BILL REQ. #:  S-1126.1 

Read first time 02/02/2005.   Referred to Committee on International Trade & Economic Development.

     AN ACT Relating to the high technology business and occupation tax credit; amending RCW 82.04.4452; adding a new section to chapter 82.32 RCW; creating new sections; providing an expiration date; and declaring an emergency.

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

Sec. 1   RCW 82.04.4452 and 2004 c 2 s 2 are each amended to read as follows:
     (1) In computing the tax imposed under this chapter, a credit is allowed for each person whose research and development spending during the year in which the credit is claimed exceeds 0.92 percent of the person's taxable amount during the same calendar year.
     (2) The credit ((shall be calculated as follows: (a) Determine)) is equal to the greater of the amount of qualified research and development expenditures of a person or eighty percent of amounts received by a person other than a public educational or research institution in compensation for the conduct of qualified research and development((; (b) subtract 0.92 percent of the person's taxable amount from the amount determined under (a) of this subsection; (c) multiply the amount determined under (b) of this subsection)), multiplied by the rate provided in RCW 82.04.260(3) in the case of a nonprofit corporation or nonprofit association engaging within this state in research and development, ((and)) or the ((person's average)) tax rate provided in RCW 82.04.290(2) for every other person.
     (3) Any person entitled to the credit provided in subsection (2) of this section as a result of qualified research and development conducted under contract may assign all or any portion of the credit to the person contracting for the performance of the qualified research and development.
     (4) The credit, including any credit assigned to a person under subsection (3) of this section, shall be taken against taxes due for the same calendar year in which the qualified research and development expenditures are incurred. The credit, including any credit assigned to a person under subsection (3) of this section, for each calendar year shall not exceed the lesser of two million dollars or the amount of tax otherwise due under this chapter for the calendar year.
     (5) Any person taking the credit, including any credit assigned to a person under subsection (3) of this section, whose research and development spending during the calendar year in which the credit is claimed fails to exceed 0.92 percent of the person's taxable amount during the same calendar year shall be liable for payment of the additional taxes represented by the amount of credit taken together with interest, but not penalties. Interest shall be due at the rate provided for delinquent excise taxes retroactively to the date the credit was taken until the taxes are paid. Any credit assigned to a person under subsection (3) of this section that is disallowed as a result of this section may be taken by the person who performed the qualified research and development subject to the limitations set forth in subsection (4) of this section.
     (6) Any person claiming the credit, and any person assigning a credit as provided in subsection (3) of this section, shall file an annual report in a form prescribed by the department which shall include the amount of the credit claimed, the qualified research and development expenditures during the calendar year for which the credit is claimed, and the taxable amount during the calendar year for which the credit is claimed, and such additional information as the department may prescribe. The report is due by March 31st following any year a credit is taken.
     (7)(a) 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.
     (b) A person claiming the credit shall agree to complete an annual survey. The annual survey is in addition to the annual report due under subsection (6) of this section. The survey is due by March 31st following any year in which a credit is taken. The survey shall include the amount of the tax credit taken, the number of new products or research projects by general classification, and the number of trademarks, patents, and copyrights associated with the research and development activities for which a credit was taken. The survey shall also include the following information for employment positions in Washington:
     (i) The number of total employment positions;
     (ii) Full-time, part-time, and temporary employment positions as a percent of total employment;
     (iii) The number of employment positions according to the following wage bands: Less than thirty thousand dollars; thirty thousand dollars or greater, but less than sixty thousand dollars; and sixty thousand dollars or greater. A wage band containing fewer than three individuals may be combined with another wage band; and
     (iv) The number of employment positions that have employer-provided medical, dental, and retirement benefits, by each of the wage bands.
     (c) The department may request additional information necessary to measure the results of the tax credit program, to be submitted at the same time as the survey.
     (d) All information collected under this subsection, except the amount of the tax credit taken, is deemed taxpayer information under RCW 82.32.330 and is not disclosable. Information on the amount of tax credit taken is not subject to the confidentiality provisions of RCW 82.32.330 and may be disclosed to the public upon request except that persons taking less than ten thousand dollars of credit during the period covered by the survey may request the department to treat the
tax credit amount as confidential under RCW 82.32.330.
     (e) If a person fails to complete the survey required under this subsection by the due date, the person entitled to the credit provided in subsection (2) of this section is not eligible to take or assign the credit provided in subsection (2) of this section in the year the person failed to complete the survey.
     (8) The department shall use the information from subsection (7) of this section to prepare summary descriptive statistics by category. No fewer than three taxpayers shall be included in any category. The department shall report these statistics to the legislature each year by September 1st.
     (9) The department shall use the information from subsection (7) of this section to study the tax credit program authorized under this section. The department shall report to the legislature by December 1, 2009, and December 1, 2013. The reports shall measure the effect of the program on job creation, the number of jobs created for Washington residents, company growth, the introduction of new products, the diversification of the state's economy, growth in research and development investment, the movement of firms or the consolidation of firms' operations into the state, and such other factors as the department selects.
     (10) For the purpose of this section:
     (a) (("Average tax rate" means a person's total tax under this chapter for the reporting period divided by the taxpayer's total taxable income under this chapter for the reporting period.
     (b))) "Qualified research and development expenditures" means operating expenses, including wages, compensation of a proprietor or a partner in a partnership as determined under rules adopted by the department, benefits, supplies, and computer expenses, directly incurred in qualified research and development by a person claiming the credit provided in this section. The term does not include amounts paid to a person other than a public educational or research institution to conduct qualified research and development. Nor does the term include capital costs and overhead, such as expenses for land, structures, or depreciable property.
     (((c))) (b) "Qualified research and development" shall have the same meaning as in RCW 82.63.010.
     (((d))) (c) "Research and development spending" means qualified research and development expenditures plus eighty percent of amounts paid to a person other than a public educational or research institution to conduct qualified research and development.
     (((e))) (d) "Taxable amount" means the taxable amount subject to the tax imposed in this chapter required to be reported on the person's combined excise tax returns during the year in which the credit is claimed, less any taxable amount for which a credit is allowed under RCW 82.04.440.
     (11) This section expires January 1, 2015.

