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AN ACT Relating to encouraging new business start-ups; amending RCW 82.60.020, 82.60.050, 82.61.040, 82.62.010, 82.62.030, and 82.62.040; adding a new section to chapter 28B.50 RCW; adding new sections to chapter 43.31 RCW; adding new sections to chapter 82.04 RCW; adding a new section to chapter 84.36 RCW; adding a new section to chapter 51.16 RCW; creating a new section; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature finds that new small business start-ups are a vital part of Washington's economic development and a critical source of jobs for Washington's citizens. The legislature finds that start-up businesses face many obstacles in their first few years, resulting in many business failures in the early years of existence, and resulting in fewer start-ups because of the discouragement these obstacles create in entrepreneurs. It is the intent of this act to promote the creation and success of new small businesses through entrepreneurial training, technical assistance, and tax credits and deferrals.

NEW SECTION. Sec. 2. A new section is added to chapter 28B.50 RCW to read as follows:

The board, in consultation with the department of trade and economic development and the small business development center, shall develop seminars, courses, or other activities to promote development of entrepreneurial skills among the general public.

NEW SECTION. Sec. 3. A new section is added to chapter 43.31 RCW to read as follows:

The department, in consultation with the small business development center, shall provide technical assistance to small business start-ups in Washington state. This assistance shall include an effort to provide a one-stop source for state assistance available to start-up businesses. The department shall also identify, to the extent practicable, new business opportunities for small business start-ups in distressed areas.

Sec. 4. RCW 82.60.020 and 1988 c 42 s 16 are each amended to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Applicant" means a person applying for a tax deferral under this chapter.

(2) "Department" means the department of revenue.

(3) "Eligible area" means: (a) A county in which the average level of unemployment for the three years before the year in which an application is filed under this chapter exceeds the average state unemployment for those years by twenty percent; or (b) a metropolitan statistical area, as defined by the office of federal statistical policy and standards, United States department of commerce, in which the average level of unemployment for the calendar year immediately preceding the year in which an application is filed under this chapter exceeds the average state unemployment for such calendar year by twenty percent. ((~~Applications under this subsection (3)(b) shall be filed by April 30, 1989.~~))

(4)(a) "Eligible investment project" means that portion of an investment project which:

(i) Is directly utilized to create at least one new full-time qualified employment position for each three hundred thousand dollars of investment on which a deferral is requested; and

(ii) Either initiates a new operation, or expands or diversifies a current operation by expanding or renovating an existing building with costs in excess of twenty-five percent of the true and fair value of the plant complex prior to improvement; ((or))

(iii) Acquires machinery and equipment to be used for either manufacturing or research and development if the machinery and equipment is housed in a new leased structure((~~: PROVIDED, That~~)). The lessor/owner of the structure is not eligible for a deferral unless the underlying ownership of the buildings, machinery, and equipment vests exclusively in the same person; or

(iv) Is a new business.

For the purposes of this subsection (4)(a)(iv) "new business" means a person or company, as defined in RCW 82.04.030, located in this state that first registered, or that was first legally required to register, with the department within the five-year period preceding the year in which application is made for a deferral under this chapter. For out-of-state entities first engaging in business in this state, "new business" means a person or company, as defined in RCW 82.04.030, located outside this state that first registered, or that was first legally required to register, for tax purposes with a state or federal agency within the five-year period preceding the year in which application is made for a deferral under this chapter. "New business" does not include a preexisting person or company, as defined in RCW 82.04.030, that is restructured, reorganized, or sold, unless the business to be conducted after restructuring, reorganization, or sale is significantly different from the business previously conducted, or businesses primarily engaged in retail trade or consumer service. "New business" does not include the establishment of a new branch location or other facility except by an existing out-of-state entity first doing business in this state.

(b) "Eligible investment project" does not include any portion of an investment project undertaken by a light and power business as defined in RCW 82.16.010(5) or investment projects which have already received deferrals under this chapter.

(5) "Investment project" means an investment in qualified buildings and qualified machinery and equipment, including labor and services rendered in the planning, installation, and construction of the project.

