NEW SECTION.  Sec. 101   (1) The legislature finds that current law taxes natural gas as a traditional home heating or electric generation fuel while not taking into account the benefits of natural gas use as a transportation fuel. The legislature further finds that the construction and operation of a natural gas liquefaction plant and compressed natural gas refueling stations as well as the ongoing use of compressed and liquefied natural gas will lead to positive job creation, economic development, environmental benefits, lower fuel costs, and increased tax revenues to the state. The legislature further finds that it is sound tax policy to provide uniform tax treatment of natural gas used as a transportation fuel, regardless of whether the taxpayer providing the natural gas is a gas distribution business or not, so as to prevent any particular entity from receiving a competitive advantage solely through a structural inefficiency in the tax code.
     (2)(a) This subsection is the tax performance statement for this act. The performance statement is only intended to be used for subsequent evaluation of the tax changes made in this act. It is not intended to create a private right of action by any party or be used to determine eligibility for preferential tax treatment.
     (b) The legislature categorizes the tax changes in this act as changes intended to accomplish the general purposes indicated in RCW 82.32.808(2) (c) and (d).
     (c) It is the legislature's specific public policy objectives to promote job creation and positive economic development; lower carbon dioxide, sulfur dioxide, nitrogen dioxide, and particulate emissions; and secure optimal liquefied natural gas pricing for the state of Washington and other public entities.
     (d) To measure the effectiveness of the exemption provided in this act in achieving the specific public policy objective described in (c) of this subsection, the joint legislative audit and review committee must evaluate the following:
     (i) The number of employment positions and wages at a natural gas liquefaction facility located in Washington and operated by a gas distribution business where some or all of the liquefied natural gas is sold for use as a transportation fuel. If the average number of employment positions at the liquefaction facility once it is operationally complete equals or exceeds eighteen and average annual wages for employment positions at the facility exceed thirty-five thousand dollars, it is presumed that the public policy objective of job creation has been achieved.
     (ii) The estimated total cost of construction of a liquefaction plant by a gas distribution company, including costs for machinery and equipment. If the total cost equals or exceeds two hundred fifty million dollars, it is presumed that the public policy objective of positive economic development has been achieved.
     (iii) The estimated fuel savings by the Washington state ferry system and other public entities through the use of liquefied natural gas purchased from a gas distribution business.
     (iv) The estimated reduction in carbon dioxide, sulfur dioxide, nitrogen dioxide, and particulate emissions, resulting from the use of liquefied natural gas and compressed natural gas as a transportation fuel where the natural gas is sold by a gas distribution business. The emissions of liquefied and compressed natural gas must be specifically compared with an equivalent amount of diesel fuel. If the estimated annual reduction in emissions exceeds the following benchmarks, it is presumed that the public policy objective of reducing emissions has been achieved:
     (A) Three hundred million pounds of carbon dioxide;
     (B) Two hundred thousand pounds of particulates;
     (C) Four hundred thousand pounds of sulfur dioxide; and
     (D) Four hundred fifty thousand pounds of nitrogen dioxide.
     (e)(i) The following data sources are intended to provide the informational basis for the evaluation under (d) of this subsection:
     (A) Employment data provided by the state employment security department;
     (B) Ferry fuel purchasing data provided by the state department of transportation;
     (C) Diesel and other energy pricing data found on the United States energy information administration's web site; and
     (D) Information provided by a gas distribution business on the annual report required under RCW 82.32.534.
     (ii) In addition to the data source described under (e)(i) of this subsection, the joint legislative audit and review committee may use any other data it deems necessary in performing the evaluation under (d) of this subsection.
     (3) A gas distribution business claiming the exemption under RCW 82.08.02565 or 82.12.02565 must file the annual report under RCW 82.32.534 or any successor document. In addition to the information contained in the report, the report must also include the amount of liquefied natural gas and compressed natural gas sold by the gas distribution business as a transportation fuel.
     (4) The joint legislative audit and review committee must perform the review required in this section in a manner consistent with its tax preference review process under chapter 43.136 RCW. The committee must perform the review in calendar year 2020.

Sec. 201   RCW 82.38.020 and 2013 c 225 s 102 are each amended to read as follows:
     The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Blended fuel" means a mixture of fuel and another liquid, other than a de minimis amount of the liquid.
     (2) "Blender" means a person who produces blended fuel outside the bulk transfer-terminal system.
     (3) "Bond" means a bond duly executed with a corporate surety qualified under chapter 48.28 RCW payable to the state of Washington conditioned upon faithful performance of all requirements of this chapter.
     (4) "Bulk transfer-terminal system" means the fuel distribution system consisting of refineries, pipelines, vessels, and terminals. Fuel in a refinery, pipeline, vessel, or terminal is in the bulk transfer-terminal system.
     (5) "Bulk transfer" means a transfer of fuel by pipeline or vessel.
     (6) "Bulk storage" means the placing of fuel into a receptacle other than the fuel supply tank of a motor vehicle.
     (7) "Department" means the department of licensing.
     (8) "Diesel gallon equivalent" means the amount of special fuel, for special fuel that is liquefied natural gas or compressed natural gas, that is equivalent in terms of energy content to one gallon of diesel fuel, as provided in this subsection. The equivalent amount is the amount of fuel that by volume possesses an energy content of one hundred twenty-nine thousand five hundred British thermal units.
     (9) "Distributor" means a person who acquires fuel outside the bulk transfer-terminal system for importation into Washington, from a terminal or refinery rack located within Washington for distribution within Washington, or for immediate export outside the state of Washington.
     (((9))) (10) "Dyed special fuel user" means a person authorized by the internal revenue code to operate a motor vehicle on the highway using dyed special fuel, in which the use is not exempt from the fuel tax.
     (((10))) (11) "Evasion" or "evade" means to diminish or avoid the computation, assessment, or payment of authorized taxes or fees through:
     (a) A knowing: False statement; omission; misrepresentation of fact; or other act of deception;
     (b) An intentional: Failure to file a return or report; or other act of deception; or
     (c) The unlawful use of dyed special fuel.
     (((11))) (12) "Exempt sale" means the sale of fuel to a person whose use of fuel is exempt from the fuel tax.
     (((12))) (13) "Export" means to obtain fuel in this state for sales or distribution outside the state. Fuel distributed to a federally recognized Indian tribal reservation located within the state of Washington is not considered exported outside this state.
     (((13))) (14) "Exporter" means a person who purchases fuel physically located in this state at the time of purchase and directly exports the fuel by a means other than the bulk transfer-terminal system to a destination outside of the state. If the exporter of record is acting as an agent, the person for whom the agent is acting is the exporter. If there is no exporter of record, the owner of the fuel at the time of exportation is the exporter.
     (((14))) (15) "Fuel" means motor vehicle fuel or special fuel.
     (((15))) (16) "Fuel user" means a person engaged in uses of fuel that are not specifically exempted from the fuel tax imposed under this chapter.
     (((16))) (17) "Gallon of fuel" means one gallon of fuel, except that it does not include fuel that is liquefied natural gas or compressed natural gas.
     (18) "Highway" means every way or place open to the use of the public, as a matter of right, for the purpose of vehicular travel.
     (((17))) (19) "Import" means to bring fuel into this state by a means of conveyance other than the fuel supply tank of a motor vehicle.
     (((18))) (20) "Importer" means a person who imports fuel into the state by a means other than the bulk transfer-terminal system. If the importer of record is acting as an agent, the person for whom the agent is acting is the importer. If there is no importer of record, the owner of the fuel at the time of importation is the importer.
     (((19))) (21) "International fuel tax agreement licensee" means a fuel user operating qualified motor vehicles in interstate commerce and licensed by the department under the international fuel tax agreement.
     (((20))) (22) "Licensee" means a person holding a license issued under this chapter.
     (((21))) (23) "Motor vehicle" means a self-propelled vehicle utilizing fuel as a means of propulsion.
     (((22))) (24) "Motor vehicle fuel" means gasoline and any other inflammable gas or liquid, by whatsoever name the gasoline, gas, or liquid may be known or sold the chief use of which is as a fuel for the propulsion of motor vehicles or vessels.
     (((23))) (25) "Natural gas" means naturally occurring mixtures of hydrocarbon gases and vapors consisting principally of methane, whether in gaseous or liquid form. "Natural gas" includes liquefied natural gas and compressed natural gas.
     (((24))) (26) "Person" means any individual, partnership, association, public or private corporation, limited liability company, or any other type of legal or commercial entity, including their members, managers, partners, directors, or officers.
     (((25))) (27) "Position holder" means a person who holds the inventory position in fuel, as reflected by the records of the terminal operator. A person holds the inventory position if the person has a contractual agreement with the terminal for the use of storage facilities and terminating services. "Position holder" includes a terminal operator that owns fuel in their terminal.
     (((26))) (28) "Rack" means a mechanism for delivering fuel from a refinery or terminal into a truck, trailer, railcar, or other means of nonbulk transfer.
     (((27))) (29) "Refiner" means a person who owns, operates, or otherwise controls a refinery.
     (((28))) (30) "Removal" means a physical transfer of fuel other than by evaporation, loss, or destruction.
     (((29))) (31) "Special fuel" means diesel fuel, propane, natural gas, kerosene, biodiesel, and any other combustible liquid or gas by whatever name the liquid or gas may be known or sold for the generation of power to propel a motor vehicle on the highways, except it does not include motor vehicle fuel.
     (((30))) (32) "Supplier" means a person who holds a federal certificate of registry issued under the internal revenue code and authorizes the person to engage in tax-free transactions of fuel in the bulk transfer-terminal system.
     (((31))) (33) "Terminal" means a fuel storage and distribution facility that has been assigned a terminal control number by the internal revenue service.
     (((32))) (34) "Terminal operator" means a person who owns, operates, or otherwise controls a terminal.
     (((33))) (35) "Two-party exchange" or "buy-sell agreement" means a transaction in which taxable fuel is transferred from one licensed supplier to another licensed supplier whereby the supplier that is the position holder agrees to deliver taxable fuel to the other supplier or the other supplier's customer at the terminal at which the delivering supplier is the position holder.

