AN ACT Relating to tax deferrals for investment projects for research and development activities; and amending RCW 82.61.010, 82.61.030, 82.61.040, and 82.61.070.

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

Sec. 1. Section 1, chapter 2, Laws of 1985 ex. sess. as amended by section 9, chapter 116, Laws of 1986 and RCW 82.61.010 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) "Person" has the meaning given in RCW 82.04.030.

(3) "Department" means the department of revenue.

(4) "Eligible investment project" means: (a) Construction of new buildings and the acquisition of related machinery and equipment when the buildings, machinery, and equipment are to be used for either manufacturing ((~~or research and development activities~~)), which construction is commenced prior to December 31, 1988, or for research and development activities, which construction is commenced prior to December 31, 1989; or (b) acquisition prior to December 31, 1988, of machinery and equipment to be used for ((~~either~~)) manufacturing ((~~or research and development~~)) if the machinery and equipment is housed in a new leased structure or acquisition prior to December 31, 1989, of machinery and equipment to be used for research and development if the machinery and equipment is housed in a new leased structure: PROVIDED, That the lessor/owner of the structure is not eligible for a deferral unless the underlying ownership of the buildings, machinery, and equipment vests exclusively in the same person: PROVIDED FURTHER, That to be eligible for deferral for research and development activities, a project must create at least one new qualified employment position for each two hundred thousand dollars of investment on which a deferral is requested.

(5) "Manufacturing" means all activities of a commercial or industrial nature wherein labor or skill is applied, by hand or machinery, to materials so that as a result thereof a new, different, or useful substance or article of tangible personal property is produced for sale or commercial or industrial use and includes the production or fabrication of specially made or custom-made articles.

(6) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun.

(7) "Buildings" means only those new structures used for either manufacturing or research and development activities, including plant offices and warehouses or other facilities for the storage of raw materials 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 purposes. 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.

(8) "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. For purposes of this definition, new machinery and equipment means either new to the taxing jurisdiction of the state or new to the certificate holder. Used machinery and equipment are eligible for deferral if the certificate holder either brings the machinery and equipment into Washington or makes a retail purchase of the machinery and equipment in Washington or elsewhere.

(9) "Qualified employment position" means a permanent full-time employee employed in the eligible investment project during the entire tax year.

(10) "Recipient" means a person receiving a tax deferral under this chapter.

(11) "Certificate holder" means an applicant to whom a tax deferral certificate has been issued.

(12) "Operationally complete" means constructed or improved to the point of being functionally useable for the intended purpose.

(13) "Initiation of construction" means that date upon which on-site construction commences.

Sec. 2. Section 3, chapter 2, Laws of 1985 ex. sess. and RCW 82.61.030 are each amended to read as follows:

A tax deferral certificate for manufacturing shall only be issued to persons who, on June 14, 1985, are not engaged in manufacturing ((~~or research and development~~)) activities within this state. For purposes of this section, a person shall not be considered to be engaged in manufacturing ((~~or research and development~~)) activities where the only activities performed by such person in this state are sales, installation, repair, or promotional activities in respect to products manufactured outside this state. Any person who has succeeded by merger, consolidation, incorporation or any other form or change of identity to the business of a person engaged in manufacturing ((~~or research and development~~)) activities in this state on June 14, 1985, and any person who is a subsidiary of a person engaged in manufacturing ((~~or research and development~~)) activities in this state on June 14, 1985, shall also be ineligible to receive a tax deferral certificate.

Sec. 3. Section 8, chapter 2, Laws of 1985 ex. sess. as amended by section 10, chapter 116, Laws of 1986 and RCW 82.61.040 are each amended to read as follows:

RCW 82.61.020 and 82.61.030 shall expire July 1, ((~~1988~~)) 1990.

Sec. 4. Section 6, chapter 2, Laws of 1985 ex. sess. as amended by section 11, chapter 116, Laws of 1986 and RCW 82.61.070 are each amended to read as follows:

The department and the department of trade and economic development shall jointly report to the legislature about the effects of this chapter on new manufacturing and research and development activities in this state. The report shall contain information concerning the number of deferral certificates granted, the amount of sales tax deferred, the number of jobs created and other information useful in measuring such effects. Reports shall be submitted by January 1, 1986, and by January 1 of each year through ((~~1989~~)) 1990.