BILL REQ. #:  H-3257.4 

Read first time 01/17/12.   Referred to Committee on Ways & Means.

     AN ACT Relating to modifying business and occupation tax credits and other provisions of the opportunity expansion program; amending RCW 82.04.4452, 28B.145.060, and 28B.145.080; adding a new section to chapter 82.04 RCW; providing an effective date; and providing expiration dates.

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

Sec. 1   RCW 82.04.4452 and 2010 c 114 s 114 are each amended to read as follows:
     (1) In computing the tax imposed under this chapter, a credit is allowed for each person whose research and development spending during the year in which the credit is claimed exceeds 0.92 percent of the person's taxable amount during the same calendar year.
     (2)(a) The credit is calculated as follows:
     (((a))) (i) Determine the greater of the amount of qualified research and development expenditures of a person or eighty percent of amounts received by a person other than a public educational or research institution in compensation for the conduct of qualified research and development;
     (((b))) (ii) Subtract 0.92 percent of the person's taxable amount from the amount determined under (a)(i) of this subsection;
     (((c))) (iii) Multiply the amount determined under (((b))) (a)(ii) of this subsection by the following:
     (((i))) (A) For the period June 10, 2004, through December 31, 2006, the person's average tax rate for the calendar year for which the credit is claimed;
     (((ii))) (B) For the calendar year ending December 31, 2007, the greater of the person's average tax rate for that calendar year or 0.75 percent;
     (((iii))) (C) For the calendar year ending December 31, 2008, the greater of the person's average tax rate for that calendar year or 1.0 percent;
     (((iv))) (D) For the calendar year ending December 31, 2009, the greater of the person's average tax rate for that calendar year or 1.25 percent;
     (((v))) (E) For the calendar year ending December 31, 2010, and thereafter, 1.50 percent.
     (b) For purposes of calculating the credit, if a person's reporting period is less than annual, the person may use an estimated average tax rate for the calendar year for which the credit is claimed by using the person's average tax rate for each reporting period. A person who uses an estimated average tax rate must make an adjustment to the total credit claimed for the calendar year using the person's actual average tax rate for the calendar year when the person files its last return for the calendar year for which the credit is claimed.
     (3) Any person entitled to the credit provided in subsection (2) of this section as a result of qualified research and development conducted under contract may assign all or any portion of the credit to the person contracting for the performance of the qualified research and development.
     (4) The credit, including any credit assigned to a person under subsection (3) of this section, must be claimed against taxes due for the same calendar year in which the qualified research and development expenditures are incurred. The credit, including any credit assigned to a person under subsection (3) of this section, for each calendar year may not exceed the lesser of ((two million)) four hundred thousand dollars or the amount of tax otherwise due under this chapter for the calendar year.
     (5) For any person claiming the credit, including any credit assigned to a person under subsection (3) of this section, whose research and development spending during the calendar year in which the credit is claimed fails to exceed 0.92 percent of the person's taxable amount during the same calendar year or who is otherwise ineligible, the department must declare the taxes against which the credit was claimed to be immediately due and payable. The department must assess interest, but not penalties, on the taxes against which the credit was claimed. Interest must be assessed at the rate provided for delinquent excise taxes under chapter 82.32 RCW, retroactively to the date the credit was claimed, and accrues until the taxes against which the credit was claimed are repaid. Any credit assigned to a person under subsection (3) of this section that is disallowed as a result of this section may be claimed by the person who performed the qualified research and development subject to the limitations set forth in subsection (4) of this section.
     (6) A person may not claim a credit under this section if the person reported an annual gross amount of twenty-five million dollars or more in the prior calendar year.
     (7) A person may not claim a credit under this section after the total length of time the credit has been claimed, based on the person's tax reporting periods in which a credit under this section has been claimed, exceeds eight years. The determination under this subsection (7) includes all tax reporting periods prior to the effective date of this section.
     (8) A person claiming the credit provided in this section must file a complete annual survey with the department under RCW 82.32.585.
     (((7))) (9) For the purpose of this section:
     (a) "Average tax rate" means a person's total tax liability under this chapter for the calendar year for which the credit is claimed divided by the taxpayer's total taxable amount under this chapter for the calendar year for which the credit is claimed.
     (b) "Qualified research and development expenditures" means operating expenses, including wages, compensation of a proprietor or a partner in a partnership as determined under rules adopted by the department, benefits, supplies, and computer expenses, directly incurred in qualified research and development by a person claiming the credit provided in this section. The term does not include amounts paid to a person other than a public educational or research institution to conduct qualified research and development. Nor does the term include capital costs and overhead, such as expenses for land, structures, or depreciable property.
     (c) "Qualified research and development" ((shall have)) has the same meaning as provided in RCW 82.63.010.
     (d) "Research and development spending" means qualified research and development expenditures plus eighty percent of amounts paid to a person other than a public educational or research institution to conduct qualified research and development.
     (e) "Taxable amount" means the taxable amount subject to the tax imposed in this chapter required to be reported on the person's combined excise tax returns for the calendar year for which the credit is claimed, less any taxable amount for which a credit is allowed under RCW 82.04.440.
     (((8))) (10) This section expires January 1, ((2015)) 2022.

