BILL REQ. #:  S-1185.1 

Read first time 02/16/09.   Referred to Committee on Ways & Means.

     AN ACT Relating to modifying tax incentives; amending RCW 82.08.02565, 82.08.02567, 82.12.02567, 82.16.055, 82.60.020, and 82.04.4493; repealing RCW 84.36.487, 82.08.811, and 82.12.811; repealing 2008 c 284 s 4 (uncodified); providing an effective date; providing expiration dates; and declaring an emergency.

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

Sec. 1   RCW 82.08.02565 and 1999 c 211 s 5 are each amended to read as follows:
     (1) The tax levied by RCW 82.08.020 ((shall)) does not apply to sales to a manufacturer or processor for hire of machinery and equipment used directly in a manufacturing operation or research and development operation, to sales to a person engaged in testing for a manufacturer or processor for hire of machinery and equipment used directly in a testing operation, or to sales of or charges made for labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the machinery and equipment, but only when the purchaser provides the seller with an exemption certificate in a form and manner prescribed by the department by rule. The seller ((shall)) must retain a copy of the certificate for the seller's files.
     (2) For purposes of this section and RCW 82.12.02565:
     (a) "Machinery and equipment" means industrial fixtures, devices, and support facilities, and tangible personal property that becomes an ingredient or component thereof, including repair parts and replacement parts. "Machinery and equipment" includes pollution control equipment installed and used in a manufacturing operation, testing operation, or research and development operation to prevent air pollution, water pollution, or contamination that might otherwise result from the manufacturing operation, testing operation, or research and development operation.
     (b) "Machinery and equipment" does not include:
     (i) Hand-powered tools;
     (ii) Property with a useful life of less than one year;
     (iii) Buildings, other than machinery and equipment that is permanently affixed to or becomes a physical part of a building; and
     (iv) Building fixtures that are not integral to the manufacturing operation, testing operation, or research and development operation that are permanently affixed to and become a physical part of a building, such as utility systems for heating, ventilation, air conditioning, communications, plumbing, or electrical.
     (c) Machinery and equipment is "used directly" in a manufacturing operation, testing operation, or research and development operation if the machinery and equipment:
     (i) Acts upon or interacts with an item of tangible personal property;
     (ii) Conveys, transports, handles, or temporarily stores an item of tangible personal property at the manufacturing site or testing site;
     (iii) Controls, guides, measures, verifies, aligns, regulates, or tests tangible personal property at the site or away from the site;
     (iv) Provides physical support for or access to tangible personal property;
     (v) Produces power for, or lubricates machinery and equipment;
     (vi) Produces another item of tangible personal property for use in the manufacturing operation, testing operation, or research and development operation;
     (vii) Places tangible personal property in the container, package, or wrapping in which the tangible personal property is normally sold or transported; or
     (viii) Is integral to research and development as defined in RCW 82.63.010.
     (d) "Manufacturing operation" means the manufacturing of articles, substances, or commodities for sale as tangible personal property. A manufacturing operation begins at the point where the raw materials enter the manufacturing site and ends at the point where the processed material leaves the manufacturing site. The term also includes 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. The term does not include: (i) The production of electricity by a light and power business as defined in RCW 82.16.010 ((or)); (ii) the preparation of food products on the premises of a person selling food products at retail; or (iii) the production of petroleum-based fuels that are not biodiesel fuels.
     (e) "Cogeneration" means the simultaneous generation of electrical energy and low-grade heat from the same fuel.
     (f) "Research and development operation" means engaging in research and development as defined in RCW 82.63.010 by a manufacturer or processor for hire.
     (g) "Testing" means activities performed to establish or determine the properties, qualities, and limitations of tangible personal property.
     (h) "Testing operation" means the testing of tangible personal property for a manufacturer or processor for hire. A testing operation begins at the point where the tangible personal property enters the testing site and ends at the point where the tangible personal property leaves the testing site. The term also includes that portion of a cogeneration project that is used to generate power for consumption within the site of which the cogeneration project is an integral part. The term does not include the production of electricity by a light and power business as defined in RCW 82.16.010 or the preparation of food products on the premises of a person selling food products at retail.

