BILL REQ. #:  H-3105.3 

Prefiled 01/10/14. Read first time 01/13/14.   Referred to Committee on Finance.

     AN ACT Relating to reestablishing the rural county sales and use tax exemption program; amending RCW 82.60.020, 82.60.030, and 82.60.040; creating a new section; repealing RCW 82.60.010 and 82.60.120; providing an effective date; providing expiration dates; and providing a contingent expiration date.

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

NEW SECTION.  Sec. 1   (1) The legislature finds that the rural county sales tax program, a combination of tax incentives for manufacturing and research and development facilities, machinery and equipment, which was initially adopted in 1985 and extended to 2009, with periodic adjustments, was an effective tax incentive and should be reestablished. This finding is based in part on a December 2009 report by the department of revenue titled, "Analysis of Rural County Sales Tax Program," which found several positive indicators including, but not limited to, the following: (a) Thirty-one counties had qualified projects; (b) program participants had an increase in employment of 4.1 percent, while nonparticipants in rural counties showed a decline in employment positions of 5.3 percent; (c) program participants outperformed Washington as a whole in increasing their share of United States manufacturing employment; and (d) program participants experienced significantly larger increases in gross revenue when compared to nonparticipants.
     (2)(a) This subsection is the tax preference performance statement for the sales and use tax deferral/exemption program provided in this act. The performance statement is only intended to be used for subsequent evaluation of the tax preference. 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 this tax preference as one intended to accomplish the general purpose indicated in RCW 82.32.808(2)(c).
     (c) It is the legislature's specific public policy objective to incentivize private sector investment, diversify state employment opportunities, and create jobs in rural counties, by reinstating the rural sales tax program for a period of ten years.
     (d) To measure the effectiveness of the tax incentive program 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) Changes in employment and unemployment rates for participating counties in comparison with statewide amounts, and including the estimated change in employment for participating counties as a percentage of total statewide employment;
     (ii) Total investment amounts in projects qualifying for the sales tax exemption/deferral under this act; and
     (iii) The estimated increase in state and local property tax revenues from new construction associated with projects qualifying for the sales tax exemption/deferral under this act.
     (e)(i) The following data sources are intended to provide the informational basis for the evaluation under (d) of this subsection: Employment data reported to the state employment security department; investment amounts reported on the annual survey required under RCW 82.32.585; property tax data compiled by the department of revenue; data reported on the application filed under RCW 82.60.030; and any other data the committee deems appropriate.
     (ii) In addition to the data sources provided 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.

