AN ACT Relating to economic development; adding a new chapter to Title 43 RCW; adding a new section to chapter 82.04 RCW; adding a new section to chapter 84.36 RCW; making an appropriation; and providing an effective date.

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

NEW SECTION. Sec. 1. This chapter may be cited as the industrial incentive zone act.

NEW SECTION. Sec. 2. This legislature finds and declares that the health, safety, and welfare of the people of this state are dependent upon the continual encouragement, development, growth, and expansion of the private sector within the state and that there are certain depressed areas in this state that need the particular attention of government to help, maintain, encourage, and attract private sector investment into these areas. Therefore, it is the purpose of this chapter to stimulate business and industrial growth in the depressed areas of this state by economic incentives for job creation and retention in those areas.

NEW SECTION. Sec. 3. As used in this chapter:

(1) "Board" means the industrial incentive zone board;

(2) "Industrial incentive zone" means an area declared by the board to be eligible for the benefits of this chapter; and

(3) "Unit of local government" means counties, cities, and towns.

NEW SECTION. Sec. 4. There is created the industrial incentive zone board. The board shall consist of the director of trade and economic development, the director of community development, one member of the house of representatives from each major political party, appointed by the speaker of the house of representatives, one member of the senate from each major political party, appointed by the president of the senate, and nine additional members appointed by the governor with the consent of the senate. Of the members appointed by the governor, one member shall be a representative of a local economic development organization, one member shall be a representative of small business, and one member shall be a representative of labor. Of the initial members appointed by the governor, three shall serve for one year, three for two years, and three for three years. Subsequent terms shall be for three years. The terms of the legislative members shall be at the pleasure of the appointing authority but shall be contingent on continuous membership in the legislature. Vacancies shall be filled in the same manner as original appointments.

The board shall meet at the call of the chairman who shall be designated by the governor.

Members of the board shall receive no compensation but shall be reimbursed for travel expenses under RCW 43.03.050 and 43.03.060 for nonlegislative members and under RCW 44.04.120 for legislative members.

Staff support shall be provided by the department of trade and economic development.

NEW SECTION. Sec. 5. The board shall be an entity within the department of trade and economic development and shall have the following powers and duties:

(1) To establish criteria for determining which areas qualify as industrial development zones, provided that the board shall give paramount consideration to the following:

(a) Unemployment;

(b) Per capita income;

(d) Migration from the area;

(2) To approve or reject applications for the special tax treatment provided under this chapter;

(3) To monitor the implementation and operation of this chapter;

(4) To conduct a continuing evaluation program of industrial incentive zones;

(5) To assist units of local government in obtaining demonstration project status and assistance from the federal government, including the suspension of federal legislation within the industrial incentive zones;

(6) To submit reports evaluating the effectiveness of the program and any suggestions for legislation to the governor and the legislature by March 1 of each year; and

(7) To adopt rules to implement this chapter.

NEW SECTION. Sec. 6. In addition to any criteria established by the board under section 5 of this act, no area may be declared an industrial incentive zone unless the following criteria are met:

(1) At least twenty-five percent of the households in the area are below the poverty level as established by the most recent United States census or the average rate of unemployment in the area for the most recent eighteen-month period for which data is available is at least one hundred and twenty percent of the average state-wide rate;

(2) The area is more than three-fourths of one square mile but less than six square miles with a continuous boundary, using natural, street, or highway barriers.

NEW SECTION. Sec. 7. A unit of local government may designate an area or areas within its jurisdiction as a depressed area. The unit of local government may then apply in writing to the board to have the area or areas declared to be an industrial incentive zone. The application shall include a description of the area's location and such other information as the board may require.

NEW SECTION. Sec. 8. Upon receipt of an application from a unit of local government, the board shall review the application and secure any additional information it deems necessary for the purpose of determining whether the area or areas described in the application qualify to be declared an industrial incentive zone.

NEW SECTION. Sec. 9. (1) The number of areas designated as industrial incentive zones shall be limited as follows: (a) During the period from the effective date of this section until January 1, 1989, not more than six areas may be designated; and (b) during each year subsequent to 1987, not more than three additional areas may be designated.

(2) The board shall adopt policies designed to encourage units of local government to apply for designation. Each application for designation as an industrial incentive zone shall be submitted to, and approved or rejected by, the board at least three months prior to the year in which the designation is to become effective. Should there be more applications than the number of designations permitted under subsection (1) of this section, the board shall grant the designations to those areas which satisfy to the greatest extent the criteria contained in section 5 of this act.

NEW SECTION. Sec. 10. An area's designation as an industrial incentive zone shall be for a duration of five calendar years. At any time a unit of local government may apply to have the area again designated as an industrial incentive zone.

