BILL REQ. #:  S-4674.1 

READ FIRST TIME 02/05/10.   

     AN ACT Relating to modifying the sales and use tax deferral program for investment projects in rural counties; amending RCW 82.60.010, 82.60.020, 82.60.030, 82.60.040, 82.60.060, 82.60.070, 82.32.600, 82.60.100, 82.62.010, and 82.60.049; adding new sections to chapter 82.60 RCW; decodifying RCW 82.60.900 and 82.60.901; repealing RCW 82.60.050 and 82.60.110; adding a new section to chapter 82.60 RCW; providing an effective date; providing a contingent effective date; and providing expiration dates.

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

Sec. 1   RCW 82.60.010 and 1985 c 232 s 1 are each amended to read as follows:
     The legislature finds that there are several areas in the state that are characterized by very high levels of unemployment and poverty. The ((legislative [legislature])) legislature further finds that economic stagnation is the primary cause of this high unemployment rate and poverty; that new state policies are necessary in order to promote economic stimulation and new employment opportunities in these distressed areas; and that policies providing incentives for economic growth in these distressed areas are essential. For these reasons, the legislature ((hereby)) reestablishes a tax deferral program to be effective solely in distressed ((areas and under circumstances where the deferred tax payments are for investments or costs that result in the creation of a specified number of jobs)) counties. The legislature declares that this limited program serves the vital public purpose of creating employment opportunities and reducing poverty in the distressed ((areas)) counties of the state.

Sec. 2   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)):
     (a) Through June 30, 2010, a rural county as defined in RCW 82.14.370; and
     (b) Beginning July 1, 2010, a qualifying county.
     (4)(a) "Eligible investment project" means an investment project that is located, as of the date the application required by RCW 82.60.030 is received by the department, 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 a light and power business as defined in RCW 82.16.010(((5))) (4), 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)) that have already received deferrals under this chapter.
     (5) "Initiation of construction" has the same meaning as in RCW 82.63.010.
     (6) "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))) (7) "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))) (8) "Person" has the meaning given in RCW 82.04.030.
     (((8))) (9) "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))) (10) "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))) (11) "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))) (12) "Qualifying county" means a county that has an unemployment rate, as determined by the employment security department, which is at least twenty percent above the state average for the three calendar years immediately preceding the year in which the list of distressed counties is established or updated, as the case may be, as provided in section 3 of this act.
     (13) "Recipient" means a person receiving a tax deferral under this chapter.
     (((12))) (14) "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.

NEW SECTION.  Sec. 3   A new section is added to chapter 82.60 RCW to read as follows:
     The department, with the assistance of the employment security department, must establish a list of qualifying counties effective July 1, 2010. The list of qualifying counties is effective for a twenty-four month period and must be updated by July 1st of the year that is two calendar years after the list was established or last updated, as the case may be.

NEW SECTION.  Sec. 4   A new section is added to chapter 82.60 RCW to read as follows:
     The lessor or owner of a qualified building is not eligible for a deferral unless:
     (1) The underlying ownership of the buildings, machinery, and equipment vests exclusively in the same person; or
     (2)(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.

Sec. 5   RCW 82.60.030 and 1994 sp.s. c 1 s 2 are each amended to read as follows:
     (1) Application for deferral of taxes under this chapter must be made before initiation of the construction of the investment project or acquisition of equipment or machinery. The application ((shall)) must be made to the department in a form and manner prescribed by the department. The application ((shall)) must contain information regarding the location of the investment project, the applicant's average employment in the state for the prior year, estimated or actual new employment related to the project, estimated or actual wages of employees related to the project, estimated or actual costs, time schedules for completion and operation, and other information required by the department. The department ((shall)) must rule on the application within sixty days.
     (2) This section expires July 1, 2020.

Sec. 6   RCW 82.60.040 and 2004 c 25 s 4 are each amended to read as follows:
     (1) The department ((shall)) must issue a sales and use tax deferral certificate for state and local sales and use taxes due under chapters 82.08, 82.12, and 82.14 RCW on each eligible investment project ((that is located in an eligible area as defined in RCW 82.60.020)).
     (2) The department ((shall)) must keep a running total of all deferrals granted under this chapter during each fiscal biennium.
     (3) This section expires July 1, ((2010)) 2020.

Sec. 7   RCW 82.60.060 and 2000 c 106 s 5 are each amended to read as follows:
     (1) The recipient ((shall)) must begin paying the deferred taxes in the third year after the date certified by the department as the date on which the ((construction)) investment project has been operationally completed. The first payment will be due on December 31st of the third calendar year after such certified date, with subsequent annual payments due on December 31st of the following four years with amounts of payment scheduled as follows:

