BILL REQ. #:  S-2088.1 

READ FIRST TIME 03/08/05.   

     AN ACT Relating to providing incentives to support the renewable energy industry in Washington state; reenacting and amending RCW 82.04.440; adding new sections to chapter 82.04 RCW; adding a new section to chapter 82.08 RCW; adding a new section to chapter 82.12 RCW; adding a new section to chapter 84.36 RCW; adding a new section to chapter 82.32 RCW; creating a new section; providing an effective date; providing expiration dates; and declaring an emergency.

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 key growth industries in the state. The legislature further finds that targeting tax incentives to focus on key growth industries is an important strategy to enhance the state's business climate.
     A recent report by the Washington State University energy program recognized the solar electric industry as one of the state's important growth industries. It is of great concern that businesses in this industry have been increasingly expanding and relocating their operations elsewhere. The report indicates that additional incentives for the solar electric industry are needed in recognition of the unique forces and issues involved in business decisions in this industry.
     Therefore, the legislature intends to enact comprehensive tax incentives for the solar electric industry that address activities of the manufacture of these products and to encourage these industries to locate in Washington. Tax incentives for the solar electric industry are important in both retention and expansion of existing business and attraction of new businesses, all of which will strengthen this growth industry within our state, will create jobs, and will bring many indirect benefits to the state.

NEW SECTION.  Sec. 2   A new section is added to chapter 82.04 RCW to read as follows:
     (1) Upon every person engaging within this state in the business of manufacturing solar energy systems using photovoltaic modules; 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 0.138 percent.
     (2) Upon every person engaging within this state in the business of making sales at wholesale of solar energy systems using photovoltaic modules manufactured by that person; as to such persons the amount of tax with respect to such business shall be equal to the gross proceeds of sales of the solar energy systems using photovoltaic modules multiplied by the rate of 0.138 percent.
     (3) The definitions in this subsection apply throughout this section.
     (a) "Module" means the smallest nondivisible self-contained physical structure housing interconnected photovoltaic cells and providing a single direct current electrical output.
     (b) "Photovoltaic cell" means a device that converts light directly into electricity without moving parts.
     (c) "Solar energy system" means any device or combination of devices or elements that rely upon direct sunlight as an energy source for use in the generation of electricity.
     (4) This section expires June 30, 2014.

Sec. 3   RCW 82.04.440 and 2004 c 174 s 5 and 2004 c 24 s 7 are each reenacted and amended to read as follows:
     (1) Every person engaged in activities which are within the purview of the provisions of two or more of sections RCW 82.04.230 to 82.04.298, inclusive, shall be taxable under each paragraph applicable to the activities engaged in.
     (2) Persons taxable under RCW 82.04.2909(2), 82.04.250, 82.04.270, section 2(2) of this act, or 82.04.260 (4) or (13) with respect to selling products in this state shall be allowed a credit against those taxes for any (a) manufacturing taxes paid with respect to the manufacturing of products so sold in this state, and/or (b) extracting taxes paid with respect to the extracting of products so sold in this state or ingredients of products so sold in this state. Extracting taxes taken as credit under subsection (3) of this section may also be taken under this subsection, if otherwise allowable under this subsection. The amount of the credit shall not exceed the tax liability arising under this chapter with respect to the sale of those products.
     (3) Persons taxable under RCW 82.04.240 or 82.04.260(1)(b) shall be allowed a credit against those taxes for any extracting taxes paid with respect to extracting the ingredients of the products so manufactured in this state. The amount of the credit shall not exceed the tax liability arising under this chapter with respect to the manufacturing of those products.
     (4) Persons taxable under RCW 82.04.230, 82.04.240, 82.04.2909(1), section 2(1) of this act, or 82.04.260 (1), (2), (4), (6), or (13) with respect to extracting or manufacturing products in this state shall be allowed a credit against those taxes for any (i) gross receipts taxes paid to another state with respect to the sales of the products so extracted or manufactured in this state, (ii) manufacturing taxes paid with respect to the manufacturing of products using ingredients so extracted in this state, or (iii) manufacturing taxes paid with respect to manufacturing activities completed in another state for products so manufactured in this state. The amount of the credit shall not exceed the tax liability arising under this chapter with respect to the extraction or manufacturing of those products.
     (5) For the purpose of this section:
     (a) "Gross receipts tax" means a tax:
     (i) Which is imposed on or measured by the gross volume of business, in terms of gross receipts or in other terms, and in the determination of which the deductions allowed would not constitute the tax an income tax or value added tax; and
     (ii) Which is also not, pursuant to law or custom, separately stated from the sales price.
     (b) "State" means (i) the state of Washington, (ii) a state of the United States other than Washington, or any political subdivision of such other state, (iii) the District of Columbia, and (iv) any foreign country or political subdivision thereof.
     (c) "Manufacturing tax" means a gross receipts tax imposed on the act or privilege of engaging in business as a manufacturer, and includes (i) the taxes imposed in RCW 82.04.240, 82.04.2909(1), ((and)) 82.04.260 (1), (2), (4), and (13), and section 2(1) of this act; and (ii) similar gross receipts taxes paid to other states.
     (d) "Extracting tax" means a gross receipts tax imposed on the act or privilege of engaging in business as an extractor, and includes the tax imposed in RCW 82.04.230 and similar gross receipts taxes paid to other states.
     (e) "Business", "manufacturer", "extractor", and other terms used in this section have the meanings given in RCW 82.04.020 through 82.04.212, notwithstanding the use of those terms in the context of describing taxes imposed by other states.

