H-0841.1 _______________________________________________
SUBSTITUTE HOUSE BILL 1024
_______________________________________________
State of Washington 54th Legislature 1995 Regular Session
By House Committee on Trade & Economic Development (originally sponsored by Representatives Van Luven, Foreman, B. Thomas, Lisk, Horn, Chandler, Casada, Dyer, Ballasiotes, Silver, Cooke, Brumsickle, Carlson, Sehlin, Sherstad, Dellwo, Benton, Skinner, Kremen, Hargrove, Costa, Delvin, Schoesler, Buck, Johnson, Thompson, Beeksma, Goldsmith, Radcliff, Hickel, Backlund, Crouse, Cairnes, Elliot, Reams, Pennington, Mastin, Mitchell, Conway, Quall, Ogden, Chappell, Regala, G. Fisher, Basich, Grant, Campbell, Smith, Robertson, Honeyford, Pelesky, Hankins, Koster, Lambert, D. Schmidt, Mulliken, Boldt, McMorris, Clements, Fuhrman, Sheldon, L. Thomas, Huff, Mielke, Talcott, McMahan, Stevens, Morris and Hymes)
Read first time 01/16/95.
AN ACT Relating to tax exemptions for manufacturing and processing; amending RCW 82.04.190, 82.60.070, 82.61.010, and 82.63.010; reenacting and amending RCW 82.60.020; adding a new section to chapter 82.08 RCW; adding a new section to chapter 82.12 RCW; adding a new section to chapter 82.63 RCW; creating new sections; repealing RCW 82.61.020, 82.61.030, 82.61.040, 82.63.040, and 82.63.050; providing an effective date; and declaring an emergency.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW SECTION. Sec. 1. The legislature finds and declares that:
(1) The health, safety, and welfare of the people of the state of Washington are heavily dependent upon the continued encouragement, development, and expansion of opportunities for family wage employment in our state's private sector;
(2) The state's private sector must be encouraged to commit to continuous improvement of process, products, and services and to deliver high-quality, high-value products through technological innovations and high-performance work organizations;
(3) The state's opportunities for increased economic dealings with other states and nations of the world are dependent on supporting and attracting a diverse, stable, and competitive economic base of private sector employers;
(4) The state's current policy of applying its sales and use taxes to machinery, equipment, and installation labor used in manufacturing, research and development, and other activities has placed our state's private sector at a competitive disadvantage with other states and serves as a significant disincentive to the continuous improvement of products, technology, and modernization necessary for the preservation, stabilization, and expansion of employment and to ensure a stable economy; and
(5) It is vital to the continued development of economic opportunity in this state, including the development of new businesses and the expansion or modernization of existing businesses, that the state of Washington provide tax incentives to entities making a commitment to facilities and operations in this state.
NEW SECTION. Sec. 2. A new section is added to chapter 82.08 RCW to read as follows:
(1) The tax levied by RCW 82.08.020 shall not apply to sales to a manufacturer or processor for hire of machinery or equipment used directly in a manufacturing operation, or to sales of or charges made for labor and services rendered in respect to installing the machinery or equipment, but only when the purchaser provides an exemption certificate in a form and manner prescribed by the department by rule.
(2) The exemption under this section shall only apply to the state's portion of retail sales tax that is levied in RCW 82.08.020.
(3) "Machinery and equipment" means industrial fixtures, devices, support facilities, and pollution control equipment installed and used in a manufacturing facility to prevent air or water pollution or contamination that might otherwise result from the operation of the facility.
(4) "Machinery and equipment" does not include:
(a) Hand tools;
(b) Property with a useful life of less than one year;
(c) Repair parts required to restore machinery and equipment to normal working order;
(d) Replacement parts that do not improve efficiency or extend the useful life of the machinery and equipment; or
(e) Building fixtures that are not integral to the manufacturing 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.