Sec. 2   RCW 82.08.02567 and 2004 c 152 s 1 are each amended to read as follows:
     (1) The tax levied by RCW 82.08.020 ((shall)) does not apply to sales of machinery and equipment used directly in generating electricity using fuel cells, wind, sun, tidal or wave energy, geothermal resources, or landfill gas as the principal source of power, or to sales of or charges made for labor and services rendered in respect to installing such machinery and equipment, but only if the purchaser develops with such machinery, equipment, and labor a facility capable of generating not less than two hundred watts of electricity and provides the seller with an exemption certificate in a form and manner prescribed by the department. The seller ((shall)) must retain a copy of the certificate for the seller's files.
     (2) For purposes of this section and RCW 82.12.02567:
     (a) "Landfill gas" means biomass fuel of the type qualified for federal tax credits under 26 U.S.C. Sec. 29 collected from a landfill. "Landfill" means a landfill as defined under RCW 70.95.030;
     (b) "Machinery and equipment" means industrial fixtures, devices, and support facilities that are integral and necessary to the generation of electricity using fuel cells, wind, sun, or landfill gas as the principal source of power;
     (c) "Machinery and equipment" does not include: (i) Hand-powered tools; (ii) property with a useful life of less than one year; (iii) repair parts required to restore machinery and equipment to normal working order; (iv) replacement parts that do not increase productivity, improve efficiency, or extend the useful life of machinery and equipment; (v) buildings; or (vi) building fixtures that are not integral and necessary to the generation of electricity that are permanently affixed to and become a physical part of a building;
     (d) Machinery and equipment is "used directly" in generating electricity with fuel cells or by wind energy, solar energy, or landfill gas power if it provides any part of the process that captures the energy of the wind, sun, or landfill gas, converts that energy to electricity, and stores, transforms, or transmits that electricity for entry into or operation in parallel with electric transmission and distribution systems;
     (e) "Fuel cell" means an electrochemical reaction that generates electricity by combining atoms of hydrogen and oxygen in the presence of a catalyst.
     (3) This section expires June 30, ((2009)) 2019.

Sec. 3   RCW 82.12.02567 and 2004 c 152 s 2 are each amended to read as follows:
     (1) The provisions of this chapter shall not apply with respect to machinery and equipment used directly in generating not less than two hundred watts of electricity using fuel cells, wind, sun, tidal or wave energy, geothermal resources, or landfill gas as the principal source of power, or to the use of labor and services rendered in respect to installing such machinery and equipment.
     (2) The definitions in RCW 82.08.02567 apply to this section.
     (3) This section expires June 30, ((2009)) 2019.

Sec. 4   RCW 82.16.055 and 1980 c 149 s 3 are each amended to read as follows:
     (1) In computing tax under this chapter there ((shall be)) is deducted from the gross income:
     (a) An amount equal to the cost of production at the plant for consumption within the state of Washington of:
     (i) Electrical energy produced or generated from cogeneration ((as defined in RCW 82.35.020)); and
     (ii) Electrical energy or gas produced or generated from renewable energy resources such as solar energy, tidal or wave energy, geothermal resources, wind energy, hydroelectric energy, geothermal energy, wood, wood wastes, municipal wastes, agricultural products and wastes, and end-use waste heat; and
     (b) Those amounts expended to improve consumers' efficiency of energy end use or to otherwise reduce the use of electrical energy or gas by the consumer.
     (2) (a) Except for tidal and wave energy and geothermal facilities, this section applies only to new facilities for the production or generation of energy from cogeneration or renewable energy resources or measures to improve the efficiency of energy end use on which construction or installation is begun after June 12, 1980, and before January 1, 1990.
     (b) This section applies to new facilities for the production and generation of energy from tidal and wave energy, and from geothermal resources, on which construction or installation is begun after January 1, 2009, and before January 1, 2019.
     (3) Deductions under subsection (1)(a) of this section shall be allowed for a period not to exceed thirty years after the project is placed in operation.
     (4) ((Measures or projects encouraged under this section shall at the time they are placed in service be reasonably expected to save, produce, or generate energy at a total incremental system cost per unit of energy delivered to end use which is less than or equal to the incremental system cost per unit of energy delivered to end use from similarly available conventional energy resources which utilize nuclear energy or fossil fuels and which the gas or electric utility could acquire to meet energy demand in the same time period.
     (5))) The department ((of revenue)), after consultation with the utilities and transportation commission ((in the case of investor-owned utilities)) and the governing bodies of locally regulated utilities, shall determine the eligibility of individual projects and measures for deductions under this section.