Sec. 202   RCW 82.38.030 and 2013 c 225 s 103 are each amended to read as follows:
     (1) There is levied and imposed upon fuel licensees a tax at the rate of twenty-three cents per each gallon of fuel((, or each one hundred cubic feet of compressed natural gas, measured at standard pressure and temperature)) or per diesel gallon equivalent.
     (2) Beginning July 1, 2003, an additional and cumulative tax rate of five cents per each gallon of fuel((, or each one hundred cubic feet of compressed natural gas, measured at standard pressure and temperature)) or per diesel gallon equivalent is imposed on fuel licensees. This subsection (2) expires when the bonds issued for transportation 2003 projects are retired.
     (3) Beginning July 1, 2005, an additional and cumulative tax rate of three cents per each gallon of fuel((, or each one hundred cubic feet of compressed natural gas, measured at standard pressure and temperature)) or per diesel gallon equivalent is imposed on fuel licensees.
     (4) Beginning July 1, 2006, an additional and cumulative tax rate of three cents per each gallon of fuel((, or each one hundred cubic feet of compressed natural gas, measured at standard pressure and temperature)) or per diesel gallon equivalent is imposed on fuel licensees.
     (5) Beginning July 1, 2007, an additional and cumulative tax rate of two cents per each gallon of fuel((, or each one hundred cubic feet of compressed natural gas, measured at standard pressure and temperature)) or per diesel gallon equivalent is imposed on fuel licensees.
     (6) Beginning July 1, 2008, an additional and cumulative tax rate of one and one-half cents per each gallon of fuel((, or each one hundred cubic feet of compressed natural gas, measured at standard pressure and temperature)) or per diesel gallon equivalent is imposed on fuel licensees.
     (7) Taxes are imposed when:
     (a) Fuel is removed in this state from a terminal if the fuel is removed at the rack unless the removal is by a licensed supplier or distributor for direct delivery to a destination outside of the state, or the removal is by a fuel supplier for direct delivery to an international fuel tax agreement licensee under RCW 82.38.320;
     (b) Fuel is removed in this state from a refinery if either of the following applies:
     (i) The removal is by bulk transfer and the refiner or the owner of the fuel immediately before the removal is not a licensed supplier; or
     (ii) The removal is at the refinery rack unless the removal is to a licensed supplier or distributor for direct delivery to a destination outside of the state, or the removal is to a licensed supplier for direct delivery to an international fuel tax agreement licensee under RCW 82.38.320;
     (c) Fuel enters into this state for sale, consumption, use, or storage, unless the fuel enters this state for direct delivery to an international fuel tax agreement licensee under RCW 82.38.320, if either of the following applies:
     (i) The entry is by bulk transfer and the importer is not a licensed supplier; or
     (ii) The entry is not by bulk transfer;
     (d) Fuel enters this state by means outside the bulk transfer-terminal system and is delivered directly to a licensed terminal unless the owner is a licensed distributor or supplier;
     (e) Fuel is sold or removed in this state to an unlicensed entity unless there was a prior taxable removal, entry, or sale of the fuel;
     (f) Blended fuel is removed or sold in this state by the blender of the fuel. The number of gallons of blended fuel subject to tax is the difference between the total number of gallons of blended fuel removed or sold and the number of gallons of previously taxed fuel used to produce the blended fuel;
     (g) Dyed special fuel is used on a highway, as authorized by the internal revenue code, unless the use is exempt from the fuel tax;
     (h) Dyed special fuel is held for sale, sold, used, or is intended to be used in violation of this chapter;
     (i) Special fuel purchased by an international fuel tax agreement licensee under RCW 82.38.320 is used on a highway; ((and))
     (j) Fuel is sold by a licensed fuel supplier to a fuel distributor or fuel blender and the fuel is not removed from the bulk transfer-terminal system; and
     (k) Special fuel that is liquefied natural gas or compressed natural gas is exported from the state as provided in RCW 82.38.180(1)(g).
     (8) The department must establish diesel gallon equivalents by rule.

NEW SECTION.  Sec. 203   A new section is added to chapter 82.38 RCW to read as follows:
     (1) The provisions of this chapter requiring the payment of taxes do not apply to special fuel imported into the state in interstate or foreign commerce and intended to be sold while in interstate or foreign commerce, nor to special fuel that is exported from this state to a destination outside the United States to the extent allowed under RCW 82.38.180(1)(g), nor to any special fuel sold by a licensee to the armed forces of the United States or to the national guard for use exclusively in ships or for export from this state.
     (2) The exemption under this section applies only to special fuel that is liquefied natural gas or compressed natural gas.
     (3) This section expires July 1, 2022.