(5) Machinery and equipment is "used directly" in a manufacturing process if the machinery or equipment:
(a) Acts upon or interacts with an item of tangible personal property;
(b) Conveys, transports, handles, or temporarily stores an item of tangible personal property at the manufacturing facility;
(c) Controls, guides, measures, verifies, aligns, regulates, or tests tangible personal property;
(d) Provides physical support or access to tangible personal property;
(e) Produces steam or mechanical power for, or lubricates machinery and equipment;
(f) Produces another item of tangible personal property for use in the manufacturing operation; or
(g) Places the property in the container, package, or wrapping in which the property is normally sold or transported.
(6) "Manufacturing operation" means the manufacturing of articles, substances, or commodities for sale as tangible personal property. The manufacturing operation begins when the raw materials enter the manufacturing facility and ends when the finished product leaves the manufacturing facility. The term does not include research and development, cogeneration or the production of electricity, or the preparation of food products on the premises of a person selling food products at retail.
NEW SECTION. Sec. 3. A new section is added to chapter 82.12 RCW to read as follows:
(1) The provisions of this chapter shall not apply in respect to the use by a manufacturer or processor for hire of machinery or equipment used directly in a manufacturing operation.
(2) The exemption under this section shall only apply to the state's portion of use tax that is imposed in RCW 82.12.020.
(3) "Machinery and equipment" means industrial fixtures, devices, support facilities, and pollution control equipment installed and used in a manufacturing facility to prevent air or water pollution or contamination that might otherwise result from the operation of the facility.
(4) "Machinery and equipment" does not include:
(a) Hand tools;
(b) Property with a useful life of less than one year;
(c) Repair parts required to restore machinery and equipment to normal working order;
(d) Replacement parts that do not improve efficiency or extend the useful life of the machinery and equipment; or
(e) Building fixtures that are not integral to the manufacturing 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.
(5) Machinery and equipment is "used directly" in a manufacturing process if the machinery or equipment:
(a) Acts upon or interacts with an item of tangible personal property;
(b) Conveys, transports, handles, or temporarily stores an item of tangible personal property at the manufacturing facility;
(c) Controls, guides, measures, verifies, aligns, regulates, or tests tangible personal property;
(d) Provides physical support or access to tangible personal property;
(e) Produces steam or mechanical power for, or lubricates machinery and equipment;
(f) Produces another item of tangible personal property for use in the manufacturing operation; or
(g) Places the property in the container, package, or wrapping in which the property is normally sold or transported.
(6) "Manufacturing operation" means the manufacturing of articles, substances, or commodities for sale as tangible personal property. The manufacturing operation begins when the raw materials enter the manufacturing facility and ends when the finished product leaves the manufacturing facility. The term does not include research and development, cogeneration or the production of electricity, or the preparation of food products on the premises of a person selling food products at retail.
Sec. 4. RCW 82.04.190 and 1986 c 231 s 2 are each amended to read as follows:
"Consumer" means the following:
(1) Any person who purchases, acquires, owns, holds, or uses any article of tangible personal property irrespective of the nature of the person's business and including, among others, without limiting the scope hereof, persons who install, repair, clean, alter, improve, construct, or decorate real or personal property of or for consumers other than for the purpose (a) of resale as tangible personal property in the regular course of business or (b) of incorporating such property as an ingredient or component of real or personal property when installing, repairing, cleaning, altering, imprinting, improving, constructing, or decorating such real or personal property of or for consumers or (c) of consuming such property in producing for sale a new article of tangible personal property or a new substance, of which such property becomes an ingredient or component or as a chemical used in processing, when the primary purpose of such chemical is to create a chemical reaction directly through contact with an ingredient of a new article being produced for sale or (d) purchases for the purpose of consuming the property purchased in producing ferrosilicon which is subsequently used in producing magnesium for sale, if the primary purpose of such property is to create a chemical reaction directly through contact with an ingredient of ferrosilicon;
(2) Any person engaged in any business activity taxable under RCW 82.04.290 and any person who purchases, acquires, or uses any telephone service as defined in RCW 82.04.065, other than for resale in the regular course of business;
