HOUSE BILL REPORT
HB 1646
As Reported by House Committee On:
Technology, Energy & Communications
Title: An act relating to tax incentives for alternative fuels.
Brief Description: Providing tax incentives for alternative fuel.
Sponsors: Representatives B. Sullivan, Holmquist, Upthegrove, Linville, Blake, Morris, Orcutt, Lovick, Campbell, Chase, Williams, Schindler, Wood, Rodne, Sells, Hinkle and Simpson.
Brief History:
Technology, Energy & Communications: 2/15/05, 2/22/05 [DPS].
Brief Summary of Substitute Bill |
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HOUSE COMMITTEE ON TECHNOLOGY, ENERGY & COMMUNICATIONS
Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 11 members: Representatives Morris, Chair; Kilmer, Vice Chair; Crouse, Ranking Minority Member; Haler, Assistant Ranking Minority Member; Ericks, Hudgins, Nixon, P. Sullivan, Sump, Takko and Wallace.
Staff: Sarah Dylag (786-7109).
Background:
Alternative Fuels
Biodiesel is a non-petroleum diesel fuel produced from renewable resources such as
vegetable oils, animal fats, and recycled cooking oils. It can be blended at any percentage
with petroleum diesel or used as a pure product (neat diesel). Like petroleum diesel,
biodiesel operates in compression-ignition engines.
Alcohol fuels are made from crops such as corn and sugar cane, and waste products such as
waste paper, grasses, or tree trimmings. Methanol and ethanol are two types of alcohol fuels
used in vehicles. Methanol is also produced from fossil fuels such as natural gas.
Additional alternative fuels include natural gas and methane. Natural gas is made up
primarily of methane with trace amounts of other gases. It can be stored as compressed
natural gas or liquefied natural gas.
Business and Occupation Tax
The business and occupation (B&O) tax is Washington's major business tax. The B&O tax is
imposed on the gross receipts of business activities conducted within the state. Revenues are
deposited in the State General Fund.
Under current law, deduction from the B&O tax is provided for income from the sale or
distribution of biodiesel fuels, alcohol fuels, and wood biomass fuel. A preferential B&O tax
rate of 0.138 percent is provided for manufacturers of alcohol fuel, biodiesel fuel, biodiesel
feedstock, and wood biomass fuel. The rate will expire on July 1, 2009.
Retail Sales and Use Taxes
The state retail sales tax rate is 6.5 percent and is imposed on the retail sale of most items of
tangible personal property and some services. Sales tax is paid by the purchaser and
collected by the seller. Sales tax revenue is deposited in the State General Fund.
The use tax is imposed on the use of an item in this state when the acquisition of the item has
not been subject to sales tax. The use tax applies to items purchased from sellers who do not
collect sales tax, items acquired from out-of-state, and items produced by the person using
the item. Use tax is equal to the sales tax rate multiplied by the value of the property used.
Use tax is paid directly to the Department of Revenue. Use tax revenue is deposited in the
State General Fund.
Exemption from retail sales and use tax is also allowed for machinery and equipment used
directly to facilitate the retail sale of biodiesel, alcohol, or wood biomass fuel blend or for
vehicles used to deliver such fuels. The exemption includes services associated with the
construction of structures to facilitate the sale of those fuels. Exemption from the retail sales
and use tax is also allowed for sales of fuel delivery vehicles or to sales of or charges made
for labor and services rendered in respect installing , repairing, cleaning, altering, or
improving the vehicles if at least 75 percent of the fuel distributed by the vehicles is a
biodiesel or alcohol fuel blend. These exemptions are scheduled to expire on July 1, 2009.
Property Tax and Leasehold Excise Tax
All property in this state is subject to the property tax each year based on the property's value,
unless a specific exemption is provided by law.
Property owned by federal, state, or local governments is exempt from the property tax.
However, private lessees of government property are subject to the leasehold excise tax. The
purpose of the leasehold excise tax is to impose a tax burden on persons using
publicly-owned, tax-exempt property similar to the property tax that they would pay if they
owned the property. The tax is collected by public entities that lease property to private
parties.
Under current law, leasehold interests in real and personal property used primarily for
manufacturing alcohol fuel, biodiesel fuel, and wood biomass fuel are exempt from leasehold
tax for the first six years after the facility is operational.
