BILL REQ. #:  S-4013.2 

Read first time 01/22/10.   Referred to Committee on Economic Development, Trade & Innovation.

     AN ACT Relating to modifying business and occupation tax credits; amending RCW 82.04.4452, 82.04.448, 82.04.4483, and 82.62.030; providing an effective date; and providing an expiration date.

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 be)) is 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))) (a) 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)) qualified research and development expenditures conducted under contract with a public educational or research institution or made in an innovation partnership zone.
     (3) 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))) (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, including any credit assigned to a person under subsection (((3))) (4) of this section, ((shall)) must 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 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, 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 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)) 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 credit ((shall)) 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 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 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. 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.

Sec. 2   RCW 82.04.448 and 2003 c 149 s 9 are each amended to read as follows:
     (1) Subject to the limits and provisions of this section, a credit is authorized against the tax otherwise due under RCW 82.04.240(2) for persons engaged in the business of manufacturing semiconductor materials. For the purposes of this section "semiconductor materials" has the same meaning as provided in RCW 82.04.240(2).
     (2)(a) ((The credit under this section shall equal three thousand dollars for each)) For employment positions used in manufacturing production that takes place in a new building exempt from sales and use tax under RCW 82.08.965 and 82.12.965, the credit under this section equals four thousand dollars for each employment position with wages and benefits greater than fifty thousand dollars annually and two thousand dollars for each employment position with wages and benefits between thirty and fifty thousand dollars annually. A credit is earned for the calendar year a person fills a position. Additionally a credit is earned for each year the position is maintained over the subsequent consecutive years, up to eight years. Those positions that are not filled for the entire year are eligible for fifty percent of the credit if filled less than six months, and the entire credit if filled more than six months.
     (b) To qualify for the credit, the manufacturing activity of the person must be conducted at a new building that qualifies for the exemption from sales and use tax under RCW 82.08.965 and 82.12.965.
     (c) In those situations where a production building in existence on the effective date of this section will be phased out of operation, during which time employment at the new building at the same site is increased, the person is eligible for credit for employment at the existing building and new building, with the limitation that the combined eligible employment not exceed full employment at the new building. "Full employment" has the same meaning as in RCW 82.08.965. The credit may not be earned until the commencement of commercial production, as that term is used in RCW 82.08.965.
     (3) No application is necessary for the tax credit. The person is subject to all of the requirements of chapter 82.32 RCW. In no case may a credit earned during one calendar year be carried over to be credited against taxes incurred in a subsequent calendar year. No refunds may be granted for credits under this section.
     (4) If at any time the department finds that a person is not eligible for tax credit under this section, the amount of taxes for which a credit has been claimed ((shall be)) is immediately due. The department ((shall)) must assess interest, but not penalties, on the taxes for which the person is not eligible. The interest ((shall be)) is assessed at the rate provided for delinquent excise taxes under chapter 82.32 RCW, ((shall be)) is retroactive to the date the tax credit was taken, and ((shall)) accrues until the taxes for which a credit has been used are repaid.
     (5) A person taking the credit under this section must report under RCW 82.32.535.
     (6) Credits may be taken after twelve years after the effective date of this act, for those buildings at which commercial production began before twelve years after the effective date of this act, subject to all of the eligibility criteria and limitations of this section.
     (7) This section expires twelve years after the effective date of this act.