(3) Any person engaged in the business of contracting for the building, repairing or improving of any street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle which is owned by a municipal corporation or political subdivision of the state of Washington or by the United States and which is used or to be used primarily for foot or vehicular traffic including mass transportation vehicles of any kind as defined in RCW 82.04.280, in respect to tangible personal property when such person incorporates such property as an ingredient or component of such publicly owned street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle by installing, placing or spreading the property in or upon the right of way of such street, place, road, highway, easement, bridge, tunnel, or trestle or in or upon the site of such mass public transportation terminal or parking facility;
(4) Any person who is an owner, lessee or has the right of possession to or an easement in real property which is being constructed, repaired, decorated, improved, or otherwise altered by a person engaged in business, excluding only (a) municipal corporations or political subdivisions of the state in respect to labor and services rendered to their real property which is used or held for public road purposes, and (b) the United States, instrumentalities thereof, and county and city housing authorities created pursuant to chapter 35.82 RCW in respect to labor and services rendered to their real property. Nothing contained in this or any other subsection of this definition shall be construed to modify any other definition of "consumer";
(5) Any person who is an owner, lessee, or has the right of possession to personal property which is being constructed, repaired, improved, cleaned, imprinted, or otherwise altered by a person engaged in business;
(6) Any person engaged in the business of constructing, repairing, decorating, or improving new or existing buildings or other structures under, upon, or above real property of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW, including the installing or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation; also, any person engaged in the business of clearing land and moving earth of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW. Any such person shall be a consumer within the meaning of this subsection in respect to tangible personal property incorporated into, installed in, or attached to such building or other structure by such person; and
(7) Any person who is a lessor of machinery and equipment, the rental of which is exempt from the tax imposed by RCW 82.08.020 under section 2 of this act, with respect to the sale of or charge made for tangible personal property consumed and for labor and services rendered in respect to repairing the machinery and equipment.
Nothing contained in this or any other subsection of this definition shall be construed to modify any other definition of "consumer."
Sec. 5. RCW 82.60.020 and 1994 sp.s. c 7 s 704 and 1994 sp.s. c 1 s 1 are each reenacted and 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) A county in which the average level of unemployment for the three years before the year in which an application is filed under this chapter exceeds the average state unemployment for those years by twenty percent; (b) a metropolitan statistical area, as defined by the office of federal statistical policy and standards, United States department of commerce, in which the average level of unemployment for the calendar year immediately preceding the year in which an application is filed under this chapter exceeds the average state unemployment for such calendar year by twenty percent; (c) a designated community empowerment zone approved under RCW 43.63A.700; (d) a town with a population of less than twelve hundred persons in those counties that are not covered under (a) of this subsection that are timber impact areas as defined in RCW 43.31.601; or (e) a county designated by the governor as an eligible area under RCW 82.60.047.
(4)(a) "Eligible investment project" means:
(i) An investment in qualified buildings or qualified machinery and equipment, including labor and services rendered in the planning, installation, or construction of the project; or
(ii) That
portion of an investment in a qualified cogeneration project which((:
(i))) is directly ((utilized)) used
to create at least one new full-time qualified employment position for each ((three
hundred thousand dollars of investment on which a deferral is requested in an
application approved before July 1, 1994, and for each)) seven hundred
fifty thousand dollars of investment on which a deferral is requested ((in
an application approved after June 30, 1994; and
(ii) Either
initiates a new operation, or expands or diversifies a current operation by
expanding, equipping, or renovating an existing facility with costs in excess
of twenty-five percent of the true and fair value of the facility prior to
improvement)), including
labor and services rendered in the planning, installation, and construction of
the project.
(b) The lessor/owner of a qualified building is not eligible for a deferral unless the underlying ownership of the buildings, machinery, and equipment vests exclusively in the same person, or unless the lessor by written contract agrees to pass the economic benefit of the deferral to the lessee in the form of reduced rent payments.