Sec. 8   RCW 82.60.070 and 2004 c 25 s 7 are each amended to read as follows:
     (1)(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) Each recipient of a deferral granted under this chapter after June 30, 1994, ((shall)) must complete an annual survey. If the economic benefits of the deferral are passed to a lessee as provided in ((RCW 82.60.020(4))) section 4 of this act, the lessee ((shall agree to)) must complete the annual survey and the applicant is not required to complete the annual survey. The survey is due by March 31st of the year following the calendar year in which the investment project is certified by the department as having been operationally complete and the seven succeeding calendar years. The survey shall include the amount of tax deferred, the number of new products or research projects by general classification, and the number of trademarks, patents, and copyrights associated with activities at the investment project. 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) As part of the survey, the department may request additional information necessary to measure the results of, or determine eligibility for, the deferral program, to be submitted at the same time as the survey.
     (d) All information collected under this subsection, except the amount of the tax deferral taken, is deemed taxpayer information under RCW 82.32.330 and is not disclosable. Information on the amount of tax deferral taken is not subject to the confidentiality provisions of RCW 82.32.330 and may be disclosed to the public upon request.
     (e) The department ((shall)) must use the information from 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.
     (f) The department ((shall)) must also use the information to study the tax deferral program authorized under this chapter. The department ((shall)) must report to the legislature by December 1, ((2009)) 2019. The report ((shall)) must measure the effect of the program on job creation, the number of jobs created for residents of eligible areas, 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.
     (2)(a) Except as provided in section 9 of this act, if, on the basis of a survey under this section or other information, the department finds that an investment project is not eligible for tax deferral under this chapter, the amount of deferred taxes outstanding for the project ((shall)), according to the repayment schedule in RCW 82.60.060, will be immediately due. For purposes of this subsection (2)(a), the repayment schedule in RCW 82.60.060 is tolled during the period of time that a taxpayer is receiving relief from repayment of deferred taxes under section 9 of this act.
     (b) If a recipient of the deferral fails to complete the annual survey required under subsection (1) of this section by the date due, twelve and one-half percent of the deferred tax ((shall)) will be immediately due. If the economic benefits of the deferral are passed to a lessee as provided in ((RCW 82.60.020(4))) section 4 of this act, the lessee ((shall be)) is responsible for payment to the extent the lessee has received the economic benefit.
     (3) Notwithstanding any other subsection of this section, deferred taxes need not be repaid on machinery and equipment for lumber and wood products industries, and sales of or charges made for labor and services, of the type which qualifies for exemption under RCW 82.08.02565 or 82.12.02565 to the extent the taxes have not been repaid before July 1, 1995.
     (4) Notwithstanding any other subsection of this section, deferred taxes on the following need not be repaid:
     (a) Machinery and equipment, and sales of or charges made for labor and services, which at the time of purchase would have qualified for exemption under RCW 82.08.02565; and
     (b) Machinery and equipment which at the time of first use would have qualified for exemption under RCW 82.12.02565.

Sec. 9   RCW 82.32.600 and 2009 c 461 s 8 are each amended to read as follows:
     (1) Persons required to file annual surveys or annual reports under RCW 82.04.4452, 82.32.5351, 82.32.545, 82.32.610, 82.32.630, 82.82.020, 82.32.632, 82.60.070, or 82.74.040 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. As used in this section, "returns" has the same meaning as "return" in RCW 82.32.050.
     (2) 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. 10   A new section is added to chapter 82.60 RCW to read as follows:
     (1) Subject to the conditions in this section, a person is not liable for the amount of deferred taxes outstanding for an investment project when the person temporarily ceases to use its qualified buildings and qualified machinery and equipment for manufacturing or research and development activities for a period not to exceed twenty-four months from the date that the department sent its assessment for the amount of outstanding deferred taxes to the taxpayer.
     (2) The relief from repayment of deferred taxes under this section does not apply unless the number of qualified employment positions maintained at the investment project after manufacturing or research and development activities are temporarily ceased is at least ten percent of the number of qualified employment positions employed at the investment project at the time the deferral was approved by the department. If a person has been approved for more than one deferral under this chapter, relief from repayment of deferred taxes under this section does not apply unless the number of qualified employment positions maintained at the investment project after manufacturing or research and development activities are temporarily ceased is at least ten percent of the highest number of qualified employment positions at the investment project at the time any of the deferrals were approved by the department. If, at any time during the twenty-four month period after the department has sent the taxpayer an assessment for outstanding deferred taxes resulting from the person temporarily ceasing to use its qualified buildings and qualified machinery and equipment for manufacturing or research and development activities, the number of qualified employment positions falls below the ten percent threshold in this subsection, the amount of deferred taxes outstanding for the project is immediately due.
     (3) The lessor of an investment project for which a deferral has been granted under this chapter who has passed the economic benefits of the deferral to the lessee is not eligible for relief from the payment of deferred taxes under this section.
     (4) A person seeking relief from the payment of deferred taxes under this section must apply to the department in a form and manner prescribed by the department. The application required under this subsection must be received by the department within thirty days of the date that the department sent its assessment for outstanding deferred taxes resulting from the person temporarily ceasing to use its qualified buildings and qualified machinery and equipment for manufacturing or research and development activities. The department must approve applications that meet the requirements in this section for relief from the payment of deferred taxes.
     (5) A person is entitled to relief under this section only once.
     (6) A person whose application for relief from the payment of deferred taxes has been approved under this section must continue to file an annual survey as required under RCW 82.60.070(1) or any successor statute. In addition, the person must file, in a form and manner prescribed by the department, a report on the status of the business and the outlook for commencing manufacturing or research and development activities.