(6) "Manufacturing" means all activities of a commercial or industrial nature wherein labor or skill is applied, by hand or machinery, to materials so that as a result thereof a new, different, or useful substance or article of tangible personal property is produced for sale or commercial or industrial use and shall include the production or fabrication of specially made or custom made articles. "Manufacturing" also includes computer programming, the production of computer software, and other computer-related services, and the activities performed by research and development laboratories and commercial testing laboratories.

(7) "Person" has the meaning given in RCW 82.04.030.

(8) "Qualified buildings" means new structures used for manufacturing and research and development activities, including plant offices and warehouses or other facilities for the storage of raw material or finished goods if such facilities are an essential or an integral part of a factory, mill, plant, or laboratory used for manufacturing or research and development. If a building is used partly for manufacturing or research and development and partly for other purposes, the applicable tax deferral shall be determined by apportionment of the costs of construction under rules adopted by the department.

(9) "Qualified employment position" means a permanent full-time employee employed in the eligible investment project during the entire tax year.

(10) "Qualified machinery and equipment" means all new industrial and research fixtures, equipment, and support facilities that are an integral and necessary part of a manufacturing or research and development operation. "Qualified machinery and equipment" includes: Computers; software; data processing equipment; laboratory equipment; manufacturing components such as belts, pulleys, shafts, and moving parts; molds, tools, and dies; operating structures; and all equipment used to control or operate the machinery.

(11) "Recipient" means a person receiving a tax deferral under this chapter.

(12) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun. As used in this subsection, "commercial sales" excludes sales of prototypes or sales for market testing if the total gross receipts from such sales of the product, service, or process do not exceed one million dollars.

Sec. 5. RCW 82.60.050 and 1988 c 41 s 5 are each amended to read as follows:

RCW 82.60.030 and 82.60.040 shall expire July 1, ((~~1994~~)) 2000.

Sec. 6. RCW 82.61.040 and 1988 c 41 s 2 are each amended to read as follows:

RCW 82.61.020 and 82.61.030 shall expire July 1, ((~~1994~~)) 1993.

Sec. 7. RCW 82.62.010 and 1988 c 42 s 17 are each amended to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Applicant" means a person applying for a tax credit under this chapter.

(2) "Department" means the department of revenue.

(4)(a) "Eligible business project" means manufacturing or research and development activities which are conducted by an applicant in an eligible area at a specific facility((~~: PROVIDED, That~~)). The applicant's average full-time qualified employment positions at the specific facility will be at least fifteen percent greater in the year for which the credit is being sought than the applicant's average full-time qualified employment positions at the same facility in the immediately preceding year.

(b) "Eligible business project" does not include any portion of a business project undertaken by a light and power business as defined in RCW 82.16.010(5) or that portion of a business project creating qualified full-time employment positions outside an eligible area or those recipients of a sales tax deferral under chapter 82.61 RCW.

(5) "Manufacturing" means all activities of a commercial or industrial nature wherein labor or skill is applied, by hand or machinery, to materials so that as a result thereof a new, different, or useful substance or article of tangible personal property is produced for sale or commercial or industrial use and shall include the production or fabrication of specially made or custom made articles. "Manufacturing" also includes computer programming, the production of computer software, and other computer-related services, and the activities performed by research and development laboratories and commercial testing laboratories.

(6) "Person" has the meaning given in RCW 82.04.030.

(7) "Qualified employment position" means a permanent full-time employee employed in the eligible business project during the entire tax year.

(8) "Tax year" means the calendar year in which taxes are due.

(9) "Recipient" means a person receiving tax credits under this chapter.

(10) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun. As used in this subsection, "commercial sales" excludes sales of prototypes or sales for market testing if the total gross receipts from such sales of the product, service, or process do not exceed one million dollars.

