AN ACT Relating to excise tax deferrals and credits for employee buyouts; and amending RCW 82.60.010, 82.60.020, 82.60.030, 82.60.060, 82.61.010, 82.61.020, 82.61.030, 82.61.040, 82.61.060, 82.61.070, 82.62.010, 82.62.020, 82.62.030, and 82.62.040.

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

Sec. 1. Section 1, chapter 232, Laws of 1985 and RCW 82.60.010 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 establishes 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 or in the retention of jobs due to an employee buyout. The legislature declares that this limited program serves the vital public purpose of creating employment opportunities and reducing poverty in the distressed areas of the state.

Sec. 2. Section 2, chapter 232, Laws of 1985 as amended by section 12, chapter 116, Laws of 1986 and RCW 82.60.020 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 county in which the average level of unemployment for the three years before the year in which an application is filed under this chapter exceeds the average state unemployment for those years by twenty percent.

(4)(a) "Eligible investment project" means that portion of an investment project which:

(i) Is directly utilized to create at least one new full-time qualified employment position for each three hundred thousand dollars of investment on which a deferral is requested; and

(ii) Either initiates a new operation, or expands or diversifies a current operation by expanding or renovating an existing building with costs in excess of twenty-five percent of the true and fair value of the plant complex prior to improvement; or

(iii) Acquires 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: 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.

(b) Notwithstanding (a) of this subsection, "eligible investment project" also means that portion of an investment project which constitutes an employee buyout.

(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) or investment projects which have already received deferrals under this chapter.

(5) "Employee buyout" means the purchase and ownership of at least fifty percent of the property and assets of a business by the employees of such business in an attempt to prevent a shutdown. To qualify as an employee buyout, at least fifty percent of the total number of employees of the new business must possess an ownership interest, and the new business must be organized as an employee-owned cooperative or employee stock ownership plan.

(6) "Investment project" means an investment in qualified buildings and qualified machinery and equipment, including labor and services rendered in the planning, installation, and construction of the project.

((~~(6)~~)) (7) "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 shall include the production or fabrication of specially made or custom made articles. "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)~~)) (8) "Person" has the meaning given in RCW 82.04.030.

((~~(8)~~)) (9) "Qualified buildings" means new structures 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.

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

((~~(12)~~)) (13) "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.

Sec. 3. Section 3, chapter 232, Laws of 1985 and RCW 82.60.030 are each amended to read as follows:

Application for deferral of taxes under this chapter must be made before initiation of the construction of the investment project or prior to the completion of an employee buyout. The application shall be made to the department in a form and manner prescribed by the department. The application shall contain such information as the department may require. For eligible investment projects under RCW 82.60.020(4)(a), the application shall 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 rule on the application within sixty days.

Sec. 4. Section 5, chapter 232, Laws of 1985 and RCW 82.60.060 are each amended to read as follows:

(1) The recipient shall begin paying the deferred taxes in the third year after the date certified by the department as the date on which the construction project has been operationally completed or the date on which the employee buyout has been 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:

Repay!ttment Year!sc ,5% of Defe!ttrred Tax Repaid

!tc1!tc10%

!tc2!tc15%

!tc3!tc20%

!tc4!tc25%

!tc5!tc30%

(2) The department may authorize an accelerated repayment schedule upon request of the recipient.

(3) Interest shall not be charged on any taxes deferred under this chapter for the period of deferral, although all other penalties and interest applicable to delinquent excise taxes may be assessed and imposed for delinquent payments under this chapter. The debt for deferred taxes will not be extinguished by insolvency or other failure of the recipient.

Sec. 5. Section 1, chapter 2, Laws of 1985 ex. sess. as last amended by section 1, chapter 497, Laws of 1987 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 new 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

(b) Acquisition prior to December 31, 1988, of new 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: 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; or

(c) Acquisition of all new or used machinery, equipment, or other personal property for use in the production or casting of aluminum at an aluminum smelter or at facilities related to an aluminum smelter, if the plant was in operation prior to 1975 and has ceased operations or is in imminent danger of ceasing operations for economic reasons, as determined by the department, and if the person applying for a deferral (i) has consulted with any collective bargaining unit that represented employees of the plant pursuant to a collective bargaining agreement that was in effect either immediately prior to the time the plant ceased operations or during the period when the plant was in imminent danger of ceasing operations, on the proposed operation of the plant and on the terms and conditions of employment for wage and salaried employees and (ii) has obtained a written concurrence from the bargaining unit on the decision to apply for a deferral under this chapter or has received a concurrence waiver from the department of trade and economic development; or

(d) Modernization projects involving construction, acquisition, or upgrading of equipment or machinery, including services and labor, which are commenced after May 19, 1987, and are intended to increase the operating efficiency of existing plants which are either aluminum smelters or aluminum rolling mills or of facilities related to such plants, if the plant was in operation prior to 1975, and if the person applying for a deferral (i) has consulted with any collective bargaining unit that represents employees of the plant on the proposed operation of the plant and the terms and conditions of employment for wage and salaried employees and (ii) has obtained a written concurrence from the bargaining unit on the decision to apply for a deferral under this chapter or has received a concurrence waiver from the department of trade and economic development; or

(e) That portion of an investment project which constitutes an employee buyout.

(5) "Employee buyout" means the purchase and ownership of at least fifty percent of the property and assets of a business by the employees of such business in an attempt to prevent a shutdown. To qualify as an employee buyout, at least fifty percent of the total number of employees of such business must possess an ownership interest, and the new business must be organized as an employee-cooperative or an employee stock ownership plan.

((~~(6)~~)) (7) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun.

((~~(7)~~)) (8) "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)~~)) (9) "Machinery and equipment" means all 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 chapter, new machinery and equipment means either new to the taxing jurisdiction of the state or new to the certificate holder. Used machinery and equipment may be treated as new equipment and machinery 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)~~)) (10) "Qualified employment position" means a permanent full-time employee employed in the eligible investment project during the entire tax year.

((~~(10)~~)) (11) "Recipient" means a person receiving a tax deferral