Z-924                 _______________________________________________

 

                                                   SENATE BILL NO. 4244

                        _______________________________________________

 

State of Washington                              49th Legislature                              1985 Regular Session

 

By Senators Warnke, Johnson, Rasmussen, Lee, Bender, Benitz, Bauer, Bluechel, Goltz, Kiskaddon, Hansen, von Reichbauer, McManus, Bailey, Gaspard, Halsan, Fleming, Hayner, Guess, Zimmerman, Patterson, Sellar, Conner, Saling, Barr and Deccio; by Office of the Governor request

 

 

Read first time 2/8/85 and referred to Committee on Ways and Means.

 

 


AN ACT Relating to sales and use tax deferral; adding a new chapter to Title 82 RCW; providing an expiration date; providing an effective date; and declaring an emergency.

 

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

 

          NEW SECTION.  Sec. 1.  DEFINITIONS.      Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

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

          (2) "Economic development target area" means a community or area of the state in special need of new economic development.  In order to qualify as such, the community must be located in a county which has an unemployment rate, at the time of application, at least twenty percent greater than the state-wide average for the immediately preceding thirty-six months, as determined by the commissioner of employment security.

          (3) "Eligible investment project" means one or more qualified buildings or qualified machinery and equipment including labor and services rendered in the planning, installation, and construction of such buildings or machinery and equipment.

          (4) "Manufacturing" means all activities of a commercial or industrial nature wherein labor or skill is applied, by hand or machine, 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 and software production and other computer-related services, and the activities performed by research and development laboratories and commercial testing laboratories.

          (5) "New business" means a taxpayer qualified to do business in this state and currently either (a) is not engaged in business in this state or (b)(i) is engaged in this state in manufacturing of a product and the product for which the investment project would be used is not of a like kind or (ii) engaged in research and development of a product in this state but the proposed eligible investment project is intended for manufacture of that product.

          (6) "Person" has the meaning given in RCW 82.04.030.

          (7) "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 and integral part of a factory, mill, plant, or laboratory used for manufacturing or research and development, and on which construction has not commenced prior to the filing of the application under section 2 of this act.  If a building is used partly for manufacturing or research and development and partly for other purposes, the department shall determine the applicable tax deferral by apportionment of the costs of construction.  A "qualified building" includes expansion or renovation of an existing building if the cost of such expansion or renovation is greater than twenty-five percent of the true and fair value of the plant complex prior to improvement.

          (8) "Qualified employment position" means a permanent full-time equivalent employee employed by the taxpayer.

          (9) "Qualified machinery and equipment" means all industrial and research fixtures, equipment, and support facilities that are an essential and integral 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.

          (10) "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.

          (11) "Taxpayer" means a person making an application for a certificate pursuant to section 2 of this act, its subsidiaries, affiliates, successors in interest, or principal owners.  Ownership interest for determining whether a corporation or a natural person is a principal owner or a subsidiary of an eligible taxpayer shall be fifty-one percent or a controlling interest as determined by the department. Firms are considered affiliates of each other when either directly or indirectly:  (a) One concern controls or has the power to control the other; or (b) a third party or parties controls or has the power to control both.  In determining whether firms are affiliated, the department shall consider all appropriate factors, including common management and contractual relationships.

 

          NEW SECTION.  Sec. 2.  APPLICATION FOR DEFERRAL.    (1) An application for tax deferral shall be made to the department in a form and manner prescribed by the department.  The application shall contain information regarding the location of the investment project, the applicant's average employment in the state for the prior year, estimated or actual new employment related to the project, estimated or actual costs, time schedules for completion and operation, and other information required by the department.

          (2) The department shall rule on the application within sixty days of receipt of a complete application.

 

          NEW SECTION.  Sec. 3.  SALES AND USE TAX DEFERRAL CERTIFICATE. (1) The department shall issue a sales and use tax deferral certificate to a taxpayer planning an eligible investment project in an economic development target area or to a new business planning an eligible investment project anywhere in this state if the taxpayer or new business demonstrates to the department that for each one hundred thousand dollars to be invested in the project, the taxpayer will create and maintain one new qualified employment position at the site of the project.

          (2) A holder of a sales and use tax deferral certificate may defer sales and use taxes otherwise due under chapters 82.08, 82.12, and 82.14 RCW in connection with the acquisition of an eligible investment project, but a taxpayer may only defer sales and use taxes under this chapter on expenditures of up to ten million dollars in the acquisition of one or more eligible investment projects or of any part of such a project.  A seller need not collect such taxes upon presentation of the certificate by the holder.

 

          NEW SECTION.  Sec. 4.  REVOCATION.      (1) The department shall revoke a certificate issued under this chapter if:

          (a) The taxpayer fails to complete construction or acquisition of the project within thirty-six months after the certificate is issued;

          (b) The project does not in fact create and maintain qualified employment positions as required by section 3 of this act or otherwise is not eligible under this chapter; or

          (c) A holder defers taxes on expenditures of over ten million dollars.

          (2) Upon revocation of the certificate, any sales and use tax which has been deferred shall immediately become due along with interest at the rate of twelve percent from the date at which the project ceased to be eligible.

          (3) The provisions of this section are supplementary to the penalty and other provisions of chapter  82.32 RCW.

 

          NEW SECTION.  Sec. 5.  REPAYMENT.      (1) The recipient of tax deferral under this chapter shall begin paying the deferred taxes three years after the date determined by the department as the date on which the construction project has been operationally completed.  The first payment shall be due on December 31st of the third calendar year after such date, with subsequent annual payments due on December 31st of the following four years with amounts of payment scheduled as follows:

 

!tp1,1 Repay!ttment Year!tlPercent of Def!tterred Tax Repaid

!tl1!tl20%

!tl2!tl20%

!tl3!tl20%

!tl4!tl20%

!tl5!tl20%

 

          (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 penalties and interest applicable to delinquent excise taxes may be assessed and imposed for delinquent payments under this chapter.  The debt for deferred taxes shall not be extinguished by insolvency or other failure of the recipient.

 

          NEW SECTION.  Sec. 6.  REPORTS.            Each holder of a certificate shall submit a report to the department on December 31st of each year until the tax deferral is repaid.  The report shall contain information, as required by the department, from which the department may determine whether the holder is meeting the requirements of a holder of a certificate.  If the holder fails to submit a report or submits an inadequate report, the department may declare the amount of deferred taxes outstanding to be immediately assessed and payable.

 

          NEW SECTION.  Sec. 7.  ADMINISTRATION.           Chapter 82.32 RCW applies to the administration of this chapter.

 

          NEW SECTION.  Sec. 8.  SUNSET. Sections 2 and 3 of this act shall expire July 1, 1991.

 

          NEW SECTION.  Sec. 9.     Section captions as used in this act constitute no part of the law.

 

          NEW SECTION.  Sec. 10.    If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

 

          NEW SECTION.  Sec. 11.    Sections 1 through 8 of this act shall constitute a new chapter in Title 82 RCW.

 

          NEW SECTION.  Sec. 12.    This act is necessary for the immediate preservation of the public peace, health, and safety, the support of the state government and its existing public institutions, and shall take effect July 1, 1985.