BILL REQ. #:  S-4572.1 

Read first time 01/25/2006.   Referred to Committee on Ways & Means.

     AN ACT Relating to providing tax incentives to support the semiconductor cluster in Washington state; amending RCW 82.04.440, 82.32.590, and 82.32.600; adding a new section 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 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. Washington state 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. In 2003 the legislature enacted comprehensive tax incentives for the semiconductor cluster that address activities of the lead product industry and its suppliers and customers. These tax incentives are contingent on the investment of at least one billion dollars in a new semiconductor microchip fabrication facility in this state, which has not occurred. This investment criteria failed to recognize the significance of potential investment in the advanced semiconductor materials sector. Therefore, the legislature intends to complement existing comprehensive tax incentives for the semiconductor cluster to address activities of the advanced semiconductor materials product industry and its suppliers and customers. Tax incentives for the semiconductor cluster are important in both retention and expansion of existing businesses 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) Upon every person engaging within this state in the business of manufacturing or processing for hire advanced 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.
     (2) For the purposes of this section "advanced semiconductor materials" means silicon crystals, silicon ingots that are at least three hundred millimeters in diameter, raw polished semiconductor wafers that are at least three hundred millimeters in diameter, and compound semiconductor wafers that are at least three hundred millimeters in diameter.
     (3) This section expires twelve years after the effective date of this section.

NEW SECTION.  Sec. 3   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 production of advanced semiconductor materials. This exemption is limited to gases and chemicals used in the production 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 production 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, "advanced semiconductor materials" has the meaning provided in section 2 of this act.
     (2) A person taking the exemption under this section must report under section 5 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 section.

NEW SECTION.  Sec. 4   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 production of advanced semiconductor materials. This exemption is limited to gases and chemicals used in the production 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 production 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, "advanced semiconductor materials" has the meaning provided in section 2 of this act.
     (2) A person taking the exemption under this section must report under section 5 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 section.

NEW SECTION.  Sec. 5   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 3 and 4 of this act shall make a complete 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 3 and 4 of this act. The report is due by April 30th following any year in which a preferential tax rate under section 2 of this act is used, or tax exemption or credit under sections 3 and 4 of this act is taken. The department may extend the due date for timely filing annual reports under this section as provided in RCW 82.32.590. 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 a complete annual report under (a) of this subsection by the due date of the report or any extension under RCW 82.32.590, the department shall declare the amount of taxes exempted or credited, or reduced in the case of the preferential business and occupation tax rate, for that year to be immediately due and payable. Excise taxes payable under this subsection are subject to interest but not penalties, 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 section, and November 1st of the year occurring eleven years after the effective date of this section, 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 this act in regard to keeping Washington competitive. The report shall measure the effect of 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 this act.

Sec. 6   RCW 82.04.440 and 2005 c 301 s 3 are each 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)) that are subject to tax under two or more provisions of RCW 82.04.230 ((to)) through 82.04.298, inclusive, shall be taxable under each ((paragraph)) provision applicable to ((the)) those activities ((engaged in)).
     (2) Persons taxable under RCW 82.04.2909(2), 82.04.250, 82.04.270, 82.04.294(2), or 82.04.260 (1)(c), (4), or (((13))) (11) 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), 82.04.294(1), section 2 of this act, or 82.04.260 (1), (2), (4), (((6), or (13))) or (11) 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, section 2 of this act, 82.04.2909(1), 82.04.260 (1), (2), (4), and (((13))) (11), and 82.04.294(1); 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.

Sec. 7   RCW 82.32.590 and 2005 c 514 s 1001 are each amended to read as follows:
     (1) If the department finds that the failure of a taxpayer to file an annual survey or annual report under RCW 82.04.4452 or section 5 of this act 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 or report. 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 or annual report by the due date was the result of circumstances beyond the control of the taxpayer, the department shall be guided by rules adopted by the department for 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.

Sec. 8   RCW 82.32.600 and 2005 c 514 s 1002 are each amended to read as follows:
     (1) Persons required to file annual surveys or annual reports under RCW 82.04.4452 or section 5 of this act must electronically file with the department all surveys, reports, returns, and any other forms or information the department requires in an electronic format as provided or approved by the department((, unless the department grants relief under subsection (2) of this section)). As used in this section, "returns" has the same meaning as "return" in RCW 82.32.050.
     (2) ((Upon request, the department may relieve a person of the obligations in subsection (1) of this section if the person's taxes have been reduced a cumulative total of less than one thousand dollars from all of the credits, exemptions, or preferential business and occupation tax rates, for which a person is required to file an annual survey under RCW 82.04.4452, 82.32.535, 82.32.545, 82.32.570, 82.32.560, 82.60.070, or 82.63.020.
     (3) Persons who no longer qualify for relief under subsection (2) of this section will be notified in writing by the department and must comply with subsection (1) of this section by the date provided in the notice.
     (4))) Any survey, report, return, or any other form or information required to be filed in an electronic format under subsection (1) of this section is not filed until received by the department in an electronic format.
     (3) The department may waive the electronic filing requirement in subsection (1) of this section for good cause shown.

NEW SECTION.  Sec. 9   (1)(a) This act is contingent upon the siting, expansion, or renovation, and commercial operation of a significant advanced semiconductor materials fabrication facility or facilities in the state of Washington.
     (b) For the purposes of this section:
     (i) "Commercial operation" means the equipment and process qualifications in the new or expanded building are completed and production for sale has begun.
     (ii) "Advanced semiconductor materials fabrication" means the manufacturing of "advanced semiconductor materials" as that term is defined in section 2 of this act.
     (iii) "Significant" means that the combined investment or investments by a single person, occurring at any time before the effective date of this act, of new buildings, expansion or renovation of existing buildings, tenant improvements to buildings, and machinery and equipment in the buildings, at the commencement of commercial production, is at least three hundred fifty million dollars based on actual expenditures by the person.
     (2) This act takes effect the first day of the month immediately following the department's determination that the contingency in subsection (1) of this section has occurred. The department shall make its determination regarding the contingency in subsection (1) of this section based on information provided to the department by affected taxpayers or representatives of affected taxpayers.
     (3) The department of revenue shall provide notice of the effective date of this act to affected taxpayers, the legislature, the office of the code reviser, and others as deemed appropriate by the department.