(((b))) For
purposes of (a)(((i))) of this subsection, the number of new full-time
qualified employment positions created by an investment project shall be deemed
to be reduced by the number of full-time employment positions maintained by the
recipient in any other community in this state that are displaced as a result
of the investment project.
(c) "Eligible
investment project" does not include any portion of an investment project
undertaken by a light and power business as defined in RCW 82.16.010(5), other
than a qualified cogeneration project((s that are both an integral
part of a manufacturing facility and owned at least fifty percent by the
manufacturer)), or investment projects which have already received
deferrals under this chapter.
(5) (("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.
(6))) "Manufacturing" means all activities
of a commercial or industrial nature wherein labor or skill is applied, by hand
or machinery, to materials so that as a result thereof a new, different, or
useful substance or article of tangible personal property is produced for sale
or commercial or industrial use and shall include the production or fabrication
of specially made or custom made articles. "Manufacturing" also
includes computer programming, the production of computer software, and other
computer-related services, and the activities performed by research and
development laboratories and commercial testing laboratories.
(((7))) (6)
"Person" has the meaning given in RCW 82.04.030.
(((8))) (7)
"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 and
research and development activities, including plant offices and warehouses or
other facilities for the storage of raw material or finished goods if such
facilities are an essential or an integral part of a factory, mill, plant, or
laboratory used for manufacturing or research and development. If a building
is used partly for manufacturing or research and development and partly for
other purposes, the applicable tax deferral shall be determined by
apportionment of the costs of construction under rules adopted by the department.
(8) "Qualified cogeneration project" means a cogeneration project that is both an integral part of a manufacturing facility and owned at least fifty percent by the manufacturer.
(9) "Qualified employment position" means a permanent full-time employee employed in the eligible investment project during the entire tax year.
(10) "Qualified machinery and equipment" means all new industrial and research fixtures, equipment, and support facilities that are an integral and necessary part of a manufacturing or research and development operation. "Qualified machinery and equipment" includes: Computers; software; data processing equipment; laboratory equipment; manufacturing components such as belts, pulleys, shafts, and moving parts; molds, tools, and dies; operating structures; and all equipment used to control or operate the machinery.
(11) "Recipient" means a person receiving a tax deferral under this chapter.
(12) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun. As used in this subsection, "commercial sales" excludes sales of prototypes or sales for market testing if the total gross receipts from such sales of the product, service, or process do not exceed one million dollars.
Sec. 6. RCW 82.60.070 and 1994 sp.s. c 1 s 5 are each amended to read as follows:
(1) Each recipient of a deferral granted under this chapter prior to July 1, 1994, shall submit a report to the department on December 31st of each year during the repayment period until the tax deferral is repaid. Each recipient of a deferral granted under this chapter after June 30, 1994, shall submit a report to the department on December 31st of the year in which the investment project is certified by the department as having been operationally completed, and on December 31st of each of the seven succeeding calendar years. The report shall contain information, as required by the department, from which the department may determine whether the recipient is meeting the requirements of this chapter. If the recipient fails to submit a report or submits an inadequate report, the department may declare the amount of deferred taxes outstanding to be immediately assessed and payable.
(2) If, on the basis of a report under this section or other information, the department finds that an investment project is not eligible for tax deferral under this chapter for reasons other than failure to create the required number of qualified employment positions, the amount of deferred taxes outstanding for the project shall be immediately due.
(3) If, on the basis of a report under this section or other information, the department finds that an investment project for which a deferral has been granted under this chapter prior to July 1, 1994, has been operationally complete for three years and has failed to create the required number of qualified employment positions, the department shall assess interest, but not penalties, on the deferred taxes for the project. The interest shall be assessed at the rate provided for delinquent excise taxes, shall be assessed retroactively to the date of deferral, and shall accrue until the deferred taxes are repaid.
