Read first time 02/07/2003.   Referred to Committee on Economic Development.

     AN ACT Relating to providing tax incentives to support the semiconductor cluster in Washington state; amending RCW 82.04.240 and 82.04.280; adding new sections to chapter 82.04 RCW; adding new sections to chapter 82.08 RCW; adding new sections to chapter 82.12 RCW; adding a new section to chapter 84.36 RCW; adding a new section to chapter 82.32 RCW; creating new sections; providing a contingent effective date; and providing expiration dates.

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

NEW SECTION.  Sec. 1   The legislature finds that the welfare of the people of the state of Washington is positively impacted through the encouragement and expansion of family wage employment in the state's manufacturing industries. The legislature further finds that targeting tax incentives to focus on key industry clusters is an important business climate strategy. The Washington competitiveness council has recognized the semiconductor industry, which includes the design and manufacture of semiconductor materials, as one of the state's existing key industry clusters. Businesses in this cluster in the state of Washington are facing increasing pressure to expand elsewhere. The sales and use tax exemptions for manufacturing machinery and equipment enacted by the 1995 legislature improved Washington's ability to compete with other states for manufacturing investment. However, additional incentives for the semiconductor cluster need to be put in place in recognition of the unique forces and global issues involved in business decisions that key businesses in this cluster face.
     Therefore, the legislature intends to enact comprehensive tax incentives for the semiconductor cluster that address activities of the lead product industry and its suppliers and customers. Tax incentives for the semiconductor cluster are important in both retention and expansion of existing business and attraction of new businesses, all of which will strengthen this cluster. The legislature also recognizes that the semiconductor industry involves major investment that results in significant construction projects, which will create jobs and bring many indirect benefits to the state during the construction phase.

NEW SECTION.  Sec. 2   A new section is added to chapter 82.04 RCW to read as follows:
     (1) The tax imposed by RCW 82.04.240(2) does not apply to any person in respect to the manufacturing of semiconductor microchips.
     (2) For the purposes of this section:
     (a) "Manufacturing semiconductor microchips" means taking raw polished semiconductor wafers and embedding integrated circuits on the wafers using processes such as masking, etching, and diffusion; and
     (b) "Integrated circuit" means a set of microminiaturized, electronic circuits.
     (3) This section expires nine years after the effective date of this act.

Sec. 3   RCW 82.04.240 and 1998 c 312 s 3 are each amended to read as follows:
     (1) Upon every person ((except persons taxable under RCW 82.04.260 (1), (2), (4), (5), or (6))) engaging within this state in business as a manufacturer, except persons taxable as manufacturers under other provisions of this chapter; as to such persons the amount of the tax with respect to such business shall be equal to the value of the products, including byproducts, manufactured, multiplied by the rate of 0.484 percent.
     (2) Upon every person engaging within this state in the business of manufacturing semiconductor materials, as to such persons the amount of tax with respect to such business shall, in the case of manufacturers, be equal to the value of the product manufactured, or, in the case of processors for hire, be equal to the gross income of the business, multiplied by the rate of 0.275 percent. For the purposes of this subsection "semiconductor materials" means silicon crystals, silicon ingots, raw polished semiconductor wafers, compound semiconductors, integrated circuits, and microchips. This subsection (2) expires twelve years after the effective date of this act.
     (3) The measure of the tax is the value of the products, including byproducts, so manufactured regardless of the place of sale or the fact that deliveries may be made to points outside the state.