Sec. 3   RCW 82.04.4483 and 2004 c 25 s 1 are each amended to read as follows:
     (1) Subject to the limits and provisions of this section, a credit is authorized against the tax otherwise due under this chapter for persons engaged in a rural county in the business of manufacturing computer software or programming, as those terms are defined in this section.
     (2) A person who partially or totally relocates a business from one rural county to another rural county is eligible for any new qualifying employment positions created as a result of the relocation but is not eligible to receive credit for the jobs moved from one county to the other.
     (3)(a) To qualify for the credit, the qualifying activity of the person must be conducted in a rural county ((and)), the new qualified employment position must be located in the rural county, and the new qualified employment position must be filled by an individual that has been a resident of the rural county for a minimum of one year prior to the hiring decision.
     (b) If an activity is conducted both from a rural county and outside of a rural county, the credit is available if at least ninety percent of the qualifying activity is conducted within a rural county. If the qualifying activity is a service taxable activity, the place where the work is performed is the place at which the activity is conducted.
     (4)(a) The credit under this section ((shall equal one thousand dollars)) for each new qualified employment position created after January 1, ((2004)) 2010, in an eligible area equals four thousand dollars for positions with wages and benefits greater than fifty thousand dollars annually and two thousand dollars for each qualified employment position with wages and benefits between thirty and fifty thousand dollars annually. A credit is earned for the calendar year the person is hired to fill the position. Additionally a credit is earned for each year the position is maintained over the subsequent consecutive years, up to four years. The county must meet the definition of a rural county at the time the position is filled. If the county does not have a rural county status the following year or years, the position is still eligible for the remaining years if all other conditions are met.
     (b) Participants who claimed credit under RCW 82.04.4456 for qualified employment positions created before December 31, 2003, are eligible to earn credit for each year the position is maintained over the subsequent consecutive years, for up to four years, which four years include any years claimed under RCW 82.04.4456. Those persons who did not receive a credit under RCW 82.04.4456 before December 31, 2003, are not eligible to earn credit for qualified employment positions created before December 31, 2003.
     (c) Credit is authorized for new employees hired for new qualified employment positions created on or after January 1, 2004. 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. A business that is a sole proprietorship without any employees is equivalent to one employee position and this type of business is eligible to receive credit for one position.
     (d) If a position is filled before July 1st, the position is eligible for the full yearly credit for that calendar year. If it is filled after June 30th, the position is eligible for half of the credit for that calendar year.
     (5) No application is necessary for the tax credit. The person must keep records necessary for the department to verify eligibility under this section. This information includes information relating to description of qualifying activity conducted in the rural county and outside the rural county by the person as well as detailed records on positions and employees.
     (6) If at any time the department finds that a person is not eligible for tax credit under this section, the amount of taxes for which a credit has been claimed ((shall be)) is immediately due. The department ((shall)) must assess interest, but not penalties, on the taxes for which the person is not eligible. The interest ((shall be)) is assessed at the rate provided for delinquent excise taxes under chapter 82.32 RCW, ((shall be)) is assessed retroactively to the date the tax credit was taken, and ((shall)) accrues until the taxes for which a credit has been used are repaid.
     (7) The credit under this section may be used against any tax due under this chapter, but in no case may a credit earned during one calendar year be carried over to be credited against taxes incurred in a subsequent calendar year. A person is not eligible to receive a credit under this section if the person is receiving credit for the same position under chapter 82.62 RCW or RCW 82.04.44525 or is taking a credit under this chapter for information technology help desk services conducted from a rural county. No refunds may be granted for credits under this section.
     (8) Transfer of ownership does not affect credit eligibility. However, the successive credits are available to the successor for remaining periods in the five years only if the eligibility conditions of this section are met.
     (9) A person taking tax credits under this section ((shall)) must make an annual report to the department. The report shall be in a letter form and ((shall)) must include the following information: Number of positions for which credit is being claimed, type of position for which credit is being claimed, type of activity in which the person is engaged in the county, how long the person has been located in the county, and taxpayer name and registration number. The report must be filed by January 30th of each year for which credit was claimed during the previous year. Failure to file a report will not result in the loss of eligibility under this section. However, the department, through its research division, ((shall)) must contact taxpayers who have not filed the report and obtain the data from the taxpayer or assist the taxpayer in the filing of the report, so that the data and information necessary to measure the program's effectiveness is maintained.
     (10) As used in this section:
     (a) "Computer software" has the meaning as defined in RCW 82.04.215 after June 30, 2004, and includes "software" as defined in RCW 82.04.215 before July 1, 2004.
     (b) "Manufacturing" means the same as "to manufacture" under RCW 82.04.120. Manufacturing includes the activities of both manufacturers and processors for hire.
     (c) "Programming" means the activities that involve the creation or modification of computer software, as that term is defined in this chapter, and that are taxable as a service under RCW 82.04.290(2) or as a retail sale under RCW 82.04.050.
     (d) "Qualifying activity" means manufacturing of computer software or programming.
     (e) "Qualified employment position" means a permanent full-time position doing programming of computer software or manufacturing of computer software. This excludes administrative, professional, service, executive, and other similar positions. If an employee is either voluntarily or involuntarily separated from employment, the employment position is considered filled on a full-time basis if the employer is either training or actively recruiting a replacement employee. Full-time means a position for at least thirty-five hours a week.
     (f) "Rural county" means the same as in RCW 82.14.370.
     (11) No credit may be taken or accrued under this section on or after January 1, ((2011)) 2013.
     (12) This section expires January 1, ((2011)) 2013.

Sec. 4   RCW 82.62.030 and 2007 c 485 s 3 are each amended to read as follows:
     (1)(a) A person ((shall be)) is allowed a credit against the tax due under chapter 82.04 RCW as provided in this section. The credit ((shall)) equals: (i) Four thousand dollars for each qualified employment position with wages and benefits greater than ((forty)) fifty thousand dollars annually that is directly created in an eligible business project and (ii) two thousand dollars for each qualified employment position with wages and benefits ((less than or equal to forty)) between thirty and fifty thousand dollars annually that is directly created in an eligible business project.
     (b) For purposes of calculating the amount of credit under (a) of this subsection with respect to qualified employment positions as defined in RCW 82.62.010(8)(a)(ii):
     (i) In determining the number of qualified employment positions, a fractional amount is rounded down to the nearest whole number; and
     (ii) Wages and benefits for each qualified employment position ((shall be)) are equal to the quotient derived by dividing: (A) The sum of the wages and benefits earned for the four consecutive full calendar quarter period for which a credit under this chapter is earned by all of the person's new seasonal employees hired during that period; by (B) the number of qualified employment positions plus any fractional amount subject to rounding as provided under (b)(i) of this subsection. For purposes of this chapter, a credit is earned for the four consecutive full calendar quarters after the calendar quarter during which the first qualified employment position is filled.
     (c) To qualify for the credit under this section, the new qualified employment position must be filled by an individual that has been a resident of the rural county for a minimum of one year prior to the hiring decision.
     (2) The department ((shall)) must keep a running total of all credits allowed under this chapter during each fiscal year. The department ((shall)) may not allow any credits which would cause the total to exceed seven million five hundred thousand dollars in any fiscal year. If all or part of an application for credit is disallowed under this subsection, the disallowed portion ((shall)) must be carried over to the next fiscal year. However, the carryover into the next fiscal year is only permitted to the extent that the cap for the next fiscal year is not exceeded.
     (3) No recipient may use the tax credits to decertify a union or to displace existing jobs in any community in the state.
     (4) The credit may be used against any tax due under chapter 82.04 RCW, and may be carried over until used. No refunds may be granted for credits under this section.

NEW SECTION.  Sec. 5   Section 1 of this act takes effect July 1, 2010.