(4) If, on the basis of a report under this section or other information, the department finds that an investment project for which a deferral has been granted under this chapter after June 30, 1994, has been operationally complete for three years and has failed to create the required number of qualified employment positions, the amount of taxes not eligible for deferral shall be immediately due. The department shall assess interest at the rate provided for delinquent excise taxes, but not penalties, retroactively to the date of deferral.
(5) If, on the basis of a report under this section or other information, the department finds that an investment project qualifying for deferral under RCW 82.60.040(1) (b) or (c) has failed to comply with any requirement of RCW 82.60.045 for any calendar year for which reports are required under subsection (1) of this section, twelve and one-half percent of the amount of deferred taxes shall be immediately due. The department shall assess interest at the rate provided for delinquent excise taxes, but not penalties, retroactively to the date of deferral.
(6) Notwithstanding any other subsection of this section, deferred taxes on the following need not be repaid:
(a) Tangible personal property, and sales of or charges made for labor and services, which at the time of purchase would have qualified for exemption under section 2 of this act; and
(b) Tangible personal property which at the time of first use would have qualified for exemption under section 3 of this act.
Sec. 7. RCW 82.61.010 and 1994 c 125 s 1 are each amended to read as follows:
Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
(1) "Applicant" means a person applying for a tax deferral under this chapter.
(2) "Person" has the meaning given in RCW 82.04.030.
(3) "Department" means the department of revenue.
(4) "Eligible investment project" means:
(a) Construction of
new buildings and the acquisition of new related machinery and equipment when
the buildings, machinery, and equipment are to be used for either manufacturing
or research and development activities, which construction is commenced prior to
December 31, ((1998)) 1995; or
(b) Acquisition prior
to December 31, ((1998)) 1995, of new machinery and equipment to
be used for either manufacturing or research and development if the machinery
and equipment is housed in a new leased structure. The lessor/owner of the
structure is not eligible for a deferral unless the underlying ownership of the
buildings, machinery, and equipment vests exclusively in the same person; or
(c) Acquisition of all new or used machinery, equipment, or other personal property for use in the production or casting of aluminum at an aluminum smelter or at facilities related to an aluminum smelter, if the plant was in operation prior to 1975 and has ceased operations or is in imminent danger of ceasing operations for economic reasons, as determined by the department, and if the person applying for a deferral (i) has consulted with any collective bargaining unit that represented employees of the plant pursuant to a collective bargaining agreement that was in effect either immediately prior to the time the plant ceased operations or during the period when the plant was in imminent danger of ceasing operations, on the proposed operation of the plant and on the terms and conditions of employment for wage and salaried employees and (ii) has obtained a written concurrence from the bargaining unit on the decision to apply for a deferral under this chapter; or
(d) Modernization projects involving construction, acquisition, or upgrading of equipment or machinery, including services and labor, which are commenced after May 19, 1987, and are intended to increase the operating efficiency of existing plants which are either aluminum smelters or aluminum rolling mills or of facilities related to such plants, if the plant was in operation prior to 1975, and if the person applying for a deferral (i) has consulted with any collective bargaining unit that represents employees of the plant on the proposed operation of the plant and the terms and conditions of employment for wage and salaried employees and (ii) has obtained a written concurrence from the bargaining unit on the decision to apply for a deferral under this chapter.
(5) "Manufacturing" means all activities of a commercial or industrial nature wherein labor or skill is applied, by hand or machinery, to materials so that as a result thereof a new, different, or useful substance or article of tangible personal property is produced for sale or commercial or industrial use and includes the production or fabrication of specially made or custom-made articles.
(6) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun.
(7) "Buildings" means only those new structures used for either manufacturing or research and development activities, including plant offices and warehouses or other facilities for the storage of raw materials or finished goods if such facilities are an essential or an integral part of a factory, mill, plant, or laboratory used for manufacturing or research and development purposes. If a building is used partly for manufacturing or research and development and partly for other purposes, the applicable tax deferral shall be determined by apportionment of the costs of construction under rules adopted by the department.
