavy manufacturing and aerospace companies — Businesses that previously received tax credits or exemptions for aluminum smelting, silicon smelting, semiconductor manufacturing, or aircraft-related activities will no longer be eligible, as those specific tax preferences are repealed.
- Recreation, entertainment, and service businesses — Retailers and service providers (e.g., gyms, golf courses, amusement parks, bowling alleys, fishing/hunting guides) will now have more activities explicitly classified as taxable retail sales, potentially increasing their B&O tax liability.
- Nonprofit recreational organizations — Nonprofit organizations that operate athletic or fitness facilities may see changes in whether charges for facility use are taxable, depending on how the facility is used and who uses it.
- Healthcare, insurance, and travel service providers — Hospitals, insurance agents, travel agents, and other specialized service providers will retain their existing preferential B&O tax rates, but some rates are adjusted or extended in duration.
Pro/Con Analysis
Potential Benefits (5)
Excluding separately stated charges for physical and occupational therapy—when provided by licensed practitioners under medical referral—from the definition of 'retail sale' prevents double taxation and reduces administrative burden on healthcare providers. This improves access to rehabilitation services by clarifying tax treatment and potentially lowering out-of-pocket costs for patients, especially those with chronic conditions or post-surgical needs. The exemption directly benefits patients and small therapy practices.
HealthcarePeopleRef: Sec. 2(3)(g)(ii)(D) (exclusion of physical/occupational therapy from retail sale when provided by licensed professionals under referral)Explicitly taxing shooting sports, paintball, airsoft, and archery as retail sales improves tax fairness and closes a long-standing loophole that allowed some high-volume recreational shooting facilities to operate tax-free. While this increases compliance costs for small operators, it ensures equal treatment across service industries and generates modest revenue that can support public safety infrastructure (e.g., law enforcement training, range safety programs). The broader benefit is equitable tax administration.
Public SafetyPeopleRef: Sec. 2(15)(a)(xvii) & (xvi) (taxing paintball, airsoft, shooting sports, archery, and similar activities as retail sales)The permanent 0.138% B&O tax rate for grain and oilseed processing (e.g., wheat to flour, soybeans to oil) supports Washington’s agricultural processing sector, which includes many small-to-midsize facilities (e.g., local flour mills, canola oil processors). This reduces compliance complexity and encourages in-state value-added processing, supporting rural jobs and supply chain resilience. The benefit is broadly distributed among processors, not just large agribusinesses.
Business & EmploymentPeopleRef: Sec. 5(1)(a) (0.138% preferential rate for wheat, barley, soybeans, canola, and sunflower processing)Excluding charges for student/staff access to campus fitness facilities from retail sale taxation reduces administrative burden on schools and may lower fees for students. This supports student wellness programs without creating a new tax burden on public or private educational institutions. The benefit flows to students, faculty, and staff—particularly at community colleges and universities.
EducationPeopleRef: Sec. 2(3)(g)(ii)(G) (exclusion of access fees for students/staff at educational institutions' fitness facilities)Including day trips for sightseeing in the definition of 'retail sale' brings clarity and fairness to the tax treatment of tourism-related services. Many small tour operators (e.g., whale-watching, historical tours) currently operate in a gray area; this change ensures they are taxed consistently with other service providers. While it increases compliance costs, it levels the playing field and supports tourism-dependent communities through more stable revenue streams.
Business & EmploymentLean peopleRef: Sec. 2(15)(a)(viii) (taxing day trips for sightseeing as retail sales)
Potential Concerns (5)
Repealing 34 targeted tax credits and exemptions—particularly for aluminum smelters, silicon smelters, and semiconductor manufacturers—will increase tax liability for large industrial firms, reducing their after-tax profits. While the bill frames this as eliminating “corporate welfare,” the affected companies are concentrated in capital-intensive, globally competitive industries (e.g., aerospace, semiconductors), and many are owned by institutional investors or large shareholders. The tax burden falls disproportionately on corporate shareholders and high-income investors, not everyday workers or consumers.