Sec. 11   RCW 82.60.100 and 1987 c 49 s 1 are each amended to read as follows:
     Applications, reports, and any other information received by the department under this chapter ((shall)), except applications not approved by the department, are not ((be)) confidential and ((shall be)) are subject to disclosure.

Sec. 12   RCW 82.62.010 and 2007 c 485 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 credit under this chapter.
     (2) "Department" means the department of revenue.
     (3) "Eligible area" means ((an area)) a "rural county" as defined in RCW ((82.60.020)) 82.14.370.
     (4)(a) "Eligible business project" means manufacturing or research and development activities which are conducted by an applicant in an eligible area at a specific facility, provided the applicant's average qualified employment positions at the specific facility will be at least fifteen percent greater in the four consecutive full calendar quarters after the calendar quarter during which the first qualified employment position is filled than the applicant's average qualified employment positions at the same facility in the four consecutive full calendar quarters immediately preceding the calendar quarter during which the first qualified employment position is filled.
     (b) "Eligible business project" does not include any portion of a business project undertaken by a light and power business as defined in RCW 82.16.010(((5))) (4) or that portion of a business project creating qualified full-time employment positions outside an eligible area.
     (5) "First qualified employment position" means the first qualified employment position filled for which a credit under this chapter is sought.
     (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, and the activities performed by research and development laboratories and commercial testing laboratories.
     (7) "Person" has the meaning given in RCW 82.04.030.
     (8)(a)(i) "Qualified employment position" means a permanent full-time employee employed in the eligible business project during four consecutive full calendar quarters.
     (ii) For seasonal employers, "qualified employment position" also includes the equivalent of a full-time employee in work hours for four consecutive full calendar quarters.
     (b) For purposes of this subsection, "full time" means a normal work week of at least thirty-five hours.
     (c) Once a permanent, full-time employee has been employed, a position does not cease to be a qualified employment position solely due to periods in which the position goes vacant, as long as:
     (i) The cumulative period of any vacancies in that position is not more than one hundred twenty days in the four-quarter period; and
     (ii) During a vacancy, the employer is training or actively recruiting a replacement permanent, full-time employee for the position.
     (9) "Recipient" means a person receiving tax credits under this chapter.
     (10) "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.
     (11) "Seasonal employee" means an employee of a seasonal employer who works on a seasonal basis. For the purposes of this subsection and subsection (12) of this section, "seasonal basis" means a continuous employment period of less than twelve consecutive months.
     (12) "Seasonal employer" means a person who regularly hires more than fifty percent of its employees to work on a seasonal basis.

Sec. 13   RCW 82.60.049 and 2004 c 25 s 5 are each amended to read as follows:
     (1) For the purposes of this section:
     (a) "Eligible area" also means a designated community empowerment zone approved under RCW 43.31C.020 ((or a county containing a community empowerment zone)).
     (b) "Eligible investment project" also means an investment project in an eligible area as defined in this section.
     (2) In addition to the provisions of RCW 82.60.040, the department shall issue a sales and use tax deferral certificate for state and local sales and use taxes due under chapters 82.08, 82.12, and 82.14 RCW, on each eligible investment project that is located in an eligible area, if the applicant establishes that at the time the project is operationally complete:
     (a) The applicant will hire at least one qualified employment position for each seven hundred fifty thousand dollars of investment for which a deferral is requested; and
     (b) The positions will be filled by persons who at the time of hire are residents of the community empowerment zone. As used in this subsection, "resident" means the person makes his or her home in the community empowerment zone. A mailing address alone is insufficient to establish that a person is a resident for the purposes of this section. The persons must be hired after the date the application is filed with the department.
     (3) All other provisions and eligibility requirements of this chapter apply to applicants eligible under this section.
     (4) The qualified employment position must be filled by the end of the calendar year following the year in which the project is certified as operationally complete. If a person does not meet the requirements for qualified employment positions by the end of the second calendar year following the year in which the project is certified as operationally complete, all deferred taxes are immediately due.

NEW SECTION.  Sec. 14   RCW 82.60.900 and 82.60.901 are each decodified.

NEW SECTION.  Sec. 15   The following acts or parts of acts are each repealed:
     (1) RCW 82.60.050 (Expiration of RCW 82.60.030 and 82.60.040) and 2004 c 25 s 6, 1994 sp.s. c 1 s 7, 1993 sp.s. c 25 s 404, 1988 c 41 s 5, & 1985 c 232 s 10; and
     (2) RCW 82.60.110 (Competing projects -- Impact study) and 1998 c 245 s 169 & 1994 sp.s. c 1 s 8.

NEW SECTION.  Sec. 16   Sections 1, 2, 4 through 7, and 10 through 15 of this act take effect July 1, 2010.

NEW SECTION.  Sec. 17   Sections 8 and 9 of this act take effect July 1, 2010, if the legislature does not enact Substitute House Bill No. 1597 by July 1, 2010.