NEW SECTION. Sec. 11. (1) The following exemptions are granted in respect to state property taxes, levied under chapter 84.52 RCW, on a qualified business located in an industrial incentive zone:

(a) In the first year, no property taxes may be levied whatever;

(b) In the second year, twenty percent of the total property taxes levied shall be due and payable;

(d) In the fourth year, sixty percent of the total property taxes levied shall be due and payable; and

(e) In all subsequent years in which the area is designated as an industrial incentive zone, sixty percent of the total property taxes levied shall be due and payable.

(2) The exemptions in this section only apply to property used for business purposes and to the property tax levied by the state. The term "qualified business" means a business qualified by the department of revenue under section 13 of this act. The exemptions shall exist only if and to the extent that they are authorized under this chapter.

NEW SECTION. Sec. 12. (1) The business and occupation tax rate, prescribed under chapter 82.04 RCW, on a taxpayer who, or which, is a qualified business located in an industrial incentive zone shall be as follows:

(a) In the first year, the tax rate shall be zero;

(b) In the second year, the tax rate shall be twenty percent of the regular rate for the business or occupation;

(d) In the fourth year, the tax rate shall be sixty percent of the regular rate for the business or occupation;

(e) In all subsequent years in which the property is designated as an industrial incentive zone, the tax rate shall be sixty percent of the regular rate for the business or occupation.

(2) The term "qualified business" means a business qualified by the department of revenue under section 13 of this act. The reductions are authorized only if and to the extent that they are authorized under this chapter. The reductions shall apply only to value of products, gross proceeds, or gross income generated within the industrial incentive zone. However, in respect to a business which generates such value, proceeds or income both within and without the zone, the reductions shall apply only to that portion which the department of revenue attributes to the business' mills, plants, and other properties within the zone. The department shall have broad powers to adopt apportionment rules to determine which portion of such value, proceeds, or income should be attributed to the business' mills, plants, or other properties within the zone.

NEW SECTION. Sec. 13. No business taxpayer may qualify for the exemptions or reductions set out in this chapter unless within one hundred twenty days of each year for which the exemptions or reductions are sought, the department of revenue finds that:

(1) The business gives preference and priority to Washington manufacturers and, in the absence of Washington manufacturers, to Washington suppliers, contractors, and labor, except where not reasonably possible to do so without added substantial expense, substantial inconvenience, or substantial sacrifice in operational efficiency.

(2) The application for the exemptions or reductions is accompanied by an endorsement resolution approved by the governing body of the appropriate unit of local government in whose jurisdiction the establishment is to be located.

(3) Except as provided in section 14 of this act, the business, in whole or in part, is or shall be located within the boundaries of an industrial incentive zone.

(4) The applicant certifies that at least fifty percent of its employees fall within one or more of the following classes:

(a) Are residents of the same or a contiguous industrial incentive zone as the location of the business;

(b) Were receiving some form of public assistance prior to employment; or

(5) The business has not terminated employees and does not intend to, if the purpose of the termination was or is to obtain new employees who would enable the business to satisfy subsection (4) of this section.

(6) The business, if a new business, does not have, on October 1 of the year in which application is made under this section, a number of employees fewer than fifty percent of the highest number of employees ever employed by the business within the industrial incentive zone. For purposes of this section, "new business" means a business which did not exist before the creation of the zone.

(7) The business, if an old business, does not have, on October 1 of the year in which application is made under this section, a number of employees fewer than fifty percent of the average number of employees that it employed for each month over the previous three calendar years within the zone or the area that became the zone. For purposes of this section, "old business" means a business that existed before the creation of the zone.

NEW SECTION. Sec. 14. An area's loss of designation as an industrial incentive zone shall result, with one exception, in the area's taxpayers losing the exemptions and reductions authorized under this chapter. The one exception is that business taxpayers who qualified for the exemption or reduction during the last year in which the area was designated as an industrial incentive zone and who had qualified for it for a period of less than five years, shall be eligible to apply for the exemption or reduction, as if the area maintained its designation, until they have had the exemptions or reductions for a total period of five years.

NEW SECTION. Sec. 15. The tax exemptions and reductions granted in respect to a business shall attach to the business and shall not terminate solely for the reason that the business has been sold.

NEW SECTION. Sec. 16. 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. 17. Sections 1 through 15 of this act constitute a new chapter in Title 43 RCW.

NEW SECTION. Sec. 18. A new section is added to chapter 82.04 RCW to read as follows:

The tax rates prescribed in this chapter are reduced for "qualified businesses" to the extent specified under chapter 43.-- RCW (sections 1 through 15 of this 1987 act).

NEW SECTION. Sec. 19. A new section is added to chapter 84.36 RCW to read as follows:

Property of a "qualified business" is exempt from taxation to the extent specified under chapter 43.-- RCW (sections 1 through 15 of this 1987 act).

NEW SECTION. Sec. 20. There is appropriated from the state treasury to the department of trade and economic development for the support of the industrial incentive board, for the biennium beginning on July 1, 1987, the sum of twenty-five thousand dollars or so much thereof as may be necessary.

NEW SECTION. Sec. 21. This act shall take effect January 1, 1988.