Sec. 204   RCW 46.68.090 and 2013 c 225 s 645 are each amended to read as follows:
     (1) All moneys that have accrued or may accrue to the motor vehicle fund from the motor vehicle fuel tax and special fuel tax must be first expended for purposes enumerated in (a) and (b) of this subsection. Except for moneys received from special fuel tax on exported fuel that is liquefied natural gas or compressed natural gas, the remaining net tax amount must be distributed monthly by the state treasurer in accordance with subsections (2) through (((7))) (6) and (8) of this section.
     (a) For payment of refunds of motor vehicle fuel tax and special fuel tax that has been paid and is refundable as provided by law;
     (b) For payment of amounts to be expended pursuant to appropriations for the administrative expenses of the offices of state treasurer, state auditor, and the department of licensing of the state of Washington in the administration of the motor vehicle fuel tax and the special fuel tax, which sums must be distributed monthly.
     (2) All of the remaining net tax amount collected under RCW 82.38.030(1) must be distributed as set forth in (a) through (j) of this section.
     (a) For distribution to the motor vehicle fund an amount equal to 44.387 percent to be expended for highway purposes of the state as defined in RCW 46.68.130;
     (b)(i) For distribution to the special category C account, hereby created in the motor vehicle fund, an amount equal to 3.2609 percent to be expended for special category C projects. Special category C projects are category C projects that, due to high cost only, will require bond financing to complete construction.
     (ii) The following criteria, listed in order of priority, must be used in determining which special category C projects have the highest priority:
     (A) Accident experience;
     (B) Fatal accident experience;
     (C) Capacity to move people and goods safely and at reasonable speeds without undue congestion; and
     (D) Continuity of development of the highway transportation network.
     (iii) Moneys deposited in the special category C account in the motor vehicle fund may be used for payment of debt service on bonds the proceeds of which are used to finance special category C projects under this subsection (2)(b);
     (c) For distribution to the Puget Sound ferry operations account in the motor vehicle fund an amount equal to 2.3283 percent;
     (d) For distribution to the Puget Sound capital construction account in the motor vehicle fund an amount equal to 2.3726 percent;
     (e) For distribution to the transportation improvement account in the motor vehicle fund an amount equal to 7.5597 percent;
     (f) For distribution to the transportation improvement account in the motor vehicle fund an amount equal to 5.6739 percent and expended in accordance with RCW 47.26.086;
     (g) For distribution to the cities and towns from the motor vehicle fund an amount equal to 10.6961 percent in accordance with RCW 46.68.110;
     (h) For distribution to the counties from the motor vehicle fund an amount equal to 19.2287 percent: (i) Out of which there must be distributed from time to time, as directed by the department of transportation, those sums as may be necessary to carry out the provisions of RCW 47.56.725; and (ii) less any amounts appropriated to the county road administration board to implement the provisions of RCW 47.56.725(4), with the balance of such county share to be distributed monthly as the same accrues for distribution in accordance with RCW 46.68.120;
     (i) For distribution to the county arterial preservation account, hereby created in the motor vehicle fund an amount equal to 1.9565 percent. These funds must be distributed by the county road administration board to counties in proportions corresponding to the number of paved arterial lane miles in the unincorporated area of each county and must be used for improvements to sustain the structural, safety, and operational integrity of county arterials. The county road administration board must adopt reasonable rules and develop policies to implement this program and to assure that a pavement management system is used;
     (j) For distribution to the rural arterial trust account in the motor vehicle fund an amount equal to 2.5363 percent and expended in accordance with RCW 36.79.020.
     (3) The remaining net tax amount collected under RCW 82.38.030(2) must be distributed to the transportation 2003 account (nickel account).
     (4) The remaining net tax amount collected under RCW 82.38.030(3) must be distributed as follows:
     (a) 8.3333 percent must be distributed to the incorporated cities and towns of the state in accordance with RCW 46.68.110;
     (b) 8.3333 percent must be distributed to counties of the state in accordance with RCW 46.68.120; and
     (c) The remainder must be distributed to the transportation partnership account created in RCW 46.68.290.
     (5) The remaining net tax amount collected under RCW 82.38.030(4) must be distributed as follows:
     (a) 8.3333 percent must be distributed to the incorporated cities and towns of the state in accordance with RCW 46.68.110;
     (b) 8.3333 percent must be distributed to counties of the state in accordance with RCW 46.68.120; and
     (c) The remainder must be distributed to the transportation partnership account created in RCW 46.68.290.
     (6) The remaining net tax amount collected under RCW 82.38.030 (5) and (6) must be distributed to the transportation partnership account created in RCW 46.68.290.
     (7) The remaining net tax amount that is attributable to moneys received from special fuel tax on exported fuel that is liquefied natural gas or compressed natural gas must be distributed to the finished fuel account created in section 205 of this act.
     (8) Nothing in this section or in RCW 46.68.130 may be construed so as to violate any terms or conditions contained in any highway construction bond issues now or hereafter authorized by statute and whose payment is by such statute pledged to be paid from any excise taxes on motor vehicle fuel and special fuels.

NEW SECTION.  Sec. 205   A new section is added to chapter 46.68 RCW to read as follows:
     (1) The finished fuel account is created in the state treasury. Special fuel tax receipts received under RCW 46.68.090(7) and sales taxes under section 405 of this act must be deposited into the account. Money in the account may be spent only after appropriation. Funds may be used only to construct, improve, repair, or rehabilitate Washington state ferry boat vessels, or to convert such vessels to operate using special fuels other than diesel fuel or other alternative energy sources.
     (2) This section expires July 1, 2022.

Sec. 206   RCW 82.38.075 and 2013 c 225 s 110 are each amended to read as follows:
      (1) To encourage the use of nonpolluting fuels, an annual license fee in lieu of the tax imposed by RCW 82.38.030 is imposed upon the use of ((natural gas or)) propane used in any motor vehicle. The annual license fee must be based upon the following schedule and formula:

Sec. 207   RCW 82.80.010 and 2013 c 225 s 641 are each amended to read as follows:
     (1) ((For purposes of this section:)) The definitions in this subsection apply throughout this section unless the context clearly requires otherwise.
     (a) "Distributor" means every person who imports, refines, manufactures, produces, or compounds motor vehicle fuel and special fuel as defined in RCW 82.38.020((, respectively,)) and sells or distributes the fuel into a county((;)).
     (b) "Person" has the same meaning as in RCW 82.04.030.
     (2) Subject to the conditions of this section, any county may levy, by approval of its legislative body and a majority of the registered voters of the county voting on the proposition at a general or special election, additional excise taxes equal to ten percent of the statewide ((motor vehicle fuel tax rate under RCW 82.38.030 on each gallon of motor vehicle fuel as defined in RCW 82.38.020 and on each gallon of special fuel)) fuel tax rates under RCW 82.38.030 on motor vehicle fuel and special fuel as defined in RCW 82.38.020 sold within the boundaries of the county. Vehicles paying an annual license fee under RCW 82.38.075 are exempt from the county fuel excise tax. An election held under this section must be held not more than twelve months before the date on which the proposed tax is to be levied. The ballot setting forth the proposition must state the tax rate that is proposed. The county's authority to levy additional excise taxes under this section includes the incorporated and unincorporated areas of the county. The additional excise taxes are subject to the same exceptions and rights of refund as applicable to other motor vehicle fuel and special fuel excise taxes levied under chapter 82.38 RCW. The proposed tax may not be levied less than one month from the date the election results are certified by the county election officer. The commencement date for the levy of any tax under this section must be the first day of January, April, July, or October.
     (3) The local option motor vehicle fuel tax on ((each gallon of)) motor vehicle fuel and on ((each gallon of)) special fuel is imposed upon the distributor of the fuel.
     (4) A taxable event for the purposes of this section occurs upon the first distribution of the fuel within the boundaries of a county to a retail outlet, bulk fuel user, or ultimate user of the fuel.
     (5) All administrative provisions in chapters 82.01, 82.03, and 82.32 RCW, insofar as they are applicable, apply to local option fuel taxes imposed under this section.
     (6) Before the effective date of the imposition of the fuel taxes under this section, a county must contract with the department of revenue for the administration and collection of the taxes. The contract must provide that a percentage amount, not to exceed one percent of the taxes imposed under this section, will be deposited into the local tax administration account created in the custody of the state treasurer. The department of revenue may spend money from this account, upon appropriation, for the administration of the local taxes imposed under this section.
     (7) The state treasurer must distribute monthly to the levying county and cities contained therein the proceeds of the additional excise taxes collected under this section, after the deductions for payments and expenditures as provided in RCW 46.68.090(1) (a) and (b) and under the conditions and limitations provided in RCW 82.80.080.
     (8) The proceeds of the additional excise taxes levied under this section must be used strictly for transportation purposes in accordance with RCW 82.80.070.
     (9) A county may not levy the tax under this section if they are levying the tax in RCW 82.80.110 or if they are a member of a regional transportation investment district levying the tax in RCW 82.80.120.