(8) "Machinery and equipment" means all industrial and research fixtures, equipment, and support facilities that are an integral and necessary part of a manufacturing or research and development operation. "Qualified machinery and equipment" includes computers; software; data processing equipment; laboratory equipment; manufacturing components such as belts, pulleys, shafts, and moving parts; molds, tools, and dies; operating structures; and all equipment used to control or operate the machinery. For purposes of this chapter, new machinery and equipment means either new to the taxing jurisdiction of the state or new to the certificate holder. Used machinery and equipment may be treated as new equipment and machinery if the certificate holder either brings the machinery and equipment into Washington or makes a retail purchase of the machinery and equipment in Washington or elsewhere.
(9) "Qualified employment position" means a permanent full-time employee employed in the eligible investment project during the entire tax year.
(10) "Recipient" means a person receiving a tax deferral under this chapter.
(11) "Certificate holder" means an applicant to whom a tax deferral certificate has been issued.
(12) "Operationally complete" means constructed or improved to the point of being functionally useable for the intended purpose.
(13) "Initiation of construction" means that date upon which on-site construction commences.
NEW SECTION. Sec. 8. The following acts or parts of acts are each repealed:
(1) RCW 82.61.020 and 1987 c 497 s 2 & 1985 ex.s. c 2 s 2;
(2) RCW 82.61.030 and 1987 c 497 s 3 & 1985 ex.s. c 2 s 3; and
(3) RCW 82.61.040 and 1993 sp.s. c 25 s 408, 1988 c 41 s 2, 1986 c 116 s 10, & 1985 ex.s. c 2 s 8.
Sec. 9. RCW 82.63.010 and 1994 sp.s. c 5 s 3 are each amended to read as follows:
Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
(1) "Advanced computing" means technologies used in the designing and developing of computing hardware and software, including innovations in designing the full spectrum of hardware from hand-held calculators to super computers, and peripheral equipment.
(2) "Advanced materials" means materials with engineered properties created through the development of specialized processing and synthesis technology, including ceramics, high value-added metals, electronic materials, composites, polymers, and biomaterials.
(3) "Applicant" means a person applying for a tax deferral under this chapter.
(4) "Biotechnology" means the application of technologies, such as recombinant DNA techniques, biochemistry, molecular and cellular biology, genetics and genetic engineering, cell fusion techniques, and new bioprocesses, using living organisms, or parts of organisms, to produce or modify products, to improve plants or animals, to develop microorganisms for specific uses, to identify targets for small molecule pharmaceutical development, or to transform biological systems into useful processes and products or to develop microorganisms for specific uses.
(5) "Department" means the department of revenue.
(6) "Electronic device technology" means technologies involving microelectronics; semiconductors; electronic equipment and instrumentation; radio frequency, microwave, and millimeter electronics; optical and optic-electrical devices; and data and digital communications and imaging devices.
(7) "Eligible
investment project" means ((that portion of)) an investment project
which either initiates a new operation, or expands or diversifies a current
operation by expanding, renovating, or equipping an existing facility ((with
costs in excess of twenty-five percent of the true and fair value of the
facility prior to improvement)). The lessor or owner of the qualified
building is not eligible for a deferral unless the underlying ownership of the
buildings, machinery, and equipment vests exclusively in the same person, or
unless the lessor by written contract agrees to pass the economic benefit of
the deferral to the lessee in the form of reduced rent payments.
(8) "Environmental technology" means assessment and prevention of threats or damage to human health or the environment, environmental cleanup, and the development of alternative energy sources.
(9) "Investment project" means an investment in qualified buildings or qualified machinery and equipment, including labor and services rendered in the planning, installation, and construction or improvement of the project.
(10) "Person" has the meaning given in RCW 82.04.030.
(11) "Pilot scale manufacturing" means design, construction, and testing of preproduction prototypes and models in the fields of biotechnology, advanced computing, electronic device technology, advanced materials, and environmental technology other than for commercial sale. As used in this subsection, "commercial sale" 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.
