BILL REQ. #:  Z-1134.2 

Read first time 01/20/10.   Referred to Committee on Economic Development, Trade & Innovation.

     AN ACT Relating to business and occupation tax credits for job creation; amending RCW 82.62.010, 82.62.045, 82.62.050, and 82.32.650; adding a new section to chapter 82.04 RCW; creating a new section; and providing an effective date.

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

Sec. 1   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 as defined in RCW 82.60.020.
     (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)) ten 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) 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. 2   RCW 82.62.045 and 2007 c 485 s 4 are each amended to read as follows:
     (1) For the purposes of this section "eligible area" also means a designated community empowerment zone approved under RCW 43.31C.020.
     (2) An eligible business project located within an eligible area as defined in this section qualifies for a credit under this chapter for those employees who at the time of hire are residents of the community empowerment zone in which the project is located, if the ((fifteen percent threshold)) employment increase required under RCW 82.62.010(4)(a) is met. 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.
     (3) All other provisions and eligibility requirements of this chapter apply to applicants eligible under this section.

Sec. 3   RCW 82.62.050 and 2007 c 485 s 5 are each amended to read as follows:
     (1) Each recipient ((shall)) must submit a report to the department by the last day of the month immediately following the end of the four consecutive full calendar quarter period for which a credit under this chapter is earned. The report ((shall)) must contain information, as required by the department, from which the department may determine whether the recipient is meeting the requirements of this chapter. If the recipient fails to submit a report or submits an inadequate report, the department may declare the amount of taxes for which a credit has been used to be immediately assessed and payable. The recipient must keep records, such as payroll records showing the date of hire and employment security reports, to verify eligibility under this section.
     (2) If, on the basis of a report under this section or other information, the department finds that a ((business project)) recipient is not eligible for tax credit under this chapter for reasons other than failure to ((create the required number of)) increase the recipient's average qualified employment positions as required in RCW 82.62.010(4)(a), the amount of taxes for which a credit has been used for the project ((shall be)) are immediately due.
     (3) If, on the basis of a report under this section or other information, the department finds that a ((business project)) recipient has failed to ((create the specified number of)) increase the recipient's average qualified employment positions as required in RCW 82.62.010(4)(a), the department ((shall)) must assess interest, but not penalties, on the credited taxes for which a credit has been used for the project. The interest ((shall be)) is assessed at the rate provided for delinquent excise taxes, ((shall be)) is assessed retroactively to the date of the tax credit, and ((shall)) accrues until the taxes for which a credit has been used are repaid.