Sec. 5   RCW 82.60.020 and 2006 c 142 s 1 are each amended to read as follows:
     Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
     (1) "Applicant" means a person applying for a tax deferral under this chapter.
     (2) "Department" means the department of revenue.
     (3) "Eligible area" means a rural county as defined in RCW 82.14.370.
     (4)(a) "Eligible investment project" means an investment project in an eligible area as defined in subsection (3) of this section.
     (b) The lessor or owner of a qualified building is not eligible for a deferral unless:
     (i) The underlying ownership of the buildings, machinery, and equipment vests exclusively in the same person; or
     (ii)(A) The lessor by written contract agrees to pass the economic benefit of the deferral to the lessee;
     (B) The lessee that receives the economic benefit of the deferral agrees in writing with the department to complete the annual survey required under RCW 82.60.070; and
     (C) The economic benefit of the deferral passed to the lessee is no less than the amount of tax deferred by the lessor and is evidenced by written documentation of any type of payment, credit, or other financial arrangement between the lessor or owner of the qualified building and the lessee.
     (c) "Eligible investment project" does not include any portion of an investment project undertaken by:
     (i) 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, or investment projects which have already received deferrals under this chapter; nor
     (ii) A person engaged in manufacturing petroleum-based products, other than that portion of an investment project that is used to produce biodiesel fuels or investment projects that have already received deferrals under this chapter.
     (5) "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.
     (6) "Manufacturing" means the same as defined in RCW 82.04.120. "Manufacturing" also includes computer programming, the production of computer software, and other computer-related services, the activities performed by research and development laboratories and commercial testing laboratories, and the conditioning of vegetable seeds.
     (7) "Person" has the meaning given in RCW 82.04.030.
     (8) "Qualified buildings" means construction of new structures, and expansion or renovation of existing structures for the purpose of increasing floor space or production capacity used for manufacturing and research and development activities, 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, plant, or laboratory used for manufacturing or research and development. If a building is used partly for manufacturing or research and development and partly for other purposes, the applicable tax deferral shall be determined by apportionment of the costs of construction under rules adopted by the department.
     (9) "Qualified employment position" means a permanent full-time employee employed in the eligible investment project during the entire tax year. The term "entire tax year" means a full-time position that is filled for a period of twelve consecutive months. The term "full-time" means at least thirty-five hours a week, four hundred fifty-five hours a quarter, or one thousand eight hundred twenty hours a year.
     (10) "Qualified machinery and equipment" means all new industrial and research fixtures, equipment, and support facilities that are an integral and necessary part of a manufacturing or research and development operation. "Qualified machinery and equipment" includes: Computers; software; data processing equipment; laboratory equipment; 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.
     (11) "Recipient" means a person receiving a tax deferral under this chapter.
     (12) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun. As used in this subsection, "commercial sales" excludes sales of prototypes or sales for market testing if the total gross receipts from such sales of the product, service, or process do not exceed one million dollars.