Sec. 8. RCW 82.62.030 and 1986 c 116 s 17 are each amended to read as follows:

(1) A person shall be allowed a credit against the tax due under chapter 82.04 RCW of an amount equal to one thousand dollars for each qualified employment position directly created in an eligible business project or, where the applicant is a new business, the credit shall be five thousand dollars for each qualified position directly created in an eligible business project. For purposes of this subsection, "new business" means a person or company, as defined in RCW 82.04.030, located in this state that first registered, or that was first legally required to register, with the department within the five-year period preceding the year in which application is made for a credit under this chapter. For out-of-state entities first engaging in business in this state, "new business" means a person or company, as defined in RCW 82.04.030, located outside this state that first registered, or that was first legally required to register, for tax purposes with a state or federal agency within the five-year period preceding the year in which application is made for a credit under this chapter. "New business" does not include a preexisting person or company, as defined in RCW 82.04.030, that is restructured, reorganized, or sold, unless the business to be conducted after restructuring, reorganization, or sale is significantly different from the business previously conducted, or businesses primarily engaged in retail trade or consumer service. "New business" does not include the establishment of a new branch location or other facility except by an existing out-of-state entity first doing business in this state.

(2) The department shall keep a running total of all credits granted under this chapter during each fiscal biennium. The department shall not allow any credits which would cause the tabulation for a biennium to exceed fifteen million dollars. If all or part of an application for credit is disallowed under this subsection, the disallowed portion shall be carried over for approval the next biennium. However, the applicant's carryover into the next biennium is only permitted if the tabulation for the next biennium does not exceed fifteen million dollars as of the date on which the department has disallowed the application.

(3) No recipient is eligible for tax credits in excess of three hundred thousand dollars.

(4) No recipient may use the tax credits to decertify a union or to displace existing jobs in any community in the state.

(5) No recipient may receive a tax credit on taxes which have not been paid during the taxable year.

Sec. 9. RCW 82.62.040 and 1988 c 41 s 4 are each amended to read as follows:

RCW 82.62.020 and 82.62.030 shall expire July 1, ((~~1994~~)) 2000.

NEW SECTION. Sec. 10. A new section is added to chapter 82.04 RCW to read as follows:

(1) New businesses that have experienced a loss during any year of their first five years of operation shall be allowed a credit for taxes paid or payable, whichever are less, under this chapter. The amount of allowable credit shall be the amount paid or payable in taxes under this chapter by the new business for the year of the loss. The amount of the credit shall not exceed the amount of the loss. Only those taxes based on activities of the new business may be used as credits under this section. Excess credits allowed under this section may be carried over to successive years. No credit claimed under this section may be deducted on a return until the claimed amount has been approved by the department.

(2) For the purposes of this section:

(a) "Loss" means a loss as defined by rule by the department of revenue, which rule will be based on the taxpayer's returns filed with the Internal Revenue Service, as amended or corrected by audit if applicable, and which are then adjusted by deleting amounts reported relating to those business activities, other than interstate sales, which are not taxable under this chapter by the state of Washington. The following general principles for the calculation of profit or loss from Internal Revenue Service forms, to be applied to all taxpayers regardless of business form and in conjunction with the deletions for activities not taxable under this chapter, shall be adopted by the department by rule:

(i) For sole proprietorships, "loss" shall be based on the figure reported to the Internal Revenue Service for net profit or loss, plus depreciation or depletion, for the year by the proprietorship.

(ii) For partnerships, "loss" shall be based on the figure reported to the Internal Revenue Service for total partnership ordinary income or loss, plus depreciation, depletion, and guaranteed payments to partners, for the year by the partnership.

(iii) For corporations, "loss" shall be based on the figure reported to the Internal Revenue Service for taxable income or loss before the application of net operating loss carryovers, plus depreciation and compensation of officers, for the year by the corporation.

If the loss reflects business activities in more than one state, the loss shall be adjusted using the allocation formula in RCW 82.56.010, in accordance with the rules of the department, to determine the portion allocable to activities taxable in Washington under this chapter.

(b) "New business" means a person or company, as defined in RCW 82.04.030, located in this state that first registered, or that was first legally required to register, with the department within the five-year period preceding the year in which application is made for a credit under this section. For out-of-state entities first engaging in business in this state, "new business" means a person or company, as defined in RCW 82.04.030, located outside this state that first registered, or that was first legally required to register, for tax purposes with a state or federal agency within the five-year period preceding the year in which application is made for a credit under this section; and

"New business" does not include a preexisting person or company, as defined in RCW 82.04.030, that is restructured, reorganized, or sold, unless the business to be conducted after restructuring, reorganization, or sale is significantly different from the business previously conducted. "New business" does not include the establishment of a new branch location or other facility except by an existing out-of-state entity first doing business in this state.