Sec. 208   RCW 82.80.110 and 2013 c 225 s 642 are each amended to read as follows:
     (1) ((For purposes of this section:)) The definitions in this subsection apply throughout this section unless the context clearly requires otherwise.
     (a) "Distributor" means every person who imports, refines, manufactures, produces, or compounds motor vehicle fuel and special fuel as defined in RCW 82.38.020((, respectively,)) and sells or distributes the fuel into a county((;)).
     (b) "Person" has the same meaning as in RCW 82.04.030.
     (2) For purposes of dedication to a regional transportation investment district plan under chapter 36.120 RCW, subject to the conditions of this section, a county may levy additional excise taxes equal to ten percent of the statewide ((motor vehicle fuel tax rate under RCW 82.38.030 on each gallon of motor vehicle fuel as defined in RCW 82.38.020 and on each gallon of special fuel)) fuel tax rates under RCW 82.38.030 on motor vehicle fuel and special fuel as defined in RCW ((82.32.020 [82.38.020])) 82.38.020 sold within the boundaries of the county. The additional excise tax is subject to the approval of the county's legislative body and a majority of the registered voters of the county voting on the proposition at a general or special election. An election held under this section must be held not more than twelve months before the date on which the proposed tax is to be levied. The ballot setting forth the proposition must state that the revenues from the tax will be used for a regional transportation investment district plan. The county's authority to levy additional excise taxes under this section includes the incorporated and unincorporated areas of the county. Vehicles paying an annual license fee under RCW 82.38.075 are exempt from the county fuel excise tax. The additional excise taxes are subject to the same exceptions and rights of refund as applicable to other motor vehicle fuel and special fuel excise taxes levied under chapter 82.38 RCW. The proposed tax may not be levied less than one month from the date the election results are certified by the county election officer. The commencement date for the levy of any tax under this section will be the first day of January, April, July, or October.
     (3) The local option motor vehicle fuel tax on ((each gallon of)) motor vehicle fuel and on ((each gallon of)) special fuel is imposed upon the distributor of the fuel.
     (4) A taxable event for the purposes of this section occurs upon the first distribution of the fuel within the boundaries of a county to a retail outlet, bulk fuel user, or ultimate user of the fuel.
     (5) All administrative provisions in chapters 82.01, 82.03, and 82.32 RCW, insofar as they are applicable, apply to local option fuel taxes imposed under this section.
     (6) Before the effective date of the imposition of the fuel taxes under this section, a county must contract with the department of revenue for the administration and collection of the taxes. The contract must provide that a percentage amount, not to exceed one percent of the taxes imposed under this section, will be deposited into the local tax administration account created in the custody of the state treasurer. The department of revenue may spend money from this account, upon appropriation, for the administration of the local taxes imposed under this section.
     (7) The state treasurer must distribute monthly to the county levying the tax as part of a regional transportation investment plan, after the deductions for payments and expenditures as provided in RCW 46.68.090(1) (a) and (b).
     (8) The proceeds of the additional taxes levied by a county in this section, to be used as a part of a regional transportation investment plan, must be used in accordance with chapter 36.120 RCW, but only for those areas that are considered "highway purposes" as that term is construed in Article II, section 40 of the state Constitution.
     (9) A county may not levy the tax under this section if they are a member of a regional transportation investment district that is levying the tax in RCW 82.80.120 or the county is levying the tax in RCW 82.80.010.

Sec. 209   RCW 82.80.120 and 2013 c 225 s 643 are each amended to read as follows:
     (1) ((For purposes of this section:)) The definitions in this subsection apply throughout this section unless the context clearly requires otherwise.
     (a) "Distributor" means every person who imports, refines, manufactures, produces, or compounds motor vehicle fuel and special fuel as defined in RCW 82.38.020((, respectively,)) and sells or distributes the fuel into a county((;)).
     (b) "Person" has the same meaning as in RCW 82.04.030;
     (c) "District" means a regional transportation investment district under chapter 36.120 RCW.
     (2) A regional transportation investment district under chapter 36.120 RCW, subject to the conditions of this section, may levy additional excise taxes equal to ten percent of the statewide motor vehicle fuel tax rate under RCW 82.38.030 on each gallon of motor vehicle fuel as defined in RCW 82.38.020 and on each gallon of special fuel as defined in RCW 82.38.020 sold within the boundaries of the district. The additional excise tax is subject to the approval of a majority of the voters within the district boundaries. Vehicles paying an annual license fee under RCW 82.38.075 are exempt from the district's fuel excise tax. The additional excise taxes are subject to the same exceptions and rights of refund as applicable to other motor vehicle fuel and special fuel excise taxes levied under chapter 82.38 RCW. The proposed tax may not be levied less than one month from the date the election results are certified. The commencement date for the levy of any tax under this section will be the first day of January, April, July, or October.
     (3) The local option motor vehicle fuel tax on ((each gallon of)) motor vehicle fuel and on ((each gallon of)) special fuel is imposed upon the distributor of the fuel.
     (4) A taxable event for the purposes of this section occurs upon the first distribution of the fuel within the boundaries of the district to a retail outlet, bulk fuel user, or ultimate user of the fuel.
     (5) All administrative provisions in chapters 82.01, 82.03, and 82.32 RCW, insofar as they are applicable, apply to local option fuel taxes imposed under this section.
     (6) Before the effective date of the imposition of the fuel taxes under this section, a district must contract with the department of revenue for the administration and collection of the taxes. The contract must provide that a percentage amount, not to exceed one percent of the taxes imposed under this section, will be deposited into the local tax administration account created in the custody of the state treasurer. The department of revenue may spend money from this account, upon appropriation, for the administration of the local taxes imposed under this section.
     (7) The state treasurer must distribute monthly to the district levying the tax as part of the regional transportation investment district plan, after the deductions for payments and expenditures as provided in RCW 46.68.090(1) (a) and (b).
     (8) The proceeds of the additional taxes levied by a district in this section, to be used as a part of a regional transportation investment district plan, must be used in accordance with chapter 36.120 RCW, but only for those areas that are considered "highway purposes" as that term is construed in Article II, section 40 of the state Constitution.
     (9) A district may only levy the tax under this section if the district is comprised of boundaries identical to the boundaries of a county or counties. A district may not levy the tax in this section if a member county is levying the tax in RCW 82.80.010 or 82.80.110.

Sec. 210   RCW 82.47.010 and 1998 c 176 s 85 are each amended to read as follows:
     ((The definitions set forth in this section shall apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Motor vehicle fuel" has the meaning given in RCW 82.36.010.
     (2) "Special fuel" has the meaning given in RCW 82.38.020.
     (3) "Motor vehicle" has the meaning given in RCW 82.36.010.))
     For purposes of this chapter, unless the context clearly requires otherwise, "fuel," "motor vehicle fuel," "special fuel," and "motor vehicle" have the meaning given in RCW 82.38.020.