Sec. 4   RCW 82.04.280 and 1998 c 343 s 3 are each amended to read as follows:
     Upon every person engaging within this state in the business of: (1) Printing, and of publishing newspapers, periodicals, or magazines; (2) building, repairing or improving 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 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 and including any readjustment, reconstruction or relocation of the facilities of any public, private or cooperatively owned utility or railroad in the course of such building, repairing or improving, the cost of which readjustment, reconstruction, or relocation, is the responsibility of the public authority whose street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle is being built, repaired or improved; (3) extracting for hire or processing for hire, except persons taxable as processors for hire under another section of this chapter; (4) operating a cold storage warehouse or storage warehouse, but not including the rental of cold storage lockers; (5) representing and performing services for fire or casualty insurance companies as an independent resident managing general agent licensed under the provisions of RCW 48.05.310; (6) radio and television broadcasting, excluding network, national and regional advertising computed as a standard deduction based on the national average thereof as annually reported by the Federal Communications Commission, or in lieu thereof by itemization by the individual broadcasting station, and excluding that portion of revenue represented by the out-of-state audience computed as a ratio to the station's total audience as measured by the 100 micro-volt signal strength and delivery by wire, if any; (7) engaging in activities which bring a person within the definition of consumer contained in RCW 82.04.190(6); as to such persons, the amount of tax on such business shall be equal to the gross income of the business multiplied by the rate of 0.484 percent.
     As used in this section, "cold storage warehouse" means a storage warehouse used to store fresh and/or frozen perishable fruits or vegetables, meat, seafood, dairy products, or fowl, or any combination thereof, at a desired temperature to maintain the quality of the product for orderly marketing.
     As used in this section, "storage warehouse" means a building or structure, or any part thereof, in which goods, wares, or merchandise are received for storage for compensation, except field warehouses, fruit warehouses, fruit packing plants, warehouses licensed under chapter 22.09 RCW, public garages storing automobiles, railroad freight sheds, docks and wharves, and "self-storage" or "mini storage" facilities whereby customers have direct access to individual storage areas by separate entrance. "Storage warehouse" does not include a building or structure, or that part of such building or structure, in which an activity taxable under RCW 82.04.272 is conducted.
     As used in this section, "periodical or magazine" means a printed publication, other than a newspaper, issued regularly at stated intervals at least once every three months, including any supplement or special edition of the publication.

NEW SECTION.  Sec. 5   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 charges made for labor and services rendered in respect to the constructing of new buildings used for the manufacturing of semiconductor materials, to sales of tangible personal property that will be incorporated as an ingredient or component of such buildings during the course of the constructing, or to labor and services rendered in respect to installing, during the course of constructing, building fixtures not otherwise eligible for the exemption under RCW 82.08.02565(2)(b). 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 shall retain a copy of the certificate for the seller's files.
     (2) To be eligible under this section the manufacturer or processor for hire must meet the following requirements for an eight-year period, such period beginning the day the new building commences commercial production, or a portion of tax otherwise due shall be immediately due and payable pursuant to subsection (3) of this section:
     (a) The manufacturer or processor for hire must maintain at least seventy-five percent of full employment at the new building for which the exemption under this section is claimed.
     (b) Before commencing commercial production at a new facility the manufacturer or processor for hire must meet with the department to review projected employment levels in the new buildings. The department, using information provided by the taxpayer, shall make a determination of the number of positions that would be filled at full employment. This number shall be used throughout the eight-year period to determine whether any tax is to be repaid. This information is not subject to the confidentiality provisions of RCW 82.32.330 and may be disclosed to the public upon request.
     (c) In those situations where a production building in existence on the effective date of this section will be phased out of operation during which time employment at the new building at the same site is increased, the manufacturer or processor for hire shall maintain seventy-five percent of full employment at the manufacturing site overall.
     (d) No application is necessary for the tax exemption. The person is subject to all the requirements of chapter 82.32 RCW. A person taking the exemption under this section must report as required under section 11 of this act.
     (3) If the employment requirement is not met for any one calendar year, one-eighth of the exempt sales and use taxes shall be due and payable by April 1st of the following year. The department shall assess interest to the date the tax was imposed, but not penalties, on the taxes for which the person is not eligible.
     (4) The exemption applies to new buildings, or parts of buildings, that are used exclusively in the manufacturing of semiconductor materials, including the storage of raw materials and finished product.
     (5) For the purposes of this section:
     (a) "Commencement of commercial production" is deemed to have occurred when the equipment and process qualifications in the new building are completed and production for sale has begun; and
     (b) "Full employment" is the number of positions required for full capacity production at the new building, for positions such as line workers, engineers, and technicians.
     (c) "Semiconductor materials" has the same meaning as provided in RCW 82.04.240(2).
     (6) No exemption may be taken after twelve years after the effective date of this act, however all of the eligibility criteria and limitations are applicable to any exemptions claimed before that date.
     (7) This section expires twelve years after the effective date of this act.