(c) "Year" means "taxable year" as defined by the Internal Revenue Code, and includes only those federal reporting periods that are six months or more.

NEW SECTION. Sec. 11. A new section is added to chapter 82.04 RCW to read as follows:

The department shall adopt rules to implement section 10 of this act including rules on the procedure to be followed and information to be submitted to qualify for a credit under section 10 of this act. To support the credit, copies of federal income tax returns as filed with the Internal Revenue Service, and as thereafter amended, shall be submitted as required by the department to determine the amount of the credit sought to be taken. The returns shall include but not be limited to individual, trust, partnership, or corporate returns.

NEW SECTION. Sec. 12. A new section is added to chapter 43.31 RCW to read as follows:

State assistance to a business, including tax deferral, tax credit, technical or financial assistance, or other business assistance provided by the state or a local service provider with state or federal funds may not be rendered, and no funds expended for the assistance, until a business requesting the assistance has:

(1) Demonstrated that an employment position filled as a result of state assistance will not displace a current employee and will be equal to or greater than twice the minimum wage;

(2) Entered into a contractual agreement with the department that:

(a) Requires the business to:

(i) Provide a job description, a description of the skills required, and a salary range to the department for each position made available as a result of state assistance;

(ii) Interview a prospective employee from a list of the unemployed supplied by the department;

(iii) Hire a qualified candidate on the list before hiring a candidate not on the list; and

(iv) Cooperate in conducting training programs that may help the unemployed qualify to be hired; and

(b) Requires the department to:

(i) Solicit lists of unemployed persons with skills appropriate to each job description made available by a business requesting assistance from the employment security department, local private industry councils, local labor unions, and other employment or placement agencies; and

(ii) Work with the employment security department, community and technical colleges, and private industry councils to develop training programs that may help unemployed persons qualify to be hired by the business requesting state assistance.

The director shall adopt rules to carry out this section.

NEW SECTION. Sec. 13. A new section is added to chapter 84.36 RCW to read as follows:

(1) New construction of or physical improvements to buildings on real property where the real property owner is a new business and the improvements to the real property are related to starting up the new business shall be exempt from taxation for the three assessment years subsequent to the completion of the improvements. A taxpayer desiring to obtain the exemption granted by this section must file notice of his or her intention to construct the improvements prior to the improvements being made, on forms prescribed by the department of revenue, and furnished to the taxpayer by the county assessor. This exemption cannot be claimed more than once in a five-year period.

(2) For purposes of this section, "new business" means a person or company, as defined in RCW 82.04.030, located in this state that first registered, or that was first legally required to register, with the department within the five-year period preceding the year in which application is made for an exemption under this section. For out-of-state entities first engaging in business in this state, "new business" means a person or company, as defined in RCW 82.04.030, located outside this state that first registered, or that was first legally required to register, for tax purposes with a state or federal agency within the five-year period preceding the year in which application is made for a deferral under this chapter. "New business" does not include a preexisting person or company, as defined in RCW 82.04.030, that is restructured, reorganized, or sold, unless the business to be conducted after restructuring, reorganization, or sale is significantly different from the business previously conducted, or businesses primarily engaged in retail trade or consumer service. "New business" does not include the establishment of a new branch location or other facility except by an existing out-of-state entity first doing business in this state.

(3) The department of revenue shall adopt rules as necessary and convenient to properly administer the provisions of this section.

NEW SECTION. Sec. 14. A new section is added to chapter 51.16 RCW to read as follows:

(1) New businesses shall be exempt from the premiums required under RCW 51.16.035 for their first three years of operation. After the first three years, the premiums the department establishes under RCW 51.16.035 shall apply to new businesses.

(3) No exemptions shall be granted under this section after June 30, 2000.

NEW SECTION. Sec. 15. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 16. This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and shall take effect immediately.