[atlas:bill]

AN ACT Relating to tax incentives in rural counties and community empowerment zones; amending RCW 82.60.010, 82.60.020, 82.62.010, 82.62.030, and 82.62.045; adding a new section to chapter 82.08 RCW; adding a new section to chapter 82.12 RCW; and creating new sections.

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

NEW SECTION. Sec. 1. Washington has successfully worked to diversify the economy of Washington state in recent years. As part of a comprehensive strategy for addressing the severe Puget Sound congestion problem, the legislature recognizes the importance of addressing the geographic diversification of economic development within Washington. While economic development is causing problems in the Puget Sound region, it is desperately needed in rural Washington. The legislature intends to encourage businesses to move to rural counties, providing both a solution to the congestion problem and a means to turn around the economies of rural Washington.

Sec. 2. RCW 82.60.010 and 1985 c 232 s 1 are each amended to read as follows:

The legislature finds that there are several areas in the state that are characterized by very high levels of unemployment and poverty. The ((~~legislative [legislature]~~)) legislature further finds that economic stagnation is the primary cause of this high unemployment rate and poverty; that new state policies are necessary in order to promote economic stimulation and new employment opportunities in these rural and distressed areas; and that policies providing incentives for economic growth in these rural and distressed areas are essential. For these reasons, the legislature hereby establishes a tax deferral program to be effective solely in rural and distressed areas and under circumstances where the deferred tax payments are for investments or costs that result in the creation of a specified number of jobs. The legislature declares that this limited program serves the vital public purpose of creating employment opportunities and reducing poverty in the rural and distressed areas of the state.

Sec. 3. RCW 82.60.020 and 1999 sp.s. c 9 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 rural county ((with fewer than one hundred persons per square mile as determined annually by the office of financial management and published by the department of revenue effective for the period July 1st through June 30th)) as defined in this section.

(4)(a) "Eligible investment project" means an investment project in an eligible area as defined in subsection (3) of this section.

(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.

(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 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 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 the same as defined in RCW 82.04.120. "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) "Person" has the meaning given in RCW 82.04.030.

(8) "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.

(9) "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.

(10) "Recipient" means a person receiving a tax deferral under this chapter.

(11) "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.

(12) "Rural county" means a county with fewer than one hundred persons per square mile or less than two hundred fifty square miles as determined annually by the office of financial management and published by the department of revenue effective for the period July 1st through June 30th.

Sec. 4. RCW 82.62.010 and 2001 c 320 s 12 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 credit under this chapter.

(2) "Department" means the department of revenue.

(3) "Eligible area" means ((~~an area~~)) a rural county as defined in RCW 82.60.020.

(4)(a) "Eligible business project" means manufacturing or research and development activities which are conducted by an applicant in an eligible area at a specific facility, provided the applicant's average full-time qualified employment positions at the specific facility will be at least fifteen percent greater in the year for which the credit is being sought than the applicant's average full-time qualified employment positions at the same facility in the immediately preceding year.

(b) "Eligible business project" does not include any portion of a business project undertaken by a light and power business as defined in RCW 82.16.010(5) or that portion of a business project creating qualified full-time employment positions outside an eligible area.

(5) "Manufacturing" means the same as defined in RCW 82.04.120. "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.

(6) "Person" has the meaning given in RCW 82.04.030.

(7) "Qualified employment position" means a permanent full-time employee employed in the eligible business project during the entire tax year.

(8) "Tax year" means the calendar year in which taxes are due.

(9) "Recipient" means a person receiving tax credits under this chapter.

(10) "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. 5. RCW 82.62.030 and 2001 c 320 s 13 are each amended to read as follows:

(1) A person shall be allowed a credit against the tax due under chapter 82.04 RCW as provided in this section. The credit shall equal: (a) Four thousand dollars for each qualified employment position with wages and benefits greater than forty thousand dollars annually that is directly created in an eligible business and (b) two thousand dollars for each qualified employment position with wages and benefits less than or equal to forty thousand dollars annually that is directly created in an eligible business.

(2) The department shall keep a running total of all credits allowed under this chapter during each fiscal year. The department shall not allow any credits which would cause the total to exceed ((~~seven~~)) eight million five hundred thousand dollars in any fiscal year, however no less than one million dollars per fiscal year may be allocated toward credits for qualified employment positions created as a result of a business relocation or expansion to an eligible area from a county with a population greater than five hundred thousand. If all or part of an application for credit is disallowed under this subsection, the disallowed portion shall be carried over to the next fiscal year. However, the carryover into the next fiscal year is only permitted to the extent that the cap for the next fiscal year is not exceeded.