Summary of Substitute Bill:
Tax incentives are established to encourage the manufacture of alternative fuels and the B&O
tax rate is established for those engaged in the manufacture of alternative fuels.
Alternative fuel is defined as:
Business and Occupation Tax
For purposes of payment of the business and occupation tax, those engaged in the
manufacture of alternative fuel, as defined above, pay at the rate of 0.138 percent on their
gross receipts. Those engaged in manufacture of natural gas liquefaction equipment,
including equipment to produce compressed natural gas pay at the rate of 0.138 percent on
their gross receipts.
These B&O tax rates expire on July 1, 2015 or July 1 of the year following the year in which
the Department of Licensing estimates that the aggregate volume of alternative fuels sold at
retail for vehicular purposes represents 20 percent of the aggregate volume of all fuels sold at
retail for vehicular purposes, if that date is earlier than the set expiration date.
Sales and Use Tax Exemptions
Beginning on July 1, 2005, a sales and use tax exemption applies to sales and use of tangible
personal property used in the construction of a manufacturing facility that primarily
manufactures alternative fuel, as defined above. An exemption is also provided for charges
made for labor and services with respect to the construction of a manufacturing facility that is
used primarily to manufacture alternative fuel.
Beginning on July 1, 2005, a sales and use tax exemption applies to fuel storage tanks,
delivery vehicles, or associated facilities if the fuel distributed by the vehicles is liquified
natural gas manufactured from renewable waste, or stranded sources of methane gas. Labor
and services rendered with respect to installing, repairing, cleaning, altering, or improving
fuel storage tanks, delivery vehicles, or associated facilities are also exempt from the sales
and use tax if the fuel distributed by the vehicles is liquified natural gas manufactured from
renewable waste, or stranded sources of methane gas.
The exemptions expire on July 1, 2015 or July 1 of the year following the year in which the
Department of Licensing estimates that the aggregate volume of alternative fuels sold at retail
for vehicular purposes represents 20 percent of the aggregate volume of all fuels sold at retail
for vehicular purposes, if that date is earlier than the set expiration date.
Property and Leasehold Excise Tax Exemption
Beginning on July 1, 2005, real and personal property used to manufacture an alternative fuel
is exempt from property and leasehold tax for the first six years following completion of the
manufacturing facility. For manufacturing facilities that manufacture products in addition to
alternative fuels, the amount of the exemption is based on an annually determined percentage
of fuel produced that is alternative fuel.
No new claims for exemption will be approved after December 31, 2009. The exemption for
property tax expires on January 1, 2016 and the exemption for leasehold excise tax expires on
July 1, 2015 or in the year following the year in which the Department of Licensing estimates
that the aggregate volume of alternative fuels sold at retail for vehicular purposes represents
20 percent of the aggregate volume of all fuels sold at retail for vehicular purposes, if that
date is earlier than the set expiration date.
Substitute Bill Compared to Original Bill:
Adds a benchmark expiration date so that the incentives will expire if aggregate volume of
alternative fuels sold at retail for vehicular purposes represents 20 percent of the aggregate
volume of all fuels sold at retail for vehicular purposes, if that date is earlier than the set
expiration date.
Appropriation: None.
Fiscal Note: Requested on February 18, 2005.
Effective Date of Substitute Bill: The bill contains an emergency clause and takes effect on July 1, 2005.
Testimony For: This promotes alternative fuels in the State of Washington. This is a "good
jobs" bill and helps the economy. It helps manufacturing for alternative fuels and will
promote the industry.
This bill is part of a collection of bills whose goal is to provide a short term push to new
industries in the state. There is no one alternative that is perfect and no one alternative that
will replace all of the petroleum used. These are targeted incentives, with caps. There are
performance measures and sunset dates. The incentives build on what already exists and is
consistent with the Governor's executive order.
These incentives will not only clean up the environment, but will also create jobs across the
state. Washington can be a leader with using alternative fuels. Additional incentive should
be provided for electric vehicles.
Testimony Against: None.
Persons Testifying: Representative B. Sullivan, prime sponsor; Linda Graham, Puget Sound Clean Cities Coalition; Jim Armstrong, Spokane County Conservation District; Lyle Rudensey, University of Washington; John Plaza, Seattle Biodiesel; Steve Lough, Seattle Electric Vehicle Association; and Dan Clarkson, Promethius Energy Company.