HB 2723
In CommitteeHouse
Tax preferences
Modifying existing 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 eliminates several long-standing tax exemptions—particularly for gas used as transportation fuel and for large tech-affiliated groups—to increase state revenue and modernize Washington’s tax code. It phases out key exemptions starting July 1, 2027, while maintaining some exemptions for smelters and other industries with specific reporting requirements.
- Eliminates the tax exemption for gas distribution businesses claiming refunds for machinery/equipment used to produce compressed or liquefied natural gas as transportation fuel after July 1, 2027 (they must now pay tax upfront and apply for quarterly refunds until that date).
- Removes tax exemptions for machinery and equipment used in manufacturing, R&D, or testing for large affiliated groups (e.g., big tech companies) that meet specific criteria: over 40,000 Washington employees, registered before 1981, and primarily engaged in software development/licensing.
- Extends the existing exemption for natural gas used as transportation fuel by consumers until July 1, 2027, but ends it after that date.
- Maintains exemptions for aluminum smelters (until Jan. 1, 2027) and silicon smelters, but adds reporting requirements for aluminum smelters.
- Clarifies definitions of 'machinery and equipment' and 'manufacturing operation' to narrow exemptions—e.g., excludes buildings, hand tools, and non-integral fixtures—and adds new definitions for digital goods and cogeneration.
- Sets a contingent expiration date of July 1, 2027 (or earlier if certain repayment conditions occur) for prior gas tax exemption provisions from the 2017 3rd special session.
Who is affected
- Gas distribution businesses — Gas distribution businesses that use natural or compressed natural gas to produce transportation fuel (e.g., for buses or trucks) will no longer be able to claim tax refunds or exemptions after July 1, 2027. Until that date, they must pay sales tax upfront and then apply for quarterly refunds.
- Large technology firms (affiliated groups) — Large tech companies (or affiliated groups) with over 40,000 Washington employees and whose main business is software development, licensing, or services—especially those registered to do business in Washington before 1981—will lose tax exemptions for machinery and equipment used in manufacturing or R&D.
- Aluminum and silicon smelters — Aluminum and silicon smelters will continue to be exempt from the natural gas use tax until January 1, 2027 (aluminum) or indefinitely (silicon), but must file annual reports to maintain the exemption.
- Manufacturers and R&D businesses — Manufacturers, processors, and testing facilities (including software developers and newspaper printers) may lose tax exemptions for machinery and equipment if they are part of a large affiliated group meeting specific criteria.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (5)
Generating hundreds of millions in new annual revenue supports critical public services—including public safety, mental health crisis response, and emergency services—that are underfunded and increasingly strained across Washington.
Public SafetyPeopleRef: Sec. 1 (findings), Sec. 2–7 (exemption eliminations), Fiscal Impact (‘hundreds of millions of dollars’ to general fund)Increased state revenue from eliminating targeted tax exemptions can be used to fund K–12 education, higher education, and early learning programs—benefiting students, families, and communities, especially in under-resourced districts.
EducationPeopleRef: Sec. 1 (findings), Sec. 2–7 (exemption eliminations), Fiscal ImpactNew revenue supports Medicaid (Apple Health) expansion, mental health services, and substance use treatment—critical services that disproportionately benefit low- and middle-income Washingtonians.
HealthcarePeopleRef: Sec. 1 (findings), Sec. 2–7 (exemption eliminations), Fiscal ImpactMaintaining exemptions for aluminum and silicon smelters helps preserve high-wage manufacturing jobs in Washington—particularly in rural communities where these facilities are major employers.
Business & EmploymentLean peopleRef: Sec. 4(5)(a) & Sec. 5(5)(a) (exemptions retained for aluminum and silicon smelters until Jan. 1, 2027 or indefinitely)Expanding the definition to include digital goods clarifies tax treatment for software and digital content used in manufacturing/R&D—reducing ambiguity and compliance risk for tech-adjacent manufacturers and software developers not in large affiliated groups.
Business & EmploymentLean peopleRef: Sec. 2(2)(a) (includes digital goods in definition of ‘machinery and equipment’ for exempt uses)
Potential Concerns (5)
Eliminating the gas tax exemption for transportation fuel increases fuel costs for businesses and individuals using natural gas, CNG, or LNG as vehicle fuel (e.g., municipal buses, delivery fleets, some private fleets), raising operating expenses and potentially leading to higher prices for goods/services.
FinancialIndustryRef: Sec. 2(1)(iv) (gas refund exemption ends July 1, 2027); Sec. 3(4) (same); Sec. 4(6) & Sec. 5(6) (consumer gas-for-transportation-fuel exemption ends July 1, 2027); Sec. 7(1)(a)-(b) (sales exemption for gas-to-transportation-fuel ends July 1, 2027)Large tech firms with >40,000 WA employees and pre-1981 registration will lose manufacturing/R&D machinery/equipment tax exemptions—potentially increasing their WA tax burden by tens of millions annually—reducing capital investment and possibly slowing hiring or prompting relocation of operations out of state.
Business & EmploymentIndustryRef: Sec. 2(4)(b)(i)-(iii) & Sec. 3(4) (‘Ineligible person’ definition targeting large tech-affiliated groups meeting specific criteria)The pre-2027 requirement that gas distribution businesses pay tax upfront and wait for quarterly refunds creates cash-flow strain, especially for smaller distributors, potentially increasing borrowing costs or delaying maintenance and infrastructure upgrades.
FinancialLean peopleRef: Sec. 2(1)(b)-(c)(i) (requires gas distribution businesses to pay tax upfront and apply quarterly for refunds until July 1, 2027)The tightened statutory definition of exempt machinery and equipment may reduce the number of qualifying purchases for many manufacturers and R&D firms—even those not in large affiliated groups—potentially increasing tax liability for small- and mid-sized firms that rely on building-integrated equipment or fixtures.
Business & EmploymentRef: Sec. 2(2)(b)(i)-(iv) (narrower definition of ‘machinery and equipment’ excludes buildings, hand tools, and non-integral fixtures)Imposing new reporting requirements on smelters (even though exemptions remain) increases administrative burden and compliance costs, disproportionately affecting smaller smelter operators who lack dedicated tax or regulatory staff.
Business & EmploymentLean peopleRef: Sec. 4(5)(b) & Sec. 5(5)(b) (aluminum smelters must file annual performance reports to retain exemption)
Who Is Most Affected
Large tech firms meeting the ‘ineligible person’ criteria will face significantly higher tax liability—potentially tens of millions per year—reducing capital investment in WA and possibly prompting relocation of operations or R&D out of state.
Municipal transit agencies, waste-water treatment facilities, and private fleet operators using CNG/LNG for buses, garbage trucks, or delivery vehicles will face higher fuel costs starting July 2027, potentially raising service costs or fares.
Aluminum smelters retain their exemption until Jan. 1, 2027 but now face new reporting obligations—adding administrative cost and complexity, especially for smaller operators.
Small- and mid-sized manufacturers and R&D firms not in large affiliated groups may face higher tax liability due to the narrower definition of ‘machinery and equipment’ and exclusion of buildings/fixtures—even if they don’t qualify as ‘ineligible persons.’
Low- and middle-income Washingtonians benefit from increased state revenue funding public safety, education, healthcare, and housing programs—especially in communities disproportionately affected by underfunding.