SENATE BILL REPORT

SB 5096

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As of January 22, 2001

Title:  An act relating to tax deferrals in rural counties.

Brief Description:  Changing provisions for tax deferrals in rural counties.

Sponsors:  Senators T. Sheldon, Sheahan, Gardner, Honeyford, Hargrove, Rasmussen, Costa and Haugen.

Brief History:

Committee Activity:  Economic Development & Telecommunications:  1/24/01.

______________________________________________________________________________SENATE COMMITTEE ON ECONOMIC DEVELOPMENT & TELECOMMUNICATIONS

Staff:  Andrea McNamara (786‑7483)

Background:  The distressed area sales and use tax deferral program grants a deferral of sales and use tax to qualified businesses making eligible investments in designated areas of the state.  Although it is called a deferral program, repayment obligations are waived when all qualifications are met for a specified period of time.

Qualified businesses include manufacturing, research and development, and computer-related service businesses that locate or expand in an eligible area of the state.  The sales and use tax deferral applies to investments made in construction (including labor and services) and certain machinery and equipment.  Eligible area designations have been changed by the Legislature over time, but currently they include all rural counties, community empowerment zones, and counties containing community empowerment zones under certain conditions.  For businesses locating in a community empowerment zone or a county with a community empowerment zone, they must also meet certain employment obligations to qualify for the deferral.

Repayment of the deferred taxes is waived when all program requirements are met and the facility is used for qualified activities for a period of seven years.  The Department of Revenue (DOR) has certified 100 projects since 1985 under this program and deferred/waived approximately $20 million in sales and use taxes.

The distressed area business and occupation (B&O) tax credit program for new employees provides a credit against the B&O tax for each new eligible employment position filled and maintained by qualified businesses located in designated areas of the state.

Qualified businesses include manufacturing, research and development, and computer-related service businesses that locate or expand in an eligible area of the state.  Eligible area designations have been changed by the Legislature over time, but currently they include all rural counties and community empowerment zones.  Businesses must create a new work force in Washington, so credit is not available for positions that are transferred from an established site in the state. Businesses may also qualify by expanding their existing work force at an established site by a 15 percent average increase.

A business may earn a $2,000 credit for each new qualified employment position with annual wages and benefits of $40,000 or less; or a credit of $4,000 for each new employment position with wages and benefits over $40,000 annually.  The Department of Revenue has processed over 100 applications for B&O credits under this program and issued more than $7.5 million in credits.

Summary of Bill:  The distressed area sales and use tax deferral is no longer available for a project in a county that contains a community empowerment zone and draw employees from the community empowerment zone.

The distressed area business and occupation tax credit for new employees is extended to allow credit for jobs that are created as a result of the relocation of a business into a rural area or community empowerment zone.  It remains impermissible to use the tax credits to displace existing jobs in any community empowerment zone or to obtain credit for relocating from one area of a rural county to another.

Legislative intent language from the original enactment of the program is amended to refer to ?rural@ areas instead of ?distressed@ areas.

Definitions are reordered.

Appropriation:  None.

Fiscal Note:  Requested on January 17, 2001.

Effective Date:  Ninety days after adjournment of session in which bill is passed.