NEW SECTION.  Sec. 6   A new section is added to chapter 82.12 RCW to read as follows:
     (1) The provisions of this chapter do not apply with respect to the use of tangible personal property that will be incorporated as an ingredient or component of new buildings used for the manufacturing of semiconductor materials during the course of constructing such buildings or to labor and services rendered in respect to installing, during the course of constructing, building fixtures not otherwise eligible for the exemption under RCW 82.08.02565(2)(b).
     (2) The eligibility requirements, conditions, and definitions in section 5 of this act apply to this section.
     (3) No exemption may be taken twelve years after the effective date of this act, however all of the eligibility criteria and limitations are applicable to any exemptions claimed before that date.
     (4) This section expires twelve years after the effective date of this act.

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 shall not apply to sales of gases and chemicals used by a manufacturer or processor for hire in the manufacturing of semiconductor materials. This exemption is limited to gases and chemicals used in the manufacturing process to grow the product, deposit or grow permanent or sacrificial layers on the product, to etch or remove material from the product, to anneal the product, to immerse the product, to clean the product, and other such uses whereby the gases and chemicals come into direct contact with the product during the manufacturing process, or uses of gases and chemicals to clean the chambers and other like equipment in which such processing takes place. For the purposes of this section, "semiconductor materials" has the same meaning as provided in RCW 82.04.240(2).
     (2) A person taking the exemption under this section must report under section 11 of this act. No application is necessary for the tax exemption. The person is subject to all of the requirements of chapter 82.32 RCW.
     (3) This section expires twelve years after the effective date of this act.

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 with respect to the use of gases and chemicals used by a manufacturer or processor for hire in the manufacturing of semiconductor materials. This exemption is limited to gases and chemicals used in the manufacturing process to grow the product, deposit or grow permanent or sacrificial layers on the product, to etch or remove material from the product, to anneal the product, to immerse the product, to clean the product, and other such uses whereby the gases and chemicals come into direct contact with the product during the manufacturing process, or uses of gases and chemicals to clean the chambers and other like equipment in which such processing takes place. For purposes of this section, "semiconductor materials" has the same meaning as provided in RCW 82.04.240(2).
     (2) A person taking the exemption under this section must report under section 11 of this act. No application is necessary for the tax exemption. The person is subject to all of the requirements of chapter 82.32 RCW.
     (3) This section expires twelve years after the effective date of this act.

NEW SECTION.  Sec. 9   A new section is added to chapter 82.04 RCW to read as follows:
     (1) Subject to the limits and provisions of this section, a credit is authorized against the tax otherwise due under RCW 82.04.240(2) for persons engaged in the business of manufacturing semiconductor materials. For the purposes of this section "semiconductor materials" has the same meaning as provided in RCW 82.04.240(2).
     (2)(a) The credit under this section shall equal three thousand dollars for each employment position used in manufacturing production that takes place in a new building exempt from sales and use tax under sections 5 and 6 of this act. A credit is earned for the calendar year a person fills a position. Additionally a credit is earned for each year the position is maintained over the subsequent consecutive years, up to eight years. Those positions that are not filled for the entire year are eligible for fifty percent of the credit if filled less than six months, and the entire credit if filled more than six months.
     (b) To qualify for the credit, the manufacturing activity of the person must be conducted at a new building that qualifies for the exemption from sales and use tax under sections 5 and 6 of this act.
     (c) In those situations where a production building in existence on the effective date of this section will be phased out of operation, during which time employment at the new building at the same site is increased, the person is eligible for credit for employment at the existing building and new building, with the limitation that the combined eligible employment not exceed full employment at the new building. "Full employment" has the same meaning as in section 5 of this act. The credit may not be earned until the commencement of commercial production, as that term is used in section 5 of this act.
     (3) No application is necessary for the tax credit. The person is subject to all of the requirements of chapter 82.32 RCW. In no case may a credit earned during one calendar year be carried over to be credited against taxes incurred in a subsequent calendar year. No refunds may be granted for credits under this section.
     (4) If at any time the department finds that a person is not eligible for tax credit under this section, the amount of taxes for which a credit has been claimed shall be immediately due. The department shall assess interest, but not penalties, on the taxes for which the person is not eligible. The interest shall be assessed at the rate provided for delinquent excise taxes under chapter 82.32 RCW, shall be retroactive to the date the tax credit was taken, and shall accrue until the taxes for which a credit has been used are repaid.
     (5) A person taking the credit under this section must report under section 11 of this act.
     (6) Credits may be taken after twelve years after the effective date of this act, for those buildings at which commercial production began before twelve years after the effective date of this act, subject to all of the eligibility criteria and limitations of this section.
     (7) This section expires twelve years after the effective date of this act.