NEW SECTION.  Sec. 2   A new section is added to chapter 82.04 RCW to read as follows:
     (1) In computing tax owed under this chapter, a person may take a credit for contributions to the program administrator of the opportunity scholarship board. Contributions must be deposited into a separate account to be used for the opportunity expansion program.
     (2) A person may take a credit under this section only if the person is prohibited from taking all or a portion of the high technology research and development credit as a result of the changes made in section 1, chapter . . ., Laws of 2012 (this act).
     (3) A person may not take a credit under this section in an amount that exceeds two million five hundred thousand dollars for any calendar year.
     (4) A credit claimed under this section may not exceed the person's tax liability under this chapter in the tax reporting period in which the credit is claimed. Unused credits may be carried forward until used.
     (5) The definitions in this subsection apply to this section.
     (a) "High technology research and development credit" means the credit under RCW 82.04.4452(2).
     (b) "Opportunity expansion program," "opportunity scholarship board," "program administrator," and "scholarship account" have the same meanings as provided in chapter 28B.145 RCW.
     (6) This section expires January 1, 2022.

Sec. 3   RCW 28B.145.060 and 2011 1st sp.s. c 13 s 7 are each amended to read as follows:
     (1) The opportunity expansion program is established.
     (2) The opportunity scholarship board ((shall)) must select institutions of higher education to receive opportunity expansion awards. In so doing, the opportunity scholarship board must:
     (a) Solicit, receive, and evaluate proposals from institutions of higher education that are designed to directly increase the number of high-quality baccalaureate degrees produced in high employer demand and other programs of study, and that include annual numerical targets for the number of such degrees, with a strong emphasis on serving students who received their high school diploma or GED in Washington or are adult Washington residents who are returning to school to gain a baccalaureate degree;
     (b) Develop criteria for evaluating proposals and awarding funds to the proposals deemed most likely to increase the number of baccalaureate degrees and degrees produced in high employer demand and other programs of study; however:
     (i) The annual numeric targets referenced in (a) of this subsection must be set as a specific percentage increase from a rigorously defined baseline of the institution's science, technology, engineering, and math degree production. The baseline must represent the institution's production of science, technology, engineering, and math degrees for the five years before receipt of an opportunity expansion award;
     (ii) Awards must specify that, if an institution fails to achieve their annual numeric target of degrees awarded that institution must refund their award in an amount proportional to the percentage of their target they did not achieve; and
     (iii) Awards must only be made to institutions who demonstrate, to the board's satisfaction, that award funds will be used only for increased degree production and not on unrelated administrative, capital, or other university costs;
     (c) Give priority to proposals that include a partnership between public and private partnership entities that leverage additional private funds;
     (d) Give priority to proposals that are innovative, efficient, and cost-effective, given the nature and cost of the particular program of study;
     (e) Consult and operate in consultation with existing higher education stakeholders, including but not limited to: Faculty, labor, student organizations, and relevant higher education agencies; ((and))
     (f) Determine which proposals to improve and accelerate the production of baccalaureate degrees in high employer demand and other programs of study will receive opportunity expansion awards for the following state fiscal year, notify the state treasurer, and announce the awards; and
     (g) Operate in consultation with program donors to ensure that awards are given to those programs most likely to meet workforce needs.
