Washington Gov. Jay Inslee signed a bill into law that key players hope will be a boon for the semiconductor industry statewide and may open the door for more federal funding.
House Bill 2482 extended two tax preferences for the semiconductor industry that were due to expire in 2028. The bill also reinstated six other tax preferences that expired in January. The bill, signed by Inslee last week, was sponsored by Rep. Paul Harris (R-Vancouver), Rep. Sharon Tomiko Santos (D-Seattle), and Rep. Monica Stonier (D-Vancouver).
The tax preferences are “an important signal that Washington state is invested in helping companies unlock federal CHIPS Act funding,” said Jennifer Baker, president and CEO of the Columbia River Economic Development Council in Vancouver, Wash.
The bipartisan CHIPS and Science Act, passed in 2022, had the goal of infusing $52 billion into the domestic semiconductor industry to keep the U.S. competitive with countries such as China and other rivals.
However, while it seemed as if most of the CHIPS Act money had already been tapped into, Congress is lagging when it comes to appropriating the authorized funds, according to Baker and a recent report from Politico.
The two existing tax preferences give the semiconductor industry a reduced business and occupation (B&O) tax rate and exempt the state sales and use tax for manufacturers or producers purchasing goods related to semiconductor production.
The six reinstated tax preferences include further B&O and sales and use tax preferences. With the passage of the bill, this collection of preferences won’t expire until 2034. A long deadline like that allows “for predictability in the business environment,” said Baker.
According to Joseph Williams, the state’s Information and Communications Technology (ICT) sector lead, Washington is at a disadvantage compared to other states because the state cannot invest directly into the semiconductor industry, as codified in the state constitution, which prohibits any gift of funds to private business industries.
To win many of the CHIPS Act funds, states must demonstrate a “local match,” according to Williams. While Washington can’t match those funds with actual investments, tax relief dollars count as a form of matched funds, he said.
“This industry is 100% focused on incentives,” Williams said. “Other states have more resources toward this than we do.”
In Arizona, Intel is building two whole semiconductor fabrication plants, or fabs, and, with them, 3,000 jobs. The state, in turn, is investing in everything from childcare, training programs, and industry partnerships. Because of support from state and federal tax benefits, South Korean chipmaker SK hynix announced it will build a $4 billion packaging facility in Indiana.
“We’re at a competitive disadvantage,” Williams said.
Relaxed B&O and sales and use taxes could also attract new business. But one of the main benefits will be to the existing industry.
Baker believes the reinstatement and extension of these tax preferences will support an already-thriving semiconductor industry in her region, Clark County, where companies such as TSMC Washington and SEH America are based.
“The legislation supports our existing semiconductor manufacturers with expansion and modernization,” Baker said.
There’s not much new in these preferences, either — they already existed. However, the six reinstated tax preferences were contingent upon a $1 billion investment from a semiconductor manufacturer. That investment never happened with the last run of these tax preferences. Now, with the new bill, those six preferences are contingent upon a $500 million combined investment of “new buildings, new equipment, and new machinery,” according to the bill’s language.
“That’s great in Clark County because it brings the incentive threshold closer to the reach of the scale of semiconductor industry players who we would be able to facilitate with land and utility amenities here,” Baker said.
All of this can only help make Washington state more attractive for more CHIPS dollars.
But, as Baker put it, softening these particular taxes for the semiconductor industry “is just one tool in the toolkit that Washington state has to unlock those funds.”
Another tool in the kit? Research. The University of Washington already secured $10 million in CHIPS funds for workforce development. And because of its research involving semiconductors and the mass timber industry, Oregon State University is eligible for around $150 million in CHIPS funding.
“Those are signals from industry and higher education in the Pacific Northwest that we recognize the semiconductor industry is important and are leaning into opportunities to research and be a contributor to a national and globally significant industry,” Baker said.
In Clark County, Washington State University’s Vancouver campus has PhD students researching the conductive properties of different organic matter. They’re currently researching whether honey can replace silicon in computers, making a faster, cleaner computing process.
“It’s not like we’re landing a number one draft pick in the NFL here,” Williams said, soberingly, of the tax preferences. “But we’re still here. They allow us to at least be in the game.”