NEW SECTION.  Sec. 10   A new section is added to chapter 84.36 RCW to read as follows:
     (1) Machinery and equipment exempt under RCW 82.08.02565 or 82.12.02565 used in manufacturing semiconductor materials at a building exempt from sales and use tax and in compliance with the employment requirement under sections 5 and 6 of this act are tax exempt from taxation. "Semiconductor materials" has the same meaning as provided in RCW 82.04.240(2).
     (2) A person seeking this exemption must make application to the county assessor, on forms prescribed by the department.
     (3) A person receiving an exemption under this section must report in the manner prescribed in section 11 of this act.
     (4) This section is effective for taxes levied for collection one year after the effective date of this act and thereafter.
     (5) This section expires December 31st of the year occurring twelve years after the effective date of this act, for taxes levied for collection in the following year.

NEW SECTION.  Sec. 11   A new section is added to chapter 82.32 RCW to read as follows:
     (1) The legislature finds that accountability and effectiveness are important aspects of setting tax policy. In order to make policy choices regarding the best use of limited state resources the legislature needs information on how a tax incentive is used.
     (2)(a) A person who reports taxes under RCW 82.04.240(2) or who claims an exemption or credit under section 2 or 5 through 10 of this act, shall make an annual report to the department detailing employment, wages, and employer-provided health and retirement benefits per job at the manufacturing site. The report shall not include names of employees. The report shall also detail employment by the total number of full-time, part-time, and temporary positions. The first report filed under this subsection shall include employment, wage, and benefit information for the twelve-month period immediately before first use of a preferential tax rate under RCW 82.04.240(2), or tax exemption or credit under section 2 or 5 through 10 of this act. The report is due by March 31st following any year in which a preferential tax rate under RCW 82.04.240(2) is used, or tax exemption or credit under section 2 or 5 through 10 of this act is taken. This information is not subject to the confidentiality provisions of RCW 82.32.330 and may be disclosed to the public upon request.
     (b) If a person fails to submit an annual report under (a) of this subsection the department shall declare the amount of taxes exempted or credited for that year to be immediately due and payable. Excise taxes payable under this subsection are subject to interest, as provided under this chapter. This information is not subject to the confidentiality provisions of RCW 82.32.330 and may be disclosed to the public upon request.
     (3) By November 1st of the year occurring five years after the effective date of this act, and November 1st of the year occurring eleven years after the effective date of this act, the fiscal committees of the house of representatives and the senate, in consultation with the department, shall report to the legislature on the effectiveness of chapter . . ., Laws of 2003 (this act) in regard to keeping Washington competitive. The report shall measure the effect of chapter . . ., Laws of 2003 (this act) on job retention, net jobs created for Washington residents, company growth, diversification of the state's economy, cluster dynamics, and other factors as the committees select. The reports shall include a discussion of principles to apply in evaluating whether the legislature should reenact any or all of the tax preferences in chapter . . ., Laws of 2003 (this act).

NEW SECTION.  Sec. 12   (1)(a) This act is contingent upon the siting and commercial operation of a significant semiconductor microchip fabrication facility in the state of Washington.
     (b) For the purposes of this section:
     (i) "Commercial operation" means the same as "commencement of commercial production" as used in section 5 of this act.
     (ii) "Semiconductor microchip fabrication" means "manufacturing semiconductor microchips" as defined in section 2 of this act.
     (iii) "Significant" means the combined investment of new buildings and new machinery and equipment in the buildings, at the commencement of commercial production, will be at least one billion dollars.
     (2) This act takes effect the first day of the month in which a contract for the construction of a significant semiconductor fabrication facility is signed, as determined by the director of the department of revenue.
     (3)(a) The department of revenue shall provide notice of the effective date of this act to affected taxpayers, the legislature, and others as deemed appropriate by the department.
     (b) If, after making a determination that a contract has been signed and this act is effective, the department discovers that commencement of commercial production did not take place within three years of the date the contract was signed, the department shall make a determination that this act is no longer effective, and all taxes that would have been otherwise due shall be deemed deferred taxes and are immediately assessed and payable from any person reporting tax under RCW 82.04.240(2) or claiming an exemption or credit under section 2 or 5 through 10 of this act. The department is not authorized to make a second determination regarding the effective date of this act.