AN ACT Relating to the extension of the sales and use tax deferral program; amending RCW 82.61.010, 82.61.040, 82.61.060, 82.61.070, 82.60.020, and 82.60.040; adding new sections to chapter 82.60 RCW; and adding new sections to chapter 82.61 RCW.

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

Sec. 1. Section 1, chapter 2, Laws of 1985 ex. sess. and RCW 82.61.010 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) "Person" has the meaning given in RCW 82.04.030.

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

(4) "Eligible investment project" means: (a) Construction of new buildings and the acquisition of related machinery and equipment when the buildings, machinery, and equipment are to be used for either manufacturing or research and development activities, which construction is commenced prior to December 31, ((~~1986~~)) 1988; or (b) acquisition of machinery and equipment to be used for either manufacturing or research and development if the machinery and equipment is housed in a new structure leased from a third party: 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 in the same persons. Each eligible investment project must directly create at least one new full-time qualified employment position.

(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 includes the production or fabrication of specially made or custom-made articles.

(6) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun.

(7) "Buildings" means only those new structures used for either manufacturing or research and development activities, including plant offices and warehouses or other facilities for the storage of raw materials 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 purposes. 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.

(8) "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. For purposes of this definition, new machinery and equipment means either new to the taxing jurisdiction of the state or new to the certificate holder. Used machinery and equipment are eligible for deferral if the certificate holder either brings the machinery and equipment into Washington or makes a retail purchase of the machinery and equipment in Washington or elsewhere.

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

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

((~~(10)~~)) (11) "Certificate holder" means an applicant to whom a tax deferral certificate has been issued.

((~~(11)~~)) (12) "Operationally complete" means constructed or improved to the point of being functionally useable for the intended purpose.

((~~(12)~~)) (13) "Initiation of construction" means that date upon which on-site construction commences.

Sec. 2. Section 8, chapter 2, Laws of 1985 ex. sess. and RCW 82.61.040 are each amended to read as follows:

RCW 82.61.020 and 82.61.030 shall expire July 1, ((~~1986~~)) 1988.

Sec. 3. Section 5, chapter 2, Laws of 1985 ex. sess. and RCW 82.61.060 are each amended to read as follows:

(1) The recipient shall begin paying the deferred taxes in the third year after the date certified by the department as the date on which the construction project is operationally complete. The first payment will be due on December 31st of the third calendar year after such certified date, with subsequent annual payments due on December 31st of the following four years with amounts of payment scheduled as follows:

Repay!ttment Year!sc ,5% of Defe!ttrred Tax Repaid

!tc1!tc10%

!tc2!tc15%

!tc3!tc20%

!tc4!tc25%

!tc5!tc30%

(2) The department may authorize an accelerated repayment schedule upon request of the recipient.

(3) ((~~Interest shall not be charged on any taxes deferred under this chapter for the period of deferral, although all other~~)) For taxes deferred in excess of the taxes that would be deferred if the amount of the investment qualified for deferral under this chapter were limited to two hundred thousand dollars for each new full-time qualified employment position created, the department shall assess interest at the rate of five percent or one-half of the average prime interest rate in the United States for the period, whichever is less. Penalties and interest applicable to delinquent excise taxes may be assessed and imposed for delinquent payments under this chapter. The debt for deferred taxes is not extinguished by insolvency or other failure of the recipient.

Sec. 4. Section 6, chapter 2, Laws of 1985 ex. sess. and RCW 82.61.070 are each amended to read as follows:

The department and the department of trade and economic development shall jointly report to the legislature about the effects of this chapter on new manufacturing and research and development activities in this state. The report shall contain information concerning the number of deferral certificates granted, the amount of sales tax deferred, the number of jobs created and other information useful in measuring such effects. Reports shall be submitted by January 1, 1986, and by January 1((~~, 1987~~)) of each year through 1989.

NEW SECTION. Sec. 5. Any buildings for which a sales tax deferral is granted under this chapter shall use wood and wood products to the maximum extent permitted by the state building code as provided in chapter 19.27 RCW. Whenever wood and wood products are interchangeable with other materials under the state building code, the wood and wood products shall be used.

NEW SECTION. Sec. 6. All wood or wood products to be incorporated in buildings for which a sales tax deferral is granted under this chapter shall be substantially produced in Washington.

NEW SECTION. Sec. 7. Sections 5 and 6 of this act are added to chapter 82.61 RCW.

Sec. 8. Section 2, chapter 232, Laws of 1985 and RCW 82.60.020 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 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.

(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 two hundred thousand dollars of investment on which a deferral is requested;~~

~~(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; ((~~and~~

~~(iii) Does not exceed twenty million dollars in value~~)) or

(ii) Acquires machinery and equipment to be used for either manufacturing or research and development if the machinery and equipment is housed in qualified buildings leased from a third party: 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 in the same persons.

(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. 9. Section 4, chapter 232, Laws of 1985 and RCW82.60.040 are each amended to read as follows:

(1) The department shall issue a sales and use tax deferral certificate for state and local sales and use taxes due under chapters 82.08, 82.12, and 82.14 RCW on each eligible investment project located in an eligible area.

(2) The department shall keep a running total of all deferrals granted under this chapter during each fiscal biennium. ((The department shall not allow any deferrals which would cause the tabulation for a biennium to exceed twenty million dollars. If all or part of an application for deferral 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 twenty million dollars as of the date on which the department has disallowed the application.))

NEW SECTION. Sec. 10. Any qualified buildings for which a sales tax deferral is granted under this chapter shall use wood and wood products to the maximum extent permitted by the state building code as provided in chapter 19.27 RCW. Whenever wood and wood products are interchangeable with other materials under the state building code, the wood and wood products shall be used.

NEW SECTION. Sec. 11. All wood or wood products to be incorporated in qualified buildings for which a sales tax deferral is granted under this chapter shall be substantially produced in Washington.

NEW SECTION. Sec. 12. Sections 10 and 11 of this act are added to chapter 82.60 RCW.

NEW SECTION. Sec. 13. A new section is added to chapter 82.60 RCW to read as follows:

Notwithstanding any other provision of this chapter, taxes deferred under this chapter on the use of manufacturing equipment which was owned and used in manufacturing in another state and which is brought into this state and placed in a factory and used in production in this state need not be repaid as long as the equipment is being used in the investment project.

NEW SECTION. Sec. 14. A new section is added to chapter 82.61 RCW to read as follows:

NEW SECTION. Sec. 15. A new section is added to chapter 82.60 RCW to read as follows:

Notwithstanding any other provision of this chapter, taxes deferred under this chapter on the sale or use of labor that is used in the construction of an investment project for which a deferral has been granted under this chapter need not be repaid as long as the plant is being operated by the recipient.