NEW SECTION.  Sec. 4   A new section is added to chapter 82.04 RCW to read as follows:
     (1) Subject to the requirements and limits in this section, eligible small businesses are entitled to a credit against the tax due under this chapter. The credit equals two thousand dollars for each new qualified employment position that is maintained continually for a period of at least twelve consecutive months.
     (2)(a) Except as otherwise provided in this subsection, a credit under this section may be claimed against taxes due under this chapter for the reporting period in which the new qualified employment position is initially filled, even if the person claiming the credit will not be able to determine whether it is an eligible small business until after the new qualified employment position is filled.
     (b) Credit earned for new qualified employment positions initially filled between July 1, 2010, and December 31, 2010, may not be claimed before January 1, 2011.
     (c) Except as otherwise provided in this section, the credit may be carried over to subsequent reporting periods until used.
     (3)(a) New qualified employment positions filled by existing employees are eligible for the credit under this section only if the position vacated by the existing employee is filled by a new hire.
     (b) Once a new qualified employment position has been filled, a position does not cease to be a new 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 twelve consecutive month period for which the position must be filled; and
     (ii) During any vacancy, the employer is training or actively recruiting a replacement permanent, full-time employee for the position.
     (4)(a) The credit may be claimed and applied only on tax returns due between January 1st and June 30th of each year.
     (b) The credit may only be claimed on a return filed electronically with the department using the department's online tax filing service, unless the department grants a waiver for good cause shown. For purposes of this subsection, "good cause" has the same meaning as in RCW 82.32.080(8) (a) (i), (ii), (iii), and (vi), and (b).
     (c) No refunds may be granted for credits under this section.
     (d) New qualified employment positions are not eligible for a credit under this section if any other statute provides a credit to the employer for the filling of such employment positions.
     (5) No application is necessary for the credit. The eligible business must keep records necessary for the department to verify eligibility under this section.
     (6) Credits are available on a first-in-time basis. The department must disallow any credit, or portion of a credit, that would cause the total cumulative amount of credit claimed under this section by all eligible small businesses during any fiscal year to exceed ten million dollars. If this limitation is reached, the department must provide written notice to any person who has claimed tax credits in excess of the ten million dollar limitation in this subsection. The notice must indicate the amount of tax due and provide that the tax be paid within thirty days from the date of such notice. The department may not assess any penalties or interest on the amount due in the notice. However, if the full amount of tax due is not paid by the due date, the department must assess penalties and interest as provided in chapter 82.32 RCW on the amount of unpaid tax. Interest must be assessed retroactively to the date the tax credit was claimed and accrues until the amount of tax due is paid.
     (7)(a) A person must repay credit claimed under this section (i) for any new qualified employment position that was not maintained continually for a period of at least twelve consecutive months, except as provided in subsection (3)(b) of this section, or (ii) if, with respect to the credit, the person was not an eligible small business.
     (b)(i) Except as provided in (b)(ii) of this subsection (7), interest as provided in chapter 82.32 RCW applies to taxes due under this subsection from the date the tax credit was claimed until the amount of tax due is paid.
     (ii) Interest will not apply to taxes due under this subsection if (A) the taxpayer reports the amount due under this subsection on an amended return or as otherwise instructed by the department, (B) the amount due is paid in full by the taxpayer without having been assessed for such amount by the department, and (C) at the time the taxpayer reported the tax due under this subsection to the department, the taxpayer was not under audit by the department or had not previously been notified of an audit by the department, unless the amount due under this subsection is not within the scope of the ongoing or pending audit.
     (c) Except as otherwise provided in this subsection (7)(c), no penalties apply to taxes due under this subsection.
     (i) If the full amount of tax due under this subsection is not paid by the due date of any notice issued by the department, or any extension of the due date granted by the department, penalties as provided in chapter 82.32 RCW apply to the amount of tax due.
     (ii) If a penalty was imposed under RCW 82.32.090(1) on the original return for which the credit being repaid under this subsection was claimed, the amount due under this subsection is subject to the same penalty as was imposed on the original return.
     (8) The employment security department must provide to the department such information needed by the department to verify eligibility under this section.
     (9) A person claiming credit under this section must report to the department as provided in RCW 82.32.650.
     (10) No credit under this section may be claimed after June 30, 2013.
     (11) For purposes of this section, the following definitions apply:
     (a) "Eligible small business" means:
     (i) A person whose gross income of the business from business conducted everywhere in the world is five million dollars or less for the calendar year immediately preceding the calendar year in which the new qualified employment position was initially filled, if the person engaged in business during the entire calendar year immediately preceding the calendar year in which the new qualified employment position was initially filled; or
     (ii) A person whose gross income of the business from business conducted everywhere in the world is five million dollars or less for the twelve-month period beginning with the month immediately following the date that the new qualified employment position was initially filled, if the person did not engage in business during the entire calendar year immediately preceding the calendar year in which the new qualified employment position was initially filled.
     (b) "New qualified employment position" means a permanent, full-time employment position that did not previously exist, which is initially filled on or after July 1, 2010, but before January 1, 2013. For purposes of this subsection (11)(b), "full time" means a normal work week of at least thirty-five hours.

Sec. 5   RCW 82.32.650 and 2006 c 112 s 6 are each amended 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) Each person claiming a tax credit under RCW 82.04.449 ((shall)) or section 4 of this act must report information to the department by filing a complete annual survey. The survey is due by March 31st of the year following any calendar year in which a tax credit under RCW 82.04.449 or section 4 of this act is taken. 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 tax credit taken. The survey ((shall)) must also include the following information for employment positions in Washington:
     (a) The number of total employment positions;
     (b) Full-time, part-time, and temporary employment positions as a percent of total employment;
     (c) 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
     (d) The number of employment positions that have employer-provided medical, dental, and retirement benefits, by each of the wage bands.
     The first survey filed under this subsection ((shall)) must also include information for the twelve-month period immediately before first use of a ((tax incentive)) credit under RCW 82.04.449 or section 4 of this act.
     (3) The department may request additional information necessary to measure the results of the credit programs, to be submitted at the same time as the survey.
     (4) All information collected under this section, except the amount of the tax credit taken, is deemed taxpayer information under RCW 82.32.330. Information on the amount of tax credit taken is not subject to the confidentiality provisions of RCW 82.32.330.
     (5) If a person fails to submit an annual survey under subsection (2) of this section by the due date of the report or any extension under RCW 82.32.590, the department ((shall)) must declare the amount of taxes credited for the previous calendar year to be immediately due and payable. The department ((shall)) must assess interest, but not penalties, on the amounts due under this section. The interest ((shall be)) is assessed at the rate provided for delinquent taxes under this chapter, retroactively to the date the credit was claimed, and ((shall)) accrues until the taxes for which the credit was claimed are repaid. This information is not subject to the confidentiality provisions of RCW 82.32.330.
     (6) 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)) must report these statistics to the legislature each year by September 1st.
     (7) The department ((shall)) must study the tax credit authorized in RCW 82.04.449. The department ((shall)) must submit a report to the finance committee of the house of representatives and the ways and means committee of the senate by December 1, 2011. The report ((shall)) must measure the effect of the credit on job creation, job retention, company growth, the movement of firms or the consolidation of firms' operations into the state, and such other factors as the department selects. No study by the department is required for the tax credit authorized in section 4 of this act.

NEW SECTION.  Sec. 6   Sections 1 through 3 of this act apply with respect to applications for credit under chapter 82.62 RCW received by the department of revenue on or after July 1, 2010.

NEW SECTION.  Sec. 7   This act takes effect July 1, 2010.