BP BHEAD INT H

AN ACT Relating to the removal of tax policy barriers to economic development; adding new sections to chapter 82.08 RCW; adding a new section to chapter 82.12 RCW; adding a new section to chapter 82.01 RCW; adding new sections to chapter 43.131 RCW; creating a new section; and providing an effective date.

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

NEW SECTION. Sec. 1. The legislature finds and declares that:

(1) The health, safety, and welfare of the people of the state of Washington are heavily dependent upon the continued encouragement, development, and expansion of opportunities for family wage employment in our state's private sector;

(2) The state's private sector must be encouraged to commit to continuous improvement of process, products, and services and to deliver high-quality, high-value products through technological innovations and high-performance work organizations;

(3) The state's opportunities for increased economic dealings with other states and nations of the world are dependent on supporting and attracting a diverse, stable, and competitive economic base of private sector employers;

(4) The state's current policy of applying its sales and use taxes to the acquisition of machinery, equipment, chemicals, materials, and labor used in manufacturing, research, and development, and other activities has placed our state's private sector at a competitive disadvantage with other states and serves as a significant disincentive to the continuous improvement of products, technology, and modernization necessary for the preservation, stabilization, and expansion of employment and to ensure a stable economy; and

(5) It is vital to the continued development of economic opportunity in this state, including the development of new businesses and the expansion/modernization of existing businesses, that the state of Washington remove tax policy barriers to entities making a commitment to facilities and operations in this state.

NEW SECTION. Sec. 2. A new section is added to chapter 82.08 RCW to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout sections 2 through 5 of this act.

(1) "Agricultural operation" means an activity of a commercial nature in which labor or skill is applied, by hand or machinery, necessary to grow or harvest a food crop, raise or produce livestock, grow or harvest fish, shellfish, or other fresh or saltwater marine life, grow or harvest Christmas trees, grow or harvest horticultural or floricultural products, including nursery or seed stock, grow or harvest timber or other silvicultural products, including nursery or seed stock, or an activity that is a combination of these activities.

(2) "Assembling operation" means an activity of a commercial or industrial nature in which labor or skill is applied, by hand or machinery, to fit or join together into a group or a whole, a substance or article of tangible personal property.

(3) "Chemical" means a catalyst, solvent, water, acid, oil, or other additive that physically or chemically interacts or comes in contact with the product and that is an integral part of the manufacturing, assembling, processing, fabricating, research and development, mining, or agricultural operation.

(4) "Fabricating operation" means an activity of a commercial or industrial nature in which labor or skill is applied, by hand or machinery, to make, build, create, produce, or assemble components or tangible personal property the result of which is an item of tangible personal property that operates in a new or different manner.

(5) "Labor" means a service related to the installing, repairing, cleaning, altering, imprinting, or improving of tangible personal property whether or not the service was performed by the taxpayer or another party.

(6) "Machinery" and "equipment" mean an item of real or tangible personal property, including repair and replacement parts for the real or tangible personal property, that is used in a manufacturing, assembling, processing, fabricating, research and development, mining, or agricultural operation to:

(a) Act upon or interact with an item of tangible personal property or materials;

(b) Provide preparatory treatment of an item of tangible personal property or materials;

(c) Convey, transport, handle, or temporarily store an item of tangible personal property or materials at the facility or plant;

(d) Control, guide, measure, tune, verify, align, regulate, test, or physically support an item of tangible personal property or materials;

(e) Protect the health and safety of employees or others present during the operation;

(f) Control the physical environment during the operation; and

(g) Produce power for, lubricate, clean, or keep clean an item of real or personal property;

This definition also includes other items of real or tangible personal property that are otherwise necessary for, or are legally required for, the functioning or performance of a manufacturing, assembling, processing, fabricating, research and development, mining, or agricultural operation.

(7) "Manufacturing operation" means an activity of a commercial or industrial nature in which labor or skill is applied, by hand or machinery, to materials so that as a result of the activity a new, different, or useful substance or article of tangible personal property is produced for sale or commercial or industrial use and including the packaging of the property. This definition also includes the production or fabrication of special made or custom-made articles.

(8) "Materials" means an item of tangible personal property used or consumed in a manufacturing, assembling, processing, fabricating, research and development, mining, or agricultural operation including, but not limited to, tools, lubricating and compounding oils, grease, anodes, filtering materials, dies, molds, jigs, and refrigerants.

(9) "Mining operation" means an activity of a commercial or industrial nature in which labor or skill is applied, by hand or machinery, to extract from the earth or other strata any substance.

(10) "Processing operation" means an activity of a commercial or industrial nature in which labor or skill is applied, by hand or machinery, to bring into contact the materials and labor necessary to modify, change, or convert the characteristics of an article of tangible personal property.

(11) "Research and development operation" means the basic and applied research done before commercial sales have begun that has as its objective the design, development, refinement, testing, marketing, and commercialization of a product, service, or process or the expansion of uses for existing products, services, or processes.

NEW SECTION. Sec. 3. A new section is added to chapter 82.08 RCW to read as follows:

The taxes levied under this chapter shall not apply to the sales or use of machinery, equipment, chemicals, materials, and labor used in a manufacturing, assembling, processing, fabricating, research and development, mining, or agricultural operation.

NEW SECTION. Sec. 4. A new section is added to chapter 82.12 RCW to read as follows:

(1) The taxes levied under this chapter shall not apply to the sales or use of machinery, equipment, chemicals, materials, and labor used in a manufacturing, assembling, processing, fabricating, research and development, mining, or agricultural operation.

(2) Section 2 of this act applies to this section.

NEW SECTION. Sec. 5. A new section is added to chapter 82.01 RCW to read as follows:

The department of revenue and the department of community, trade, and economic development shall by January 1, 2000, issue a joint report to the legislature about the effects of chapter . . ., Laws of 1994 (this act) on manufacturing, assembling, processing, fabricating, research and development, mining, or agricultural operations in this state. In addition to the amount of the exemptions granted under this chapter, the report must provide a net economic impact study that includes but is not limited to:

(1) The number of new or amount of expanded/modernized manufacturing, assembling, processing, fabricating, research and development, mining, or agricultural operations;

(2) The productivity increases and flexible workplaces generated by upgraded machinery, equipment, and other items exempted under this chapter;

(3) The jobs created, preserved, or stabilized as a result of this exemption program;

(4) The increased amount of payroll resulting from this exemption program;

(5) The economic benefit of increased property, business and occupation, and sales and use tax collections from the utilization of this exemption program; and

(6) The multiplier effect, both from the supplier side and consumer side, created by this exemption program.

NEW SECTION. Sec. 6. A new section is added to chapter 43.131 RCW to read as follows:

The tax exemption program created under chapter . . ., Laws of 1994 (this act) shall be terminated on June 30, 2000, as provided in section 7 of this act.

NEW SECTION. Sec. 7. A new section is added to chapter 43.131 RCW to read as follows:

The following acts or parts of acts are each repealed, effective June 30, 2001:

(1) Section 2 of this act;

(2) Section 3 of this act;

(3) Section 4 of this act; and

(4) Section 5 of this act.

NEW SECTION. Sec. 8. This act shall take effect July 1, 1994.