BILL REQ. #:  S-4460.1 

READ FIRST TIME 02/11/14.   

     AN ACT Relating to high-technology research and development tax incentives; amending RCW 82.04.4452 and 82.63.030; creating new sections; and providing expiration dates.

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

NEW SECTION.  Sec. 1   This section is the tax preference performance statement for the tax credit and tax deferral contained in sections 2 and 3 of this act. This performance statement is only intended to be used for subsequent evaluation of the tax preferences. It is not intended to create a private right of action by any party or be used to determine eligibility for preferential tax treatment.
     (1) The legislature categorizes these tax preferences as intended to improve industry competitiveness and create or retain jobs, as indicated in RCW 82.32.808(2) (b) and (c).
     (2) It is the legislature's specific public policy objective to improve industry competitiveness and create or retain more jobs. It is the legislature's intent to provide a business and occupation tax credit for high-technology companies performing research and development and a sales and use tax deferral for certain construction and equipment purchases for new and expanding high-technology companies conducting research and development in the fields of advanced computing, advanced materials, biotechnology, electronic device technology, or environmental technology, in order to reduce the business costs of performing research and development in specified areas and to reduce the cost of certain construction and equipment purchases used for research and development, thereby encouraging investments in research and development, thereby increasing the number of firms in the industry performing research and development activities, thereby increasing the number of jobs performing research and development in the high-technology industry.
     (3) If a review finds that the number of businesses participating in the credit and deferral programs, and the overall number of jobs for businesses participating in the credit and deferral programs performing research and development, have increased compared to the number at the time of enactment, then the legislature intends to extend the expiration date of the tax preferences.
     (4) In order to obtain the data necessary to perform the review in subsection (3) of this section, the joint legislative audit and review committee may refer to: (a) Employment data available from the employment security department; and (b) the North American industrial code system (NAICS) from the department of revenue.

Sec. 2   RCW 82.04.4452 and 2010 c 114 s 114 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 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) of this subsection by the following:
     (i) For the period June 10, 2004, through December 31, 2006, the person's average tax rate for the calendar year for which the credit is claimed;
     (ii) For the calendar year ending December 31, 2007, the greater of the person's average tax rate for that calendar year or 0.75 percent;
     (iii) For the calendar year ending December 31, 2008, the greater of the person's average tax rate for that calendar year or 1.0 percent;
     (iv) For the calendar year ending December 31, 2009, the greater of the person's average tax rate for that calendar year or 1.25 percent;
     (v) For the calendar year ending December 31, 2010, and thereafter, 1.50 percent.
     For purposes of calculating the credit, if a person's reporting period is less than annual, the person may use an estimated average tax rate for the calendar year for which the credit is claimed by using the person's average tax rate for each reporting period. A person who uses an estimated average tax rate must make an adjustment to the total credit claimed for the calendar year using the person's actual average tax rate for the calendar year when the person files its last return for the calendar year for which the credit is claimed.
     (3) 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) The credit, including any credit assigned to a person under subsection (3) of this section, 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) of this section, for each calendar year may not exceed the lesser of two million dollars or the amount of tax otherwise due under this chapter for the calendar year.
     (5) For any person claiming the credit, including any credit assigned to a person under subsection (3) 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 must declare the taxes against which the credit was claimed to be immediately due and payable. The department must assess interest, but not penalties, on the taxes against which the credit was claimed. Interest must be assessed at the rate provided for delinquent excise taxes under chapter 82.32 RCW, retroactively to the date the credit was claimed, and accrues until the taxes against which the credit was claimed are repaid. Any credit assigned to a person under subsection (3) 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) of this section.
     (6) A person claiming the credit provided in this section must file a complete annual survey with the department under RCW 82.32.585.
     (7) 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.
     (8) This section expires January 1, ((2015)) 2016.

Sec. 3   RCW 82.63.030 and 2008 c 15 s 4 are each amended to read as follows:
     (1) Except as provided in subsection (2) of this section, 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.
     (2) No certificate may be issued for an investment project that has already received a deferral under chapter 82.60 RCW or this chapter, except that an investment project for qualified research and development that has already received a deferral may also receive an additional deferral certificate for adapting the investment project for use in pilot scale manufacturing.
     (3) This section ((shall)) expires January 1, ((2015)) 2016.

NEW SECTION.  Sec. 4   (1) The high-technology research and development investment working group is established. The working group consists of the following members:
     (a) The director of the department of commerce who must serve as chair of the working group;
     (b) The director of the department of revenue or his or her designee;
     (c) The presidents of the University of Washington and Washington State University or their designees;
     (d)(i) One representative from each of the following industries appointed by the governor:
     (A) Advanced computing;
     (B) Advanced materials;
     (C) Biotechnology;
     (D) Electronic device technology; and
     (E) Environmental technology.
     (ii) A statewide organization representing each of the industries listed in this subsection (1)(d) must submit a list of three names to the governor. The governor must make each appointment from each list submitted or request the statewide organization to submit a new list with up to three additional names.
     (2)(a) The working group must develop recommendations for the legislature that integrates high-technology research and development activities with investments in higher education. At minimum, the recommendations must include provisions addressing the following:
     (i) Ways to improve the coordination of research and development spending with higher education institutions, including:
     (A) Developing and integrating technology in new or enhanced products and services, and launching those products and services in sustainable businesses in Washington state; and
     (B) Attracting new high-technology research and development investment at higher education institutions.
     (ii) The design, size, and scope of high-technology research and development tax preference programs after January 1, 2016.
     (b) In developing these recommendations, the working group must reprioritize current resources devoted to high-technology research and development tax preferences to provide additional funding for higher education institutions with a focus on science, technology, engineering, and math programs of study.
     (c) The working group must submit its proposal to the governor and fiscal committees of the legislature by December 1, 2014.
     (3) This section expires January 1, 2015.