     (3) The state treasurer, at the direction of the opportunity scholarship board, must distribute the funds that have been awarded to the institutions of higher education from the opportunity expansion account.
     (4) Institutions of higher education receiving awards under this section may not supplant existing general fund state revenues with opportunity expansion awards.
     (5) Annually, the office of financial management ((shall)) must report to the opportunity scholarship board, the governor, and the relevant committees of the legislature regarding the percentage of Washington households with incomes in the middle-income bracket or higher. For purposes of this section, "middle-income bracket" means household incomes between two hundred and five hundred percent of the 2010 federal poverty level, as determined by the United States department of health and human services for a family of four, adjusted annually for inflation.
     (6) Annually, the higher education coordinating board must report to the opportunity scholarship board, the governor, and the relevant committees of the legislature regarding the increase in the number of degrees in high employer demand and other programs of study awarded by institutions of higher education over the average of the preceding ten academic years.
     (7) In its comprehensive plan, the workforce training and education coordinating board ((shall)) must include specific strategies to reach the goal of increasing the percentage of Washington households living in the middle-income bracket or higher, as calculated by the office of financial management and developed by the agency or education institution that will lead the strategy.

Sec. 4   RCW 28B.145.080 and 2011 1st sp.s. c 13 s 9 are each amended to read as follows:
     (1) Beginning in 2018, the joint legislative audit and review committee ((shall)) must evaluate the opportunity scholarship and opportunity expansion programs, and submit a report to the appropriate committees of the legislature by December 1, 2018. The committee's evaluation ((shall)) must include, but is not ((be)) limited to:
     (a) The number and type of eligible education programs as determined by the opportunity scholarship board;
     (b) The number of participants in the opportunity scholarship program in relation to the number of participants who completed a baccalaureate degree;
     (c) The total cumulative number of students who received opportunity scholarships, and the total cumulative number of students who gained a baccalaureate degree after receiving an opportunity scholarship and the types of baccalaureate degrees awarded;
     (d) The amount of private contributions to the opportunity scholarship program, annually and in total;
     (e) The amount of state match moneys to the opportunity scholarship program, annually and in total;
     (f) The amount of any administrative fees paid to the program administrator, annually and in total;
     (g) The source and amount of funding, annually and cumulatively, for the opportunity expansion program;
     (h) The number and type of proposals submitted by institutions for opportunity expansion awards, the number and type of proposals that received an award of opportunity expansion funds, and the amount of such awards;
     (i) The total cumulative number of additional high employer demand degrees produced in Washington state due to the opportunity expansion program((, including both the initial opportunity expansion awards and the subsequent inclusion in base funding)); and
     (j) Evidence that the existence of the opportunity scholarship and opportunity expansion programs have contributed to the achievement of the public policy objectives of helping to mitigate the impact of tuition increases, increasing the number of baccalaureate degrees in high employer demand and other programs, and investing in programs and students to meet market demands for a knowledge-based economy while filling middle-income jobs with a sufficient supply of skilled workers.
     (2) In the event that the joint legislative audit and review committee is charged with completing an evaluation of other aspects of degree production, funding, or other aspects of higher education in 2018, and to the extent that it is economical and feasible to do so, the committee ((shall)) must combine the multiple evaluations and submit a single report.

NEW SECTION.  Sec. 5   This act takes effect July 1, 2012.