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Originally published January 27, 2013 at 8:00 PM | Page modified January 29, 2013 at 9:29 AM

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Corrected version

High-tech expects breaks while education funding suffers

Seattle Times technology columnist

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If you had to put a face on the tech industry in Olympia, perhaps it should be that of Dudley Dursley, the pudgy, spoiled cousin of Harry Potter.

In the books, you can’t resent Dudley as much as his parents, who raised the boy to expect the world — with extra whipped cream and a few cherries on top. They shower him with treats and gifts, and only begrudgingly toss skinny little Harry a bone now and then.

If you think I’m being harsh, take a look at the latest tax proposals in the Legislature and how lawmakers, amid the latest funding crisis, are treating the state’s huge tech companies.

Microsoft, Amazon.com and others are in line for even more sweets at their annual Olympia lovefest, while ordinary companies and residents are being forced to clean up the mess.

People across the state are facing huge tax increases over the next few years to cover a shortfall in education funding.

Tech companies would be exempt from the proposed tax increases for education, but that wasn’t enough. They’re also lobbying to be sure they keep getting other tax breaks that ordinary business people can only dream about.

What makes this especially galling is that tech companies keep calling for the state to improve its education system, especially when it comes to training their future tech workers.

This pleading works. Despite funding problems in recent years, the state found ways to enlarge the University of Washington’s computer-science and engineering departments, largely by cutting back on other departments.

How are the chief beneficiaries showing their gratitude? By sidestepping the proposed new education taxes.

Basic education is a primary responsibility of the state under the Washington constitution. But for decades, lawmakers have been short-shrifting kids in the state, while ensuring that favorite industries get plenty of goodies.

After school districts sued, the state Supreme Court ordered the state to cover its education-funding shortfall. It’s the biggest issue facing lawmakers this year.

The education-funding proposal left on the table by former Gov. Gregoire would raise taxes on gas, beer and companies doing business in Washington. Not high-tech businesses, though; they would be exempt from the extra 0.3 percent business and occupation tax that builders, bakers, restaurants and most every other business would pay for the next three years.

Collectively, the nontech businesses of the state would pay $248 million more next year under Gregoire’s proposal. Gov. Inslee hasn’t proposed an alternative yet, but don’t count on him pressuring the tech companies that he embraced during his campaign.

The proposed gas tax would start at about 2 percent per gallon and rise to about 5 percent over the next four years. At the high end, that could add perhaps 16 cents to a gallon.

Gregoire’s proposal would also extend a special $15.50 per barrel tax on beer for another three years.

Dudley Dursley will do fine, though. Olympia giveth, as well as taketh.

Amid the education-funding debacle, lawmakers are offering another big gift to tech companies.

First up is House Bill 1303, a proposal to extend a B&O tax credit for tech companies researching and developing new products. Companies can use the credit to reduce their state tax bill by up to $2 million a year. Tech companies took $23.1 million worth of the credits in 2011, the most recent year for which a tally is available.

This deal expires in 2015 but, with HB 1303, a group of eight lawmakers has proposed extending the bill for 20 years — through 2035. A public hearing on the bill is 10 a.m. Tuesday before the House Technology and Economic Development Committee.

I learned about the hearing from an email sent by a tech lobbying group, urging members to testify in support of extending both the B&O credit and an even more generous sales-tax break for tech companies. The sales-tax break also expires in 2015, and it’s a safe bet that someone will propose extending it out into the distant future.

Special tax treatment for “high-tech” companies dates back to the early 1990s, when the state’s software industry was beginning to bloom.

Originally the idea was to help companies developing complicated new products by letting them hold off on paying some taxes until their products went on sale.

Back then Microsoft was still building Windows 95 and Jeff Bezos was a young Wall Street banker.

As these tech companies grew and soared, so did the state’s generosity. The circa 1994 plan to let them defer sales tax on product-development expenses morphed into a sales-tax exemption, and the state extended the program decade by decade.

Whether these tax breaks made a difference is debatable. Although the cost to the state is significant — enough to cover much of its education shortfall — the tax savings are immaterial for the large recipients.

Public assistance makes sense for young companies that may be struggling to pay for product development, before they make their first sales. But after they’ve grown up, they should be embarrassed to be asking for these perpetual handouts.

The biggest beneficiaries of these breaks are now giants. They’re among the most prosperous companies in the world.

Microsoft, the most vocal proponent of improving math and science education, last week reported profit of more than $2 billion per month despite the struggles of the PC industry.

Washington state is doing its part.

Its tech sales tax exemption helped Microsoft and other tech companies avoid paying $31 million in 2011 and $249.8 million in sales taxes over the past eight years.

It’s funny — that’s almost exactly how much Gregoire’s education-funding plan would collect next year from a higher tax on the less privileged companies across the state.

If only there were a friendly wizard to even things out.

Brier Dudley’s column appears Mondays. Reach him at

206-515-5687 or bdudley@seattletimes.com

This column was originally published Jan. 27, 2013, and corrected Jan. 29, 2013. The original version said incorrectly that Washington state’s tech sales tax exemption helped Microsoft and other tech companies avoid paying $249.8 million in sales taxes in 2011. The exemption actually helped the companies avoid paying $31 million in 2011, and $249.8 million in sales taxes over the past eight years.

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