Sec. 6   RCW 82.04.4493 and 2008 c 284 s 2 are each amended to read as follows:
     (1) In computing the tax imposed under this chapter, a credit is allowed in an amount equal to eight and eight-tenths percent multiplied by the purchase price, as defined in RCW 82.12.010, of the following items:
     (a) Commercial freezers and refrigerators meeting consortium for energy efficiency tier 2 specifications dated January 1, 2006;
     (b) High efficiency commercial clothes washers meeting consortium for energy efficiency specifications dated November 14, 2007;
     (c) Commercial ice makers meeting consortium for energy efficiency specifications dated January 1, 2006;
     (d) Commercial full-sized gas convection ovens with interior measurements of six cubic feet or larger;
     (e) Commercial deep fat fryers which are rated energy star as of August 2003;
     (f) Commercial hot food holding cabinets which are rated energy star as of August 2003; and
     (g) Commercial electric and gas steam cookers, also known as compartment cookers, which are rated energy star as of August 2003.
     (2) A person may not take the credit under this section if the person's gross income of the business in the prior calendar year exceeded seven hundred fifty thousand dollars.
     (3) A credit earned during one calendar year may be carried over to be credited against taxes incurred in the subsequent calendar year. Credit may not be claimed against taxes due for any tax reporting period ending before the credit was earned. No refunds shall be granted for credits under this section.
     (4) Credits are available on a first-in-time basis. The department shall disallow any credits, or portion thereof, that would cause the total amount of credits claimed statewide under this section in any year to exceed ((seven hundred fifty thousand)) five million dollars. If the ((seven hundred fifty thousand)) five million dollar limitation is reached, the department ((shall)) must provide written notice to any person that has claimed tax credits after the ((seven hundred fifty thousand)) five million dollar limitation in this subsection has been met. The notice shall indicate the amount of tax due and shall provide that the tax be paid within thirty days from the date of such notice. The department may not assess penalties and interest as provided in chapter 82.32 RCW on the amount due in the initial notice if the amount due is paid by the due date specified in the notice, or any extension thereof.
     (5) The department of community, trade, and economic development must prepare and deliver a report to the legislature no later than December 30, 2010, assessing the overall energy and cost saving impacts of this section.
     (6) Credit may not be claimed under this section for the purchase of an item, listed in subsection (1) of this section, before July 1, 2008.
     (7) Credit may not be claimed under this section for the purchase of an item, listed in subsection (1) of this section, after June 30, 2010.
     (8) The definitions in this subsection apply throughout this section unless the context clearly requires otherwise.
     (a)(i) "Commercial refrigerators and freezers" means refrigerators, freezers, or refrigerator-freezers designed for use by commercial or institutional facilities for the purpose of storing or merchandising food products, beverages, or ice at specified temperatures that: (A) Incorporate most components involved in the vapor-compression cycle and the refrigerated compartment in a single cabinet; and (B) may be configured with either solid or transparent doors as a reach-in cabinet, pass-through cabinet, roll-in cabinet, or roll-through cabinet.
     (ii) "Commercial refrigerators and freezers" does not include: (A) Products with eighty-five cubic feet or more of internal volume; (B) walk-in refrigerators or freezers; (C) consumer products that are federally regulated pursuant to Title 42 U.S.C. Sec. 6291 et seq.; (D) products without doors; or (E) freezers specifically designed for ice cream.
     (b) "Commercial clothes washer" means a soft mount horizontal or vertical-axis clothes washer that: (i) Has a clothes container compartment no greater than three and one-half cubic feet in the case of a horizontal-axis product or no greater than four cubic feet in the case of a vertical-axis product; and (ii) is designed for use by more than one household, such as in multifamily housing, apartments, or coin laundries.
     (c) "Commercial hot food holding cabinet" means an appliance that is designed to hold hot food at a specified temperature, which has been cooked using a separate appliance.
     (d) "Commercial ice maker" means a factory-made assembly, not necessarily shipped in one package, consisting of a condensing unit and ice-making section operating as an integrated unit with means for making and harvesting ice. It may also include integrated components for storing or dispensing ice, or both.
     (e) "Commercial open, deep-fat fryer" means an appliance, including a cooking vessel, in which oil is placed to such a depth that the cooking food is essentially supported by displacement of the cooking fluid rather than by the bottom of the vessel. Heat is delivered to the cooking fluid by means of an immersed electric element or band-wrapped vessel (electric fryers), or by heat transfer from gas burners through either the walls of the fryer or through tubes passing through the cooking fluid (gas fryers).
     (f) "Consortium" means the consortium for energy efficiency, a United States nonprofit public benefits corporation that promotes the manufacture and purchase of energy efficient products and services. The consortium's members include utilities, statewide and regional market transformation administrators, environmental groups, research organizations, and state energy offices in the United States and Canada.
     (g) "Energy star" is an energy efficient product that meets the federal environmental protection agency's and federal department of energy's criteria for use of the energy star trademark label, or is in the upper twenty-five percent of efficiency for all similar products as designated by the federal energy management program. Energy star is a voluntary labeling program designed to identify and promote energy efficient products to reduce greenhouse gas emissions.
     (h) "Steam cooker" means a device with one or more food steaming compartments, in which the energy in the steam is transferred to the food by direct contact. Models may include countertop models, wall-mounted models, and floor models mounted on a stand, pedestal, or cabinet-style base.

NEW SECTION.  Sec. 7   The following acts or parts of acts are each repealed:
     (1) RCW 84.36.487 (Air pollution control equipment in thermal electric generation facilities -- Records -- Payments on cessation of operation) and 1997 c 368 s 11;
     (2) RCW 82.08.811 (Exemptions -- Coal used at coal-fired thermal electric generation facility -- Application -- Demonstration of progress in air pollution control -- Notice of emissions violations -- Reapplication--Payments on cessation of operation) and 1997 c 368 s 4; and
     (3) RCW 82.12.811 (Exemptions -- Coal used at coal-fired thermal electric generation facility -- Application -- Demonstration of progress in air pollution control -- Notice of emissions violations -- Reapplication--Payments on cessation of operation) and 1997 c 368 s 6.

NEW SECTION.  Sec. 8   2008 c 284 s 4 (uncodified) is repealed.

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, 2009.