NEW SECTION.  Sec. 2   A new section is added to chapter 82.32 RCW to read as follows:
     (1) If the department finds that the failure of a taxpayer to file an annual survey under RCW 82.04.4452 by the due date was the result of circumstances beyond the control of the taxpayer, the department shall extend the time for filing the survey. Such extension shall be for a period of thirty days from the date the department issues its written notification to the taxpayer that it qualifies for an extension under this section. The department may grant additional extensions as it deems proper.
     (2) In making a determination whether the failure of a taxpayer to file an annual survey by the due date was the result of circumstances beyond the control of the taxpayer, the department shall be guided by WAC 458-20-228 relating to the waiver or cancellation of penalties when the underpayment or untimely payment of any tax was due to circumstances beyond the control of the taxpayer.

NEW SECTION.  Sec. 3   (1) A person who owes additional tax as a result of section 1 of this act and this section is liable for interest, but not penalties as provided in RCW 82.32.090 (1) and (2), if the entire additional tax liability is paid in full to the department of revenue before January 1, 2006. Interest shall be assessed at the rate provided for delinquent excise taxes under chapter 82.32 RCW, retroactively to the date the credit was claimed, and shall accrue until the additional tax is repaid.
     (2) Persons who fail to repay the full amount of additional tax owed as a result of section 1 of this act and this section before January 1, 2006, are subject to all applicable penalties and interest as provided in chapter 82.32 RCW on the additional tax owing after December 31, 2005.
     (3) This section expires December 31, 2010.

NEW SECTION.  Sec. 4   Section 1 of this act applies retroactively to June 10, 2004.

NEW SECTION.  Sec. 5   Section 2 of this act applies retroactively to annual surveys required under RCW 82.04.4452 that are due after December 31, 2004.

NEW SECTION.  Sec. 6   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 immediately.