BILL REQ. #:  S-0881.1 

Read first time 01/29/09.   Referred to Committee on Economic Development, Trade & Innovation.

     AN ACT Relating to modifying tax credits for research and development expenditures; and amending RCW 82.04.4452.

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

Sec. 1   RCW 82.04.4452 and 2005 c 514 s 1003 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)) provided for in subsection (1) of this section must be calculated as follows:
     (a) Determine 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 by ((the following:
     (i) For the period June 10, 2004, through December 31, 2006, the person's average tax rate for the calendar year for which the credit is claimed;
     (ii) For the calendar year ending December 31, 2007, the greater of the person's average tax rate for that calendar year or 0.75 percent;
     (iii) For the calendar year ending December 31, 2008,)) the greater of the person's average tax rate for that calendar year or 1.0 percent((;
     (iv) For the calendar year ending December 31, 2009, the greater of the person's average tax rate for that calendar year or 1.25 percent;
     (v) For the calendar year ending December 31, 2010, and thereafter, 1.50 percent)).
     For purposes of calculating the credit, if a person's reporting period is less than annual, the person may use an estimated average tax rate for the calendar year for which the credit is claimed by using the person's average tax rate for each reporting period. A person who uses an estimated average tax rate must make an adjustment to the total credit claimed for the calendar year using the person's actual average tax rate for the calendar year when the person files its last return for the calendar year for which the credit is claimed.
     (3) Notwithstanding the provisions of subsection (1) of this section, in computing the tax imposed under this chapter, a credit is allowed for all amounts paid by a person to a public educational, economic development, or research institution located in this state to conduct qualified research and development. The credit is equal to the amount of such payments for qualified research and development, multiplied by the rate of 1.5 percent.
     (4) 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))) (5) The credit allowed under subsections (1) and (3) of this section, including any credit assigned to a person under subsection (((3))) (4) of this section, shall be claimed 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))) (4) of this section, for each calendar year ((shall)) may not exceed the lesser of two million dollars or the amount of tax otherwise due under this chapter for the calendar year.
     (((5))) (6) For any person claiming the credit allowed under subsections (1) and (3) of this section, including any credit assigned to a person under subsection (((3))) (4) 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 or who is otherwise ineligible, the department ((shall)) must declare the taxes against which the credit was claimed to be immediately due and payable. The department ((shall)) must assess interest, but not penalties, on the taxes against which the credit was claimed. Interest ((shall be)) is 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)) accrues until the taxes against which the credit was claimed are repaid. Any credit assigned to a person under subsection (((3))) (4) of this section that is disallowed as a result of this section may be claimed by the person who performed the qualified research and development subject to the limitations set forth in subsection (((4))) (5) of this section.
     (((6))) (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)) a credit ((shall)) under this section must file a complete annual survey with the department. The survey is due by March 31st following any year in which a credit is claimed. The department may extend the due date for timely filing of annual surveys under this section as provided in RCW 82.32.590. The survey ((shall)) must include the amount of the tax credit claimed, the qualified research and development expenditures during the calendar year for which the credit is claimed, the taxable amount during the calendar year for which the credit is claimed, the number of new products or research projects by general classification, the number of trademarks, patents, and copyrights associated with the research and development activities for which a credit was claimed, and whether the credit has been assigned under subsection (((3))) (4) of this section and who assigned the credit. The survey ((shall)) must 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)(i) All information collected under this subsection, except the amount of the tax credit claimed, is deemed taxpayer information under RCW 82.32.330. Information on the amount of tax credit claimed is not subject to the confidentiality provisions of RCW 82.32.330 and may be disclosed to the public upon request, except as provided in this subsection (((6))) (7)(d). If the amount of the tax credit as reported on the survey is different than the amount actually claimed on the taxpayer's tax returns or otherwise allowed by the department, the amount actually claimed or allowed may be disclosed.
     (ii) Persons for whom the actual amount of the tax credit claimed on the taxpayer's returns or otherwise allowed by the department is less than ten thousand dollars 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 file a complete annual survey required under this subsection with the department by the due date or any extension under RCW 82.32.590, the person entitled to the credit provided in subsection (2) of this section is not eligible to claim or assign the credit provided in subsection (2) of this section in the year the person failed to timely file a complete survey.
     (((7))) (8) The department ((shall)) must use the information from subsection (((6))) (7) of this section to prepare summary descriptive statistics by category. No fewer than three taxpayers ((shall)) may be included in any category. The department shall report these statistics to the legislature each year by September 1st.
     (((8))) (9) The department ((shall)) must use the information from subsection (((6))) (7) of this section to study the tax credit program authorized under this section. The department ((shall)) must report to the legislature by December 1, 2009, and December 1, 2013. The reports ((shall)) must 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.
     (((9))) (10) For the purpose of this section:
     (a) "Average tax rate" means a person's total tax liability under this chapter for the calendar year for which the credit is claimed divided by the taxpayer's total taxable amount under this chapter for the calendar year for which the credit is claimed.
     (b) "Qualified research and development expenditures" means:
     (i) 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; and
     (ii) Amounts paid to a public educational or research institution to conduct qualified research and development. 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) "Qualified research and development" ((shall have)) has the same meaning as in RCW 82.63.010.
     (d) "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) "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 for the calendar year for which the credit is claimed, less any taxable amount for which a credit is allowed under RCW 82.04.440.
     (((10))) (11) This section expires January 1, 2015.