FinancialIndustryRef: Sec. 1 (repeal of 34 tax preferences, including RCW 82.04.4482, 82.16.0498, 82.04.4331, 82.04.426, etc.)Expanding the definition of 'retail sale' to include charges for gym memberships, golf instruction, shooting sports, fishing/hunting charters, and other recreational services significantly increases the tax base for B&O tax. Although the bill includes some exemptions (e.g., physical therapy, school use), the default rule subjects most facility access and instruction fees to taxation. This disproportionately affects for-profit fitness and recreation businesses—many of which are small—but the revenue gain primarily benefits the state, while the compliance and tax burden falls on small business owners and, indirectly, on consumers through higher prices.
FinancialIndustryRef: Sec. 2(3)(g)(i) & (ii) (expansion of 'retail sale' to include charges for athletic/fitness facility use, with limited exemptions)The preferential 0.138% B&O tax rate for dairy manufacturers is contingent on selling to out-of-state purchasers and maintaining detailed records. While this benefits dairy processors, the requirement to ship out-of-state excludes many small regional dairies that sell locally or within Washington. The benefit is concentrated among larger dairy exporters, and the long delay (2035) limits near-term impact. The policy is not broadly accessible to small farms or local processors.
FinancialIndustryRef: Sec. 5(1)(c)(i) (0.138% preferential rate for dairy products, effective 2035, with out-of-state transport condition)The preferential tax rate for seafood and dairy manufacturers is tied to export activity (i.e., selling to purchasers who transport goods out of state), effectively rewarding large-scale exporters over small, local-focused producers. This creates a structural bias toward larger, capital-intensive operations with national or international distribution networks, while small-scale or direct-to-consumer producers (e.g., farm stands, local seafood vendors) are excluded. The benefit is not broadly shared.
FinancialIndustryRef: Sec. 5(1)(b) & (c)(i) (0.138% rate for seafood and dairy, effective 2035, with out-of-state transport condition)The bill creates a narrow exemption for certain ancillary services (e.g., massage, nutritional consulting) at fitness facilities, but explicitly excludes personal training—despite the fact that many personal trainers operate as sole proprietors or micro-businesses. This distinction may unintentionally burden small fitness professionals who rely on personal training as their primary service, while larger facilities that bundle services may absorb the tax more easily. The policy does not meaningfully help everyday workers in this sector.
FinancialLean industryRef: Sec. 2(3)(g)(ii)(C) (exclusion of 'advertising, massage, nutritional consulting, and body composition testing' from retail sale, but NOT personal training)
Who Is Most Affected
Large manufacturers in aluminum, silicon, and aerospace sectors will face higher tax liability due to repeal of targeted credits and exemptions. While some may absorb costs or pass them to consumers, the financial impact is concentrated among shareholders and corporate treasuries—not workers or households. These firms are generally well-capitalized and can adapt to higher tax burdens without significant operational changes.
Food and wood product manufacturers (e.g., dairy, seafood, timber processors) benefit from the new 0.138% preferential rate—but only if they meet strict export conditions. Large exporters gain most; small, local-focused producers (e.g., farm-to-table dairies, regional seafood vendors) are excluded. The policy favors scale and export orientation, not small business equity.
Gyms, golf courses, shooting ranges, and fishing/hunting charters will see increased B&O tax liability on facility access and instruction fees. While some exemptions exist (e.g., physical therapy), most small recreation businesses will face higher compliance and tax costs. The burden falls disproportionately on sole proprietors and micro-businesses, though larger chains may absorb costs more easily.
Nonprofit fitness and athletic organizations benefit from exemptions for student/staff access, therapeutic services, and camp use—but must carefully track which charges are taxable. The complexity of the new rules may increase administrative costs for small nonprofits, though the overall direction is supportive of community-based recreation.
Hospitals, insurance agents, and travel agents retain existing preferential rates, but the bill does not expand them. The changes are largely neutral for these groups, though the expansion of 'retail sale' to include digital services and recreation may indirectly affect ancillary services (e.g., travel insurance bundled with tours).