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Carlyle Cues Up Fight with Microsoft Over High-Tech Tax Breaks

State Rep. Reuven Carlyle says he wants "a real-deal" conversation about the supposed benefits of a set of high-tech R&D tax breaks.

By Josh Feit November 25, 2013

Seattle state house Rep. Reuven Carlyle (D-36, Queen Anne, Ballard), the chair of the house finance  committee, sent the first tweet across the bow in what's likely to be a battle this session with high-tech giants such as Microsoft, Facebook, Google, and Amazon.

In the tweet, with a link to the latest public info on how much money a pair of high-tech industry tax breaks cost the state, Carlyle said simply (though weirdly referring to himself in the third person): "Carlyle releases latest state data of WA high tech R&D [research and development] and sales tax benefits by company: Policy review in 2014."

Carlyle, a techy, data-driven Democrat, only wants to renew the tax breaks, which are set to expire in mid-2014, for smaller tech companies, suggesting startups with revenues between $50 and $75 million. (Microsoft, which also gets the breaks, had $70 billion in revenue last year.)

Rep. Carlyle is looking at closing the breaks for big companies. (One break lets companies out of paying sales tax on construction and equipment for new R&D facilities and the other lets companies subtract R&D expenditures of up to $2 million off their B&O tax bill). Microsoft, for example, has cost the the state $147 million between 2004 and 2009 on the construction and equipment sales tax break—and $18 million in 2012—while costing the state $2 million (the maximum) last year with the R&D reduction break.

"It is not clear ... how many new jobs have been added. It is also not clear ... how much of an increase in R&D spending has occurred as a result of the tax preferences." Rep. Carlyle, did, in fact,  propose closing the breaks for big companies last year as part of a house Democratic package to close $500 million in tax breaks overall. That proposal, which dedicated the revenue from closing the high-tech breaks to the UW, WSU, and Western for electrical, mechanical, and software engineering education, failed. 

Carlyle is clearly cueing the idea right back up for this session. "The data is overwhelming, casting serious doubt about the return on investment for the public," Carlyle says, explaining that a legislative committee review of the R&D breaks "calls into question the core idea that these incentives are creating incremental job growth."

He says: "I'm not being religious or ideological about this. Let's just put the data on the table and find a win for high-tech and the public."

You can read the Joint Legislative Audit Review Committee (JLARC) report on the two R&D tax breaks here, but ultimately the committee found "mixed" results, and pointed out pessimistically: "It is not clear ... how many new jobs have been added. It is also not clear ... how much of an increase in R&D spending has occurred as a result of the tax preferences."

The JLARC report (done in 2012), also notes the average cost to the state of each new job created by the tax breaks is $45,000 while the net earnings are $25,000.

We have a call in to Microsoft's Olympia lobbyist Delee Shoemaker.



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