(12) "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 pilot scale manufacturing or qualified research and development, including plant offices and other facilities that are an essential or an integral part of a structure used for pilot scale manufacturing or qualified research and development. If a building is used partly for pilot scale manufacturing or qualified research and development, and partly for other purposes, the applicable tax deferral shall be determined by apportionment of the costs of construction under rules adopted by the department.
(13) "Qualified machinery and equipment" means fixtures, equipment, and support facilities that are an integral and necessary part of a pilot scale manufacturing or qualified research and development operation. "Qualified machinery and equipment" includes: Computers; software; data processing equipment; laboratory equipment, instrumentation, and other devices used in a process of experimentation to develop a new or improved pilot model, plant process, product, formula, invention, or similar property; manufacturing components such as belts, pulleys, shafts, and moving parts; molds, tools, and dies; vats, tanks, and fermenters; operating structures; and all other equipment used to control, monitor, or operate the machinery. For purposes of this chapter, qualified machinery and equipment must be either new to the taxing jurisdiction of the state or new to the certificate holder, except that used machinery and equipment may be treated as qualified machinery and equipment if the certificate holder either brings the machinery and equipment into Washington or makes a retail purchase of the machinery and equipment in Washington or elsewhere.
(14) "Qualified research and development" means research and development performed within this state in the fields of advanced computing, advanced materials, biotechnology, electronic device technology, and environmental technology.
(15) "Recipient" means a person receiving a tax deferral under this chapter.
(16) "Research and development" means activities performed to discover technological information, and technical and nonroutine activities concerned with translating technological information into new or improved products, processes, techniques, formulas, inventions, or software. The term includes exploration of a new use for an existing drug, device, or biological product if the new use requires separate licensing by the federal food and drug administration under chapter 21, C.F.R., as amended. The term does not include adaptation or duplication of existing products where the products are not substantially improved by application of the technology, nor does the term include surveys and studies, social science and humanities research, market research or testing, quality control, sale promotion and service, computer software developed for internal use, and research in areas such as improved style, taste, and seasonal design.
NEW SECTION. Sec. 10. A new section is added to chapter 82.63 RCW to read as follows:
(1) Except as provided in subsection (2) of this section, taxes deferred under this chapter need not be repaid.
(2) If, on the basis of a report under RCW 82.63.020 or other information, the department finds that an investment project is used for purposes other than qualified research and development or pilot scale manufacturing at any time during the calendar year in which the investment project is certified by the department as having been operationally completed, or at any time during any of the seven succeeding calendar years, a portion of deferred taxes shall be immediately due according to the following schedule:
Year in which use occurs % of deferred taxes due
1 100%
2 87.5%
3 75%
4 62.5%
5 50%
6 37.5%
7 25%
8 12.5%
The department shall assess interest at the rate provided for delinquent taxes, but not penalties, retroactively to the date of deferral.
(3) Notwithstanding subsection (2) of this section, deferred taxes on the following need not be repaid:
(a) Tangible personal property, and sales of or charges made for labor and services, which at the time of purchase would have qualified for exemption under section 2 of this act; and
(b) Tangible personal property which at the time of first use would have qualified for exemption under section 3 of this act.
NEW SECTION. Sec. 11. The following acts or parts of acts are each repealed:
(1) RCW 82.63.040 and 1994 sp.s. c 5 s 6; and
(2) RCW 82.63.050 and 1994 sp.s. c 5 s 7.
NEW SECTION. Sec. 12. The department of revenue may make and publish rules and regulations necessary to implement this act.
NEW SECTION. Sec. 13. The department of revenue shall perform an assessment of the results of the tax exemption authorized under this act and deliver a report to the governor and the legislature by September 1, 1998. The assessment shall measure the effect of the exemption on the creation of jobs, diversification of the state's economy, and other factors the department may select.
NEW SECTION. Sec. 14. This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and shall take effect July 1, 1995.
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