Sec. 211   RCW 46.16A.060 and 2011 c 114 s 6 are each amended to read as follows:
     (1) The department, county auditor or other agent, or subagent appointed by the director may not issue or renew a motor vehicle registration or change the registered owner of a registered vehicle for any motor vehicle required to be inspected under chapter 70.120 RCW, unless the application for issuance or renewal is: (a) Accompanied by a valid certificate of compliance or a valid certificate of acceptance issued as required under chapter 70.120 RCW; or (b) exempt, as described in subsection (2) of this section. The certificates must have a date of validation that is within twelve months of the assigned registration renewal date. Certificates for fleet or owner tested diesel vehicles may have a date of validation that is within twelve months of the assigned registration renewal date.
     (2) The following motor vehicles are exempt from emission test requirements:
     (a) Motor vehicles that are less than five years old or more than twenty-five years old;
     (b) Motor vehicles that are a 2009 model year or newer;
     (c) Motor vehicles powered exclusively by electricity, propane, compressed natural gas, liquefied natural gas, or liquid petroleum gas;
     (d) Motorcycles as defined in RCW 46.04.330 and motor-driven cycles as defined in RCW 46.04.332;
     (e) Farm vehicles as defined in RCW 46.04.181;
     (f) Street rod vehicles as defined in RCW 46.04.572 and custom vehicles as defined in RCW 46.04.161;
     (g) Used vehicles that are offered for sale by a motor vehicle dealer licensed under chapter 46.70 RCW;
     (h) Classes of motor vehicles exempted by the director of the department of ecology; and
     (i) Hybrid motor vehicles that obtain a rating by the environmental protection agency of at least fifty miles per gallon of gas during city driving. For purposes of this section, a hybrid motor vehicle is one that uses propulsion units powered by both electricity and gas.
     (3) The department of ecology ((shall)) must provide information to motor vehicle owners:
     (a) Regarding the boundaries of emission contributing areas and restrictions established under this section that apply to vehicles registered in such areas; and
     (b) On the relationship between motor vehicles and air pollution and steps motor vehicle owners should take to reduce motor vehicle related air pollution.
     (4) The department of licensing ((shall)) must:
     (a) Notify all registered motor vehicle owners affected by the emission testing program that they must have an emission test to renew their registration;
     (b) Adopt rules implementing and enforcing this section, except for subsection (2)(e) of this section, as specified in chapter 34.05 RCW.
     (5) A motor vehicle may not be registered, leased, rented, or sold for use in the state, starting with the model year as provided in RCW 70.120A.010, unless the vehicle:
     (a) Has seven thousand five hundred miles or more; or
     (b)(i) Is consistent with the vehicle emission standards and carbon dioxide equivalent emission standards adopted by the department of ecology; and
     (ii) Has a California certification label for all emission standards, and carbon dioxide equivalent emission standards necessary to meet fleet average requirements.
     (6) The department of licensing, in consultation with the department of ecology, may adopt rules necessary to implement this section and may provide for reasonable exemptions to these requirements. The department of ecology may exempt public safety vehicles from meeting the standards where the department finds that vehicles necessary to meet the needs of public safety agencies are not otherwise reasonably available.

Sec. 212   RCW 46.37.467 and 1995 c 369 s 23 are each amended to read as follows:
     (1) Every automobile, truck, motorcycle, motor home, or off-road vehicle that is fueled by an alternative fuel source ((shall)) must bear a reflective placard issued by the national fire protection association indicating that the vehicle is so fueled. Violation of this subsection is a traffic infraction.
     (2) As used in this section "alternative fuel source" includes propane, compressed natural gas, liquefied natural gas, liquid petroleum gas, or any chemically similar gas but does not include gasoline or diesel fuel.
     (3) If a placard for a specific alternative fuel source has not been issued by the national fire protection association, a placard issued by the chief of the Washington state patrol, through the director of fire protection, ((shall be)) is required. The chief of the Washington state patrol, through the director of fire protection, ((shall)) must develop rules for the design, size, and placement of the placard which ((shall)) remains effective until a specific placard is issued by the national fire protection association.

NEW SECTION.  Sec. 301   A new section is added to chapter 82.16 RCW to read as follows:
     (1) The provisions of this chapter do not apply to sales by a gas distribution business of:
     (a) Compressed natural gas or liquefied natural gas, where the compressed natural gas or liquefied natural gas is to be sold or used as transportation fuel; or
     (b) Natural gas from which the buyer manufactures compressed natural gas or liquefied natural gas, where the compressed natural gas or liquefied natural gas is to be sold or used as transportation fuel.
     (2) The exemption is available only when the buyer provides the seller with an exemption certificate in a form and manner prescribed by the department. The seller must retain a copy of the certificate for the seller's files.
     (3) For the purposes of this section, "transportation fuel" means fuel for the generation of power to propel a motor vehicle as defined in RCW 46.04.320, a vessel as defined in RCW 88.02.310, or a locomotive or railroad car.
     (4) This section expires July 1, 2022.

Sec. 302   RCW 82.04.310 and 2007 c 58 s 1 are each amended to read as follows:
     (1) This chapter ((shall)) does not apply to any person in respect to a business activity with respect to which tax liability is specifically imposed under the provisions of chapter 82.16 RCW including amounts derived from activities for which a deduction is allowed under RCW 82.16.050. The exemption in this subsection does not apply to sales of natural gas, including compressed natural gas and liquefied natural gas, by a gas distribution business, if such sales are exempt from the tax imposed under chapter 82.16 RCW as provided in section 301 of this act.
     (2) This chapter does not apply to amounts received by any person for the sale of electrical energy for resale within or outside the state.
     (3)(a) This chapter does not apply to amounts received by any person for the sale of natural or manufactured gas in a calendar year if that person sells within the United States a total amount of natural or manufactured gas in that calendar year that is no more than twenty percent of the amount of natural or manufactured gas that it consumes within the United States in the same calendar year.
     (b) For purposes of determining whether a person has sold within the United States a total amount of natural or manufactured gas in a calendar year that is no more than twenty percent of the amount of natural or manufactured gas that it consumes within the United States in the same calendar year, the following transfers of gas are not considered to be the sale of natural or manufactured gas:
     (i) The transfer of any natural or manufactured gas as a result of the acquisition of another business, through merger or otherwise; or
     (ii) The transfer of any natural or manufactured gas accomplished solely to comply with federal regulatory requirements imposed on the pipeline transportation of such gas when it is shipped by a third-party manager of a person's pipeline transportation.