(3) No recipient may use the tax credits to decertify a union or to displace existing jobs in any ((~~community in the state~~)) rural county or designated community empowerment zone, approved under RCW 43.31C.020.

(4) The credit may be used against any tax due under chapter 82.04 RCW, and may be carried over until used. No refunds may be granted for credits under this section.

Sec. 6. RCW 82.62.045 and 1999 c 164 s 307 are each amended to read as follows:

(1) For the purposes of this section "eligible area" also means a designated community empowerment zone approved under RCW ((~~43.63A.700~~)) 43.31C.020.

(2) An eligible business project located within an eligible area as defined in this section qualifies for a credit under this chapter for those employees who at the time of hire are residents of the community empowerment zone in which the project is located, if the fifteen percent threshold is met. As used in this subsection, "resident" means the person makes his or her home in the community empowerment zone. A mailing address alone is insufficient to establish that a person is a resident for the purposes of this section.

(3) All other provisions and eligibility requirements of this chapter apply to applicants eligible under this section.

NEW SECTION. Sec. 7. A new section is added to chapter 82.08 RCW to read as follows:

(1) The tax levied by RCW 82.08.020 does not apply to sales to a person, located in an eligible area, of machinery and equipment used directly in a call center 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 if the purchaser provides the seller with an exemption certificate in a form and manner prescribed by the department. The seller shall retain a copy of the certificate for the seller's files.

(2) The tax levied by RCW 82.08.020 does not apply to constructing or improving of buildings or other structures, or sales of or charges made for labor and services rendered in respect to constructing or improving of buildings or other structures, located in eligible areas, that are used directly as a call center, but only if the purchaser provides the seller with an exemption certificate in a form and manner prescribed by the department. The seller shall retain a copy of the certificate for the seller's files.

(3) For purposes of this section:

(a) "Buildings" means only those structures used directly in a call center operation. If a building is used partly for a call center operation and partly for other purposes, the applicable tax exemption shall be determined by apportionment of the costs of construction under rules adopted by the department. The term "buildings" also includes machinery and equipment that is permanently affixed to and becomes a physical part of a building, such as utility systems for heating, ventilation, air conditioning, plumbing, phones, or electrical.

(b) "Call centers" means a business operation employing fifty or more employees, who are engaged in telecommunications business activities involving financial transactions, technical support operations, and customer services.

(c) "Eligible area" means a community empowerment zone, as defined in chapter 43.31C RCW and a county with fewer than one hundred persons per square mile or a county smaller than two hundred twenty-five square miles as determined annually by the office of financial management and published by the department of revenue effective for the period July 1st through June 30th.

(d)(i) "Machinery and equipment" means commercial 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 electronic communications equipment, communications systems infrastructure components, computer software, computer hardware, associated support equipment that is necessary to maintain the communications operations of a call center, and office furniture.

(ii) "Machinery and equipment" does not include:

(A) Hand-powered tools; and

(B) Property with a useful life of less than one year.

(4) A person claiming the exemption under this section shall make an annual report to the department. The report shall be in a letter form and shall include the following information: The type of activity, the location of the person, how long the person has been located in the county, and the taxpayer name and registration number. The report must be filed by January 30th of each year in which the exemption was claimed during the previous year. Failure to file a report will not result in the loss of eligibility under this section. However, the department, through its research division, shall contact taxpayers who have not filed the report and obtain the data from the taxpayer or assist the taxpayer in the filing of the report, so that the data and information necessary to measure the program's effectiveness is maintained.

NEW SECTION. Sec. 8. A new section is added to chapter 82.12 RCW to read as follows:

(1) The provisions of this chapter do not apply in respect to the use by a business, located within an eligible area, of machinery and equipment used directly in a call center.

(2) The definitions in section 7 of this act apply to this section.

(3) A person claiming the exemption under this section shall make an annual report to the department. The report shall be in a letter form and shall include the following information: The type of activity, the location of the person, how long the person has been located in the county, and the taxpayer name and registration number. The report must be filed by January 30th of each year in which the exemption was claimed during the previous year. Failure to file a report will not result in the loss of eligibility under this section. However, the department, through its research division, shall contact taxpayers who have not filed the report and obtain the data from the taxpayer or assist the taxpayer in the filing of the report, so that the data and information necessary to measure the program's effectiveness is maintained.

NEW SECTION. Sec. 9. This act may be known and cited as the Puget Sound congestion relief act.