Sec. 2   RCW 82.60.020 and 2010 1st sp.s. c 16 s 2 are each amended to read as follows:
     Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
     (1) "Applicant" means a person applying for a tax deferral under this chapter.
     (2) "Department" means the department of revenue.
     (3) "Eligible area" means((:
     (a) Through June 30, 2010,)) a rural county as defined in RCW 82.14.370((; and
     (b) Beginning July 1, 2010, a qualifying county)) beginning July 1, 2014.
     (4)(a) "Eligible investment project" means an investment project that is located, as of the date the application required by RCW 82.60.030 is received by the department, in an eligible area as defined in subsection (3) of this section.
     (b) "Eligible investment project" does not include any portion of an investment project undertaken by a light and power business as defined in RCW 82.16.010(4), other than 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, or investment projects that have already received deferrals under this chapter.
     (5) "Initiation of construction" has the same meaning as in RCW 82.63.010.
     (6) "Investment project" means an investment in qualified buildings or qualified machinery and equipment, including labor and services rendered in the planning, installation, and construction of the project.
     (7) "Manufacturing" means the same as defined in RCW 82.04.120. "Manufacturing" also includes:
     (a) ((Before July 1, 2010: (i))) Computer programming, the production of computer software, and other computer-related services, but only when the computer programming, production of computer software, or other computer-related services are performed by a manufacturer as defined in RCW 82.04.110 and contribute to the production of a new, different, or useful substance or article of tangible personal property for sale;
     (((ii))) (b) The activities performed by research and development laboratories and commercial testing laboratories; and
     (((iii))) (c) The conditioning of vegetable seeds((; and
     (b) Beginning July 1, 2010: (i) The activities performed by research and development laboratories and commercial testing laboratories; and (ii) the conditioning of vegetable seeds)).
     (8) "Person" has the meaning given in RCW 82.04.030.
     (9) "Qualified buildings" means construction of new structures, and expansion or renovation of existing structures for the purpose of increasing floor space or production capacity used for manufacturing or research and development activities, including plant offices and warehouses or other facilities for the storage of raw material or finished goods if such facilities are an essential or an integral part of a factory, mill, plant, or laboratory used for manufacturing or research and development. If a building is used partly for manufacturing or research and development and partly for other purposes, the applicable tax deferral must be determined by apportionment of the costs of construction under rules adopted by the department.
     (10) "Qualified employment position" means a permanent full-time employee employed in the eligible investment project during the entire tax year. The term "entire tax year" means a full-time position that is filled for a period of twelve consecutive months. The term "full-time" means at least thirty-five hours a week, four hundred fifty-five hours a quarter, or one thousand eight hundred twenty hours a year.
     (11) "Qualified machinery and equipment" means all new industrial and research fixtures, equipment, and support facilities that are an integral and necessary part of a manufacturing or research and development operation. "Qualified machinery and equipment" includes: Computers; software; data processing equipment; laboratory equipment; manufacturing components such as belts, pulleys, shafts, and moving parts; molds, tools, and dies; operating structures; and all equipment used to control or operate the machinery.
     (12) (("Qualifying county" means a county that has an unemployment rate, as determined by the employment security department, which is at least twenty percent above the state average for the three calendar years immediately preceding the year in which the list of qualifying counties is established or updated, as the case may be, as provided in RCW 82.60.120.
     (13))) "Recipient" means a person receiving a tax deferral under this chapter.
     (((14))) (13) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun, but only when such activities are intended to ultimately result in the production of a new, different, or useful substance or article of tangible personal property for sale. As used in this subsection, "commercial sales" excludes sales of prototypes or sales for market testing if the total gross receipts from such sales of the product, service, or process do not exceed one million dollars.

Sec. 3   RCW 82.60.030 and 2010 1st sp.s. c 16 s 5 are each amended to read as follows:
     (1) Application for deferral of taxes under this chapter must be made before initiation of the construction of the investment project or acquisition of equipment or machinery. The application must be made to the department in a form and manner prescribed by the department. The application must 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 wages of employees related to the project, estimated or actual costs, time schedules for completion and operation, and other information required by the department. The department must rule on the application within sixty days.
     (2) This section expires July 1, ((2020)) 2024.

Sec. 4   RCW 82.60.040 and 2010 1st sp.s. c 16 s 6 are each amended to read as follows:
     (1) The department must issue a sales and use tax deferral certificate for state and local sales and use taxes due under chapters 82.08, 82.12, and 82.14 RCW on each eligible investment project.
     (2) The department must keep a running total of all deferrals granted under this chapter during each fiscal biennium.
     (3) This section expires July 1, ((2020)) 2024.

NEW SECTION.  Sec. 5   The following acts or parts of acts are each repealed:
     (1) RCW 82.60.010 (Legislative findings and declaration) and 2010 1st sp.s. c 16 s 1 & 1985 c 232 s 1; and
     (2) RCW 82.60.120 (Qualifying county list -- 2010 1st sp.s. c 16) and 2010 1st sp.s. c 16 s 3.

NEW SECTION.  Sec. 6   This act takes effect July 1, 2014.

NEW SECTION.  Sec. 7   (1) Chapter 82.60 RCW expires on the date that legislation enacting comprehensive business and occupation tax reform takes effect.
     (2) The department of revenue must provide notice of the expiration date of this act to affected parties, the chief clerk of the house of representatives, the secretary of the senate, the office of the code reviser, and others as deemed appropriate by the department.