Sec. 303   RCW 82.04.120 and 2011 c 23 s 3 are each amended to read as follows:
     (1) "To manufacture" embraces 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:
     (a) The production or fabrication of special made or custom made articles;
     (b) The production or fabrication of dental appliances, devices, restorations, substitutes, or other dental laboratory products by a dental laboratory or dental technician;
     (c) Cutting, delimbing, and measuring of felled, cut, or taken trees; ((and))
     (d) Crushing and/or blending of rock, sand, stone, gravel, or ore; and
     (e) The production of compressed natural gas or liquefied natural gas for use as a transportation fuel as defined in section 301 of this act.
     (2) "To manufacture" does not include:
     (a) Conditioning of seed for use in planting; cubing hay or alfalfa;
     (b) Activities which consist of cutting, grading, or ice glazing seafood which has been cooked, frozen, or canned outside this state;
     (c) The growing, harvesting, or producing of agricultural products;
     (d) Packing of agricultural products, including sorting, washing, rinsing, grading, waxing, treating with fungicide, packaging, chilling, or placing in controlled atmospheric storage;
     (e) The production of digital goods;
     (f) The production of computer software if the computer software is delivered from the seller to the purchaser by means other than tangible storage media, including the delivery by use of a tangible storage media where the tangible storage media is not physically transferred to the purchaser; and
     (g) Except as provided in subsection (1)(e) of this section, any activity that is integral to any public service business as defined in RCW 82.16.010 and with respect to which the gross income associated with such activity: (i) Is subject to tax under chapter 82.16 RCW; or (ii) would be subject to tax under chapter 82.16 RCW if such activity were conducted in this state or if not for an exemption or deduction.
     (3) With respect to wastewater treatment facilities:
     (a) "To manufacture" does not include the treatment of wastewater, the production of reclaimed water, and the production of class B biosolids; and
     (b) "To manufacture" does include the production of class A or exceptional quality biosolids, but only with respect to the processing activities that occur after the biosolids have reached class B standards.

Sec. 304   RCW 82.12.022 and 2011 c 174 s 304 are each amended to read as follows:
     (1) A use tax is levied on every person in this state for the privilege of using natural gas or manufactured gas, including compressed natural gas and liquefied natural gas, within this state as a consumer.
     (2) The tax must be levied and collected in an amount equal to the value of the article used by the taxpayer multiplied by the rate in effect for the public utility tax on gas distribution businesses under RCW 82.16.020. The "value of the article used" does not include any amounts that are paid for the hire or use of a gas distribution business as defined in RCW 82.16.010(2) in transporting the gas subject to tax under this subsection if those amounts are subject to tax under that chapter.
     (3) The tax levied in this section does not apply to the use of natural or manufactured gas delivered to the consumer by other means than through a pipeline.
     (4) The tax levied in this section does not apply to the use of natural or manufactured gas if the person who sold the gas to the consumer has paid a tax under RCW 82.16.020 with respect to the gas for which exemption is sought under this subsection.
     (5)(a) The tax levied in this section does not apply to the use of natural or manufactured gas by an aluminum smelter as that term is defined in RCW 82.04.217 before January 1, 2017.
     (b) A person claiming the exemption provided in this subsection (5) must file a complete annual report with the department under RCW 82.32.534.
     (6) The tax imposed by this section does not apply to the use of natural gas, compressed natural gas, or liquefied natural gas, if the consumer uses the gas for transportation fuel as defined in section 301 of this act.
     (7) There is a credit against the tax levied under this section in an amount equal to any tax paid by:
     (a) The person who sold the gas to the consumer when that tax is a gross receipts tax similar to that imposed pursuant to RCW 82.16.020 by another state with respect to the gas for which a credit is sought under this subsection; or
     (b) The person consuming the gas upon which a use tax similar to the tax imposed by this section was paid to another state with respect to the gas for which a credit is sought under this subsection.
     (((7))) (8) The use tax imposed in this section must be paid by the consumer to the department.
     (((8))) (9) There is imposed a reporting requirement on the person who delivered the gas to the consumer to make a quarterly report to the department. Such report must contain the volume of gas delivered, name of the consumer to whom delivered, and such other information as the department may require by rule.
     (((9))) (10) The department may adopt rules under chapter 34.05 RCW for the administration and enforcement of sections 1 through 6, chapter 384, Laws of 1989.

Sec. 305   RCW 82.14.230 and 2010 c 127 s 5 are each amended to read as follows:
     (1) The governing body of any city, while not required by legislative mandate to do so, may, by resolution or ordinance for the purposes authorized by this chapter, fix and impose on every person a use tax for the privilege of using natural gas or manufactured gas in the city as a consumer.
     (2) The tax is imposed in an amount equal to the value of the article used by the taxpayer multiplied by the rate in effect for the tax on natural gas businesses under RCW 35.21.870 in the city in which the article is used. The "value of the article used," does not include any amounts that are paid for the hire or use of a natural gas business in transporting the gas subject to tax under this subsection if those amounts are subject to tax under RCW 35.21.870.
     (3) The tax imposed under this section does not apply to the use of natural or manufactured gas if the person who sold the gas to the consumer has paid a tax under RCW 35.21.870 with respect to the gas for which exemption is sought under this subsection.
     (4) There is a credit against the tax levied under this section in an amount equal to any tax paid by:
     (a) The person who sold the gas to the consumer when that tax is a gross receipts tax similar to that imposed pursuant to RCW 35.21.870 by another municipality or other unit of local government with respect to the gas for which a credit is sought under this subsection; or
     (b) The person consuming the gas upon which a use tax similar to the tax imposed by this section was paid to another municipality or other unit of local government with respect to the gas for which a credit is sought under this subsection.
     (5) The use tax imposed must be paid by the consumer. The administration and collection of the tax imposed is pursuant to RCW 82.14.050.
     (6) The tax authorized by this section does not apply to the use of natural gas, compressed natural gas, or liquefied natural gas, if the consumer uses the gas for transportation fuel as defined in section 301 of this act.

Sec. 306   RCW 35.21.870 and 1984 c 225 s 6 are each amended to read as follows:
     (1) No city or town may impose a tax on the privilege of conducting an electrical energy, natural gas, steam energy, or telephone business at a rate which exceeds six percent unless the rate is first approved by a majority of the voters of the city or town voting on such a proposition.
     (2)(a) If a city or town is imposing a rate of tax under subsection (1) of this section in excess of six percent on April 20, 1982, the city or town ((shall)) must decrease the rate to a rate of six percent or less by reducing the rate each year on or before November 1st by ordinances to be effective on January 1st of the succeeding year, by an amount equal to one-tenth the difference between the tax rate on April 20, 1982, and six percent.
     (b) Nothing in this subsection prohibits a city or town from reducing its rates by amounts greater than the amounts required in this subsection.
     (3) Voter approved rate increases under subsection (1) of this section ((shall)) may not be included in the computations under this subsection.
     (4) No city or town may impose a tax on the privilege of conducting a natural gas business with respect to sales that are exempt from the tax imposed under chapter 82.16 RCW as provided in section 301 of this act at a rate higher than its business and occupation tax rate on the sale of tangible personal property or, if the city or town does not impose a business and occupation tax on the sale of tangible personal property, at a rate greater than .002.

Sec. 307   RCW 82.14.030 and 2008 c 86 s 101 are each amended to read as follows:
     (1) The governing body of any county or city, while not required by legislative mandate to do so, may, by resolution or ordinance for the purposes authorized by this chapter, impose a sales and use tax in accordance with the terms of this chapter. Such tax ((shall)) must be collected from those persons who are taxable by the state under chapters 82.08 and 82.12 RCW, upon the occurrence of any taxable event within the county or city as the case may be. ((Except as provided in RCW 82.14.230,)) This sales and use tax ((shall)) does not apply to natural or manufactured gas, except for natural gas that is used as a transportation fuel as defined in section 301 of this act and is taxable by the state under chapters 82.08 and 82.12 RCW. The rate of such tax imposed by a county ((shall be)) is five-tenths of one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax). The rate of such tax imposed by a city ((shall)) may not exceed five-tenths of one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax). However, in the event a county imposes a sales and use tax under this subsection, the rate of such tax imposed under this subsection by any city therein ((shall)) may not exceed four hundred and twenty-five one-thousandths of one percent.
     (2) In addition to the tax authorized in subsection (1) of this section, the governing body of any county or city may by resolution or ordinance impose an additional sales and use tax in accordance with the terms of this chapter. Such additional tax ((shall)) must be collected upon the same taxable events upon which the tax imposed under subsection (1) of this section is imposed. The rate of such additional tax imposed by a county ((shall be)) is up to five-tenths of one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax). The rate of such additional tax imposed by a city ((shall be)) is up to five-tenths of one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax). However, in the event a county imposes a sales and use tax under the authority of this subsection at a rate equal to or greater than the rate imposed under the authority of this subsection by a city within the county, the county ((shall)) must receive fifteen percent of the city tax. In the event that the county imposes a sales and use tax under the authority of this subsection at a rate which is less than the rate imposed under this subsection by a city within the county, the county ((shall)) must receive that amount of revenues from the city tax equal to fifteen percent of the rate of tax imposed by the county under the authority of this subsection. The authority to impose a tax under this subsection is intended in part to compensate local government for any losses from the phase-out of the property tax on business inventories.

