[atlas:bill]

AN ACT Relating to a sales and use tax exemption for energy generating facilities; amending RCW 82.08.02565; adding new sections to chapter 82.08 RCW; creating a new section; providing an effective date; and declaring an emergency.

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

NEW SECTION. Sec. 1. Washington state is facing an energy shortage that will require a combination of strategies including conservation and additional generation capacity. Since 1995, Washington state has had a policy of encouraging investment in manufacturing by exempting the sales and use tax on new equipment.

The legislature intends to encourage investment in all forms of additional electrical generation for the express purpose of supporting the continued growth of existing Washington state industries and the state's high-tech sector. Extending the existing exemption for manufacturing equipment to power generation is one way to encourage that investment.

The legislature also intends to strongly encourage the development of sufficient generating infrastructure to provide electricity for Washington state residents at stable, affordable prices.

Sec. 2. RCW 82.08.02565 and 1999 c 211 s 5 are each amended 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 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, but only when the purchaser provides the seller with an exemption certificate in a form and manner prescribed by the department by rule. The seller shall retain a copy of the certificate for the seller's files.

(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.

(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) "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. 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~~)) electrical generation. The term does not include ((~~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.

(e) ((~~"Cogeneration" means the simultaneous generation of electrical energy and low-grade heat from the same fuel.~~

~~(f)~~)) "Research and development operation" means engaging in research and development as defined in RCW 82.63.010 by a manufacturer or processor for hire.

((~~(g)~~)) (f) "Testing" means activities performed to establish or determine the properties, qualities, and limitations of tangible personal property.

((~~(h)~~)) (g) "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 that portion of a cogeneration project that is used to generate power for consumption within the site of which the cogeneration project is an integral part.~~)) The term does not include ((~~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.

NEW SECTION. Sec. 3. (1) Except as provided in subsection (2) of this section or section 4 of this act, taxes exempted under RCW 82.08.02565 or 82.12.02565 need not be repaid.

(2) If, on the basis of a report under section 5 of this act or other information, the department finds that an electrical generation facility is no longer used for the generation of electricity, the exempted taxes under RCW 82.08.02565 or 82.12.02565 are immediately due according to the following repayment schedule.

Year in which facility becomes Percent of deferred taxes due

ineligible for deferral

1 100 percent

2 87.5 percent

3 75 percent

4 62.5 percent

5 50 percent

6 37.5 percent

7 25 percent

8 12.5 percent

The department shall assess interest at the rate provided for delinquent taxes, but not penalties, retroactively to the date of deferral.

NEW SECTION. Sec. 4. (1) Except as provided in subsection (2) of this section or section 3 of this act, taxes exempted under RCW 82.08.02565 or 82.12.02565 need not be repaid.

(2) If, on the basis of a report under section 5 of this act or other information, the department finds that an electrical generation facility is selling less than seventy percent of its electricity to businesses domiciled in the state of Washington or end users located in the state of Washington during the calendar year in which the electrical generation facility first takes an exemption under RCW 82.08.02565 or 82.12.02565, or in any calendar year during the nine succeeding calendar years, ten percent of the total amount of taxes exempted under RCW 82.08.02565 or 82.12.02565 are immediately due. This amount is multiplied by one minus the ratio of the percent of sales made to businesses domiciled in the state of Washington or end users located in the state of Washington divided by seventy percent.

(3) The department shall assess interest at the rate provided for delinquent taxes, but not penalties, retroactively to the date of deferral.

NEW SECTION. Sec. 5. Each recipient of an exemption granted under RCW 82.08.02565 or 82.12.02565 shall submit a report to the department on December 31st of the year in which the electrical generation facility first takes an exemption under RCW 82.08.02565 or 82.12.02565, and on December 31st of each of the nine 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, including information on the sales of electricity for the prior calendar year. If the recipient fails to submit a report or submits an inadequate report, the department may declare the amount of exempted taxes outstanding to be immediately assessed and payable.

NEW SECTION. Sec. 6. Sections 3 through 5 of this act are each added to chapter 82.08 RCW.

NEW SECTION. Sec. 7. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 8. 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 takes effect July 1, 2001.