NEW SECTION.  Sec. 4   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 investment projects, and tangible personal property that will be incorporated as an ingredient or component of investment projects during the course of constructing, used for the manufacture of solar energy systems using photovoltaic modules into a solar energy system located in a rural county. 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 person must use the investment project for the manufacturing of solar energy systems using photovoltaic modules into a solar energy system for an eight-year period, such period beginning the day the investment project commences commercial production, or a portion of tax otherwise due shall be immediately due and payable pursuant to subsection (3) of this section:
     (a) Before commencing commercial production at the investment project, the person must meet with the department to determine the date on which commercial production commences. This date 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.
     (b) 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 8 of this act.
     (3) If the investment project is not used for manufacturing solar energy systems using photovoltaic modules 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, 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 this chapter, retroactively to the date the exemption was claimed, and shall accrue until the taxes for which the exemption was claimed are repaid.
     (4) The definitions in this subsection apply throughout this section.
     (a) "Commencement of commercial production" is deemed to have occurred when the equipment and process qualifications in the investment project are completed and production for sale has begun.
     (b) "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. An 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.
     (c) "Manufacturing" means the same as defined in RCW 82.04.120.
     (d) "Qualified buildings" means construction of new structures including parking facilities, and expansion or renovation of existing structures, for the purpose of increasing floor space or production capacity used for manufacturing, 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, or plant, used for manufacturing. If a building is used partly for manufacturing 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.
     (e) "Qualified machinery and equipment" means all new industrial fixtures, equipment, and support facilities that are an integral and necessary part of a manufacturing operation. "Qualified machinery and equipment" includes 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.
     (f) "Rural county" means a county with a population density of fewer than four persons per square mile.
     (g) "Solar energy system" has the same meaning as provided in section 2 of this act.
     (5) No exemption may be taken after June 30, 2014, however all of the eligibility criteria and limitations are applicable to any exemptions claimed before that date.
     (6) This section expires June 30, 2014.

NEW SECTION.  Sec. 5   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 investment projects used for the manufacture of solar energy systems using photovoltaic modules into a solar energy system located in a rural county, as defined in section 4 of this act, during the course of constructing such investment projects 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 4 of this act apply to this section.
     (3) No exemption may be taken after June 30, 2014, however all of the eligibility criteria and limitations are applicable to any exemptions claimed before that date.
     (4) This section expires June 30, 2014.

NEW SECTION.  Sec. 6   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 section 2 of this act for each full-time employment position created by persons engaged in the business of manufacturing solar energy systems using photovoltaic modules into a solar energy system. For the purposes of this section "solar energy system" has the same meaning as provided in section 2 of this act.
     (2)(a) The credit under this section shall equal three thousand dollars for each full-time employment position used in manufacturing process that takes place in investment projects exempt from sales and use tax under sections 4 and 5 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 six months or more.
     (b) To qualify for the credit, the manufacturing activity of the person must be conducted at an investment project that qualifies for the exemption from sales and use tax under sections 4 and 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 8 of this act.
     (6) Credits may be taken after July 1, 2005, for those investment projects at which commercial production began before June 30, 2014, subject to all of the eligibility criteria and limitations of this section.
     (7) This section expires June 30, 2014.

NEW SECTION.  Sec. 7   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 exclusively in the manufacture of solar energy systems using photovoltaic modules into a solar energy system at an investment project exempt from sales and use tax under sections 4 and 5 of this act are exempt from property taxation. "Solar energy system" has the same meaning as provided in section 2 of this act.
     (2) A person seeking this exemption must make application to the county assessor, on forms prescribed by the department.
     (3) This section is effective for taxes levied for collection one year after the effective date of this section and thereafter.
     (4) This section expires December 31, 2014, for taxes levied for collection in the following year.

NEW SECTION.  Sec. 8   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 section 2 of this act or who claims an exemption or credit under sections 4 through 6 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 section 2 of this act, or tax exemption or credit under sections 4 through 6 of this act. The report is due by March 31st following any year in which a preferential tax rate under section 2 of this act is used, or tax exemption or credit under sections 4 through 6 of this act is claimed. This information is not subject to the confidentiality provisions of RCW 82.32.330.
     (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, or reduced in the case of the preferential tax rate, for the previous calendar year to be immediately due and payable. Excise taxes payable under this subsection are subject to interest, but not penalties, at the rate provided for delinquent taxes, as provided under this chapter. The department shall assess interest, retroactively to the date the exemption, credit, or preferential tax rate under section 2 of this act, was used. The interest shall be assessed at the rate provided for delinquent excise taxes under this chapter, and shall accrue until the taxes for which the exemption, credit, or preferential tax rate was used are repaid. This information is not subject to the confidentiality provisions of RCW 82.32.330.
     (3) By November 1, 2010, and November 1, 2013, the joint legislative audit and review committee, in consultation with the department, shall report to the legislature on the effectiveness of chapter . . ., Laws of 2005 (this act) in regard to keeping Washington competitive. The report shall measure the effect of chapter . . ., Laws of 2005 (this act) on job retention, net jobs created for Washington residents, company growth, diversification of the state's economy, and other factors as the committee selects. The reports shall include a discussion of principles to apply in evaluating whether the legislature should extend any or all of the tax preferences in chapter . . ., Laws of 2005 (this act).

NEW SECTION.  Sec. 9   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, 2005.