Aerospace Tax Breaks Often Left Unclaimed

Despite attempts by Washington lawmakers to ease taxes for aerospace companies, a surprising few take advantage of the incentives.

In an attempt to land the Boeing Co.’s 787 jet line in 2003, lawmakers passed a series of tax breaks for aerospace companies valued at $3.2 billion. Companies couldn’t cash in on some of those breaks until 2005. But even five years later, only 34 percent of Washington’s aerospace companies claim the tax credits available to them.

Some aerospace companies may not be aware of all the incentives the state offers. It’s particularly difficult for lower level suppliers to know whether their products qualify for incentives, said Chris Laine, an accountant with Moss Adams, at a recent aerospace conference. The state cast a wide net when it decided which companies qualify: direct manufacturers, tooling manufacturers, engineering firms, and Federal Aviation Administration-certified aircraft repair or maintenance stations. These businesses can receive a rate reduction on their business-and-occupation taxes.

Washington companies get a rate reduction on “qualified aerospace product development expenditures,” Laine noted. That means companies can get a break for wages, benefits and supplies that are directly related to developing an aerospace product. Lower level suppliers sometimes don’t know whether the products they’re providing are for aerospace projects still in development or those that are in the production phase.

Any aerospace companies that buy new computers to use in the design or engineering of a new airplane or new airplane parts also qualify for a computer sales tax exemption. Additionally, companies can qualify for property tax breaks on new buildings or manufacturing equipment, depending on the end use.

Laine noted that it is important for aerospace companies to file an annual report by March 31 with the state. That’s how the state knows the number of companies applying for aerospace tax incentives. She encouraged companies to file the report even if they haven’t applied for the tax incentives. The companies can later modify their tax filings.

Many aerospace companies also qualify for federal tax credits, said Tom Sanger with Moss Adams. The federal credit has been in place since 1981 and has been renewed 13 times.

The federal credit is worth applying for, Sanger said. For example, a manufacturer of aircraft components that employs 11 engineers and has an average annual gross revenue of $5 million can qualify for $60,000 annual tax credit.

For more information on Washington tax credits, visit the state department of revenue online: http://dor.wa.gov.

By Michelle Dunlop
Everett Washington HeraldNet