Sec. 401   RCW 82.38.180 and 2013 c 225 s 119 are each amended to read as follows:
     (1) Any person who has purchased fuel on which tax has been paid may file a claim with the department for a refund of the tax for:
     (a) Fuel used for purposes other than for the propulsion of motor vehicles upon the public highways in this state. However, a refund may not be made for motor vehicle fuel consumed by a motor vehicle required to be registered under chapter 46.16A RCW.
     (b) Except as provided in (g) of this subsection (1), fuel exported for use outside of this state. Fuel carried from this state in the fuel tank of a motor vehicle is deemed to be exported from this state. Fuel distributed to a federally recognized Indian tribal reservation located within the state of Washington is not considered exported outside this state.
     (c) Tax, penalty, or interest erroneously or illegally collected or paid.
     (d) Fuel which is lost or destroyed, while the licensee is the owner thereof, through fire, lightning, flood, wind storm, or explosion.
     (e) Fuel of five hundred gallons or more which is lost or destroyed while the licensee is the owner thereof, through leakage or other casualty except evaporation, shrinkage, or unknown causes.
     (f) Fuel used in power pumping units or other power take-off equipment of any motor vehicle which is accurately measured by metering devices that have been specifically approved by the department or by a formula determined by the department.
     (g) Seventy percent of liquefied and compressed natural gas exported for use outside of this state.
     (2) Any person who has purchased special fuel on which tax has been paid may file a claim with the department for a refund of tax for:
     (a) Special fuel used for the operation of a motor vehicle as a part of or incidental to logging operations upon a highway under federal jurisdiction within the boundaries of a federal area if the federal government requires a fee for the privilege of operating the motor vehicle upon the highway, the proceeds of which are reserved for constructing or maintaining roads in the federal area, or requires maintenance or construction work to be performed on the highway for the privilege of operating the motor vehicle on the highway;
     (b) Special fuel used by special mobile equipment as defined in RCW 46.04.552;
     (c) Special fuel used in a motor vehicle for movement between two pieces of private property wherein the movement is incidental to the primary use of the vehicle; and
     (d) Special fuel inadvertently mixed with dyed special fuel.
     (3) Any person who has purchased motor vehicle fuel on which tax has been paid may file a claim with the department for a refund of tax for:
     (a) Motor vehicle fuel used by a private, nonprofit transportation provider regulated under chapter 81.66 RCW to provide transportation services for persons with special transportation needs; and
     (b) Motor vehicle fuel used by an urban passenger transportation system. For purposes of this subsection "urban passenger transportation system" means every transportation system, publicly or privately owned, having as its principal source of revenue the income from transporting persons for compensation by means of motor vehicles or trackless trolleys, each having a seating capacity of over fifteen persons, over prescribed routes in such a manner that the routes of such motor vehicles or trackless trolleys, either alone or in conjunction with routes of other such motor vehicles or trackless trolleys subject to the routing by the same transportation system, do not extend for a distance exceeding fifteen road miles beyond the corporate limits of the city in which the original starting points of such motor vehicles or trackless trolleys are located. No refunds are authorized for fuel used on any trip where any portion of the trip is more than fifteen road miles beyond the corporate limits of the city in which the trip originated.
     (4) Recovery for such loss or destruction under subsections (1)(d) or (e) or (2)(d) of this section must be susceptible to positive proof thereby enabling the department to conduct such investigation and require such information as it may deem necessary. In the event that the department is not satisfied that the fuel was lost, destroyed, or contaminated as claimed because information or proof as required hereunder is not sufficient to substantiate the accuracy of the claim, it may deem such as sufficient cause to deny all right relating to the refund or credit for the excise tax paid on fuel alleged to be lost or destroyed.
     (5) No refund or claim for credit may be approved by the department unless the gallons of fuel claimed as nontaxable satisfy the conditions specifically set forth in this section and the nontaxable event or use occurred during the period covered by the refund claim. Refunds or claims for credit are not ((be [are not])) allowed for anticipated nontaxable use or events.

Sec. 402   RCW 82.08.02565 and 2011 c 23 s 2 are each amended to read as follows:
     (1)(a) The tax levied by RCW 82.08.020 does not apply to sales to a manufacturer or processor for hire of machinery and equipment used directly in a manufacturing operation or research and development operation, to sales to a person engaged in testing for a manufacturer or processor for hire of machinery and equipment used directly in a testing operation, or to sales of or charges made for labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the machinery and equipment.
     (b) Except as provided in (c) of this subsection, sellers making tax-exempt sales under this section must obtain from the purchaser an exemption certificate in a form and manner prescribed by the department by rule. The seller must retain a copy of the certificate for the seller's files.
     (c)(i) The exemption under this section is in the form of a remittance for a gas distribution business, as defined in RCW 82.16.010, claiming the exemption for machinery and equipment used for the production of compressed natural gas or liquefied natural gas for use as a transportation fuel.
     (ii) A gas distribution business claiming an exemption from state and local tax in the form of a remittance under this section must pay the tax under RCW 82.08.020 and all applicable local sales taxes. Beginning July 1, 2017, the gas distribution business may then apply to the department for remittance of state and local sales and use taxes. A gas distribution business may not apply for a remittance more frequently than once a quarter. The gas distribution business must specify the amount of exempted tax claimed and the qualifying purchases for which the exemption is claimed. The gas distribution business must retain, in adequate detail, records to enable the department to determine whether the business is entitled to an exemption under this section, including: Invoices; proof of tax paid; and documents describing the machinery and equipment.
     (iii) The department must determine eligibility under this section based on the information provided by the gas distribution business, which is subject to audit verification by the department. The department must on a quarterly basis remit exempted amounts to qualifying businesses who submitted applications during the previous quarter.
     (2) For purposes of this section and RCW 82.12.02565:
     (a) "Machinery and equipment" means industrial fixtures, devices, and support facilities, and tangible personal property that becomes an ingredient or component thereof, including repair parts and replacement parts. "Machinery and equipment" includes pollution control equipment installed and used in a manufacturing operation, testing operation, or research and development operation to prevent air pollution, water pollution, or contamination that might otherwise result from the manufacturing operation, testing operation, or research and development operation. "Machinery and equipment" also includes digital goods.
     (b) "Machinery and equipment" does not include:
     (i) Hand-powered tools;
     (ii) Property with a useful life of less than one year;
     (iii) Buildings, other than machinery and equipment that is permanently affixed to or becomes a physical part of a building; and
     (iv) Building fixtures that are not integral to the manufacturing operation, testing operation, or research and development operation that are permanently affixed to and become a physical part of a building, such as utility systems for heating, ventilation, air conditioning, communications, plumbing, or electrical.
     (c) Machinery and equipment is "used directly" in a manufacturing operation, testing operation, or research and development operation if the machinery and equipment:
     (i) Acts upon or interacts with an item of tangible personal property;
     (ii) Conveys, transports, handles, or temporarily stores an item of tangible personal property at the manufacturing site or testing site;
     (iii) Controls, guides, measures, verifies, aligns, regulates, or tests tangible personal property at the site or away from the site;
     (iv) Provides physical support for or access to tangible personal property;
     (v) Produces power for, or lubricates machinery and equipment;
     (vi) Produces another item of tangible personal property for use in the manufacturing operation, testing operation, or research and development operation;
     (vii) Places tangible personal property in the container, package, or wrapping in which the tangible personal property is normally sold or transported; or
     (viii) Is integral to research and development as defined in RCW 82.63.010.
     (d) "Manufacturer" means a person that qualifies as a manufacturer under RCW 82.04.110. "Manufacturer" also includes a person that prints newspapers or other materials.
     (e) "Manufacturing" means only those activities that come within the definition of "to manufacture" in RCW 82.04.120 and are taxed as manufacturing or processing for hire under chapter 82.04 RCW, or would be taxed as such if such activity were conducted in this state or if not for an exemption or deduction. "Manufacturing" also includes printing newspapers or other materials. An activity is not taxed as manufacturing or processing for hire under chapter 82.04 RCW if the activity is within the purview of chapter 82.16 RCW.
     (f) "Manufacturing operation" means the manufacturing of articles, substances, or commodities for sale as tangible personal property. A manufacturing operation begins at the point where the raw materials enter the manufacturing site and ends at the point where the processed material leaves the manufacturing site. With respect to the production of class A or exceptional quality biosolids by a wastewater treatment facility, the manufacturing operation begins at the point where class B biosolids undergo additional processing to achieve class A or exceptional quality standards. Notwithstanding anything to the contrary in this section, the term also includes that portion of a cogeneration project that is used to generate power for consumption within the manufacturing site of which the cogeneration project is an integral part. The term does not include the preparation of food products on the premises of a person selling food products at retail.
     (g) "Cogeneration" means the simultaneous generation of electrical energy and low-grade heat from the same fuel.
     (h) "Research and development operation" means engaging in research and development as defined in RCW 82.63.010 by a manufacturer or processor for hire.
     (i) "Testing" means activities performed to establish or determine the properties, qualities, and limitations of tangible personal property.
     (j) "Testing operation" means the testing of tangible personal property for a manufacturer or processor for hire. A testing operation begins at the point where the tangible personal property enters the testing site and ends at the point where the tangible personal property leaves the testing site. The term also includes the testing of tangible personal property for use in that portion of a cogeneration project that is used to generate power for consumption within the manufacturing site of which the cogeneration project is an integral part. The term does not include the testing of tangible personal property for use in the production of electricity by a light and power business as defined in RCW 82.16.010 or the preparation of food products on the premises of a person selling food products at retail.

Sec. 403   RCW 82.12.02565 and 2003 c 5 s 5 are each amended to read as follows:
     (1) The provisions of this chapter ((shall)) do not apply in respect to the use by a manufacturer or processor for hire of machinery and equipment used directly in a manufacturing operation or research and development operation, to the use by a person engaged in testing for a manufacturer or processor for hire of machinery and equipment used directly in a testing operation, or to the use of labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the machinery and equipment.
     (2) The definitions, conditions, and requirements in RCW 82.08.02565 apply to this section.

Sec. 404   RCW 82.08.0255 and 2013 c 225 s 640 are each amended to read as follows:
     (1) The tax levied by RCW 82.08.020 does not apply to sales of motor vehicle and special fuel if:
     (a) The fuel is purchased for the purpose of public transportation and the purchaser is entitled to a refund or an exemption under RCW 82.38.080(1) (f) and (g) or 82.38.180(3)(b); or
     (b) The fuel is purchased by a private, nonprofit transportation provider certified under chapter 81.66 RCW and the purchaser is entitled to a refund or an exemption under RCW 82.38.080(1)(d) or 82.38.180(3)(a); or
     (c) The fuel is purchased by a public transportation benefit area created under chapter 36.57A RCW or a county-owned ferry or county ferry district created under chapter 36.54 RCW for use in passenger-only ferry vessels; or
     (d) The fuel is purchased by the Washington state ferry system for use in a state-owned ferry after June 30, 2013; or
     (e) The fuel is purchased by a county-owned ferry for use in ferry vessels after June 30, 2013; or
     (f) The fuel is taxable under chapter 82.38 RCW.
     (2)(a) Except as provided in (b) of this subsection, any person who has paid the tax imposed by RCW 82.08.020 on the sale of special fuel delivered in this state is entitled to a credit or refund of such tax with respect to fuel subsequently established to have been actually transported and used outside this state by persons engaged in interstate commerce. The tax must be claimed as a credit or refunded through the tax reports required under RCW 82.38.150.
     (b) Any person who has paid the tax imposed by RCW 82.08.020 on the purchase of liquefied natural gas where the liquefied natural gas is used as a transportation fuel is entitled to a credit or refund of seventy percent of the tax with respect to fuel subsequently established to have been actually transported and used outside this state by persons engaged in interstate commerce. The department must specify the form and manner in which the credit or refund is claimed.

NEW SECTION.  Sec. 405   A new section is added to chapter 82.32 RCW to read as follows:
     (1) By the last workday of the second and fourth calendar quarters, the state treasurer must transfer the amount specified in subsection (2) of this section from the general fund to the finished fuel account created in section 205 of this act. The first transfer under this subsection must occur by December 31, 2017.
     (2) By December 15th and by June 15th of each year, the department must estimate the increase in state general fund revenues from the changes made under RCW 82.08.0255 for the current and prior calendar quarters and notify the state treasurer of the increase.
     (3) This section expires July 1, 2022.

NEW SECTION.  Sec. 406   A new section is added to chapter 43.135 RCW to read as follows:
     (1) RCW 43.135.034(4) does not apply to the transfers under section 405 of this act.
     (2) This section expires July 1, 2022.

NEW SECTION.  Sec. 407   A new section is added to chapter 39.42 RCW to read as follows:
     (1) The purpose of eliminating a portion of the sales credit for exported liquefied natural gas under RCW 82.08.0255 is to fund improvements to Washington state ferries. For this reason, general state revenues transferred under section 405 of this act to the finished fuel account are excluded from the calculation of general state revenues for purposes of Article VIII, section 1 of the state Constitution and RCW 39.42.130 and 39.42.140.
     (2) This section expires July 1, 2022.

Sec. 501   RCW 80.28.280 and 1991 c 199 s 216 are each amended to read as follows:
     (1) The legislature finds that compressed natural gas and liquefied natural gas offers significant potential to reduce vehicle and vessel emissions and to significantly decrease dependence on petroleum-based fuels. The legislature also finds that well-developed and convenient refueling systems are imperative if compressed natural gas ((is)) and liquefied natural gas are to be widely used by the public. The legislature declares that the development of compressed natural gas ((refueling stations are in the public interest.)) and liquefied natural gas motor vehicle refueling stations and vessel refueling facilities are in the public interest. Except as provided in subsection (2) of this section, nothing in this section and RCW 80.28.290 is intended to alter the regulatory practices of the commission or allow the subsidization of one ratepayer class by another.
     (2) When a liquefied natural gas facility owned by a natural gas company serves both a private customer operating marine vessels and the Washington state ferries or any other public entity, the rate charged by the natural gas company to the Washington state ferries may not be more than the rate charged to the private customer operating marine vessels.

NEW SECTION.  Sec. 601   Parts I, II, III, and V and sections 401 through 404 of this act take effect July 1, 2015.

NEW SECTION.  Sec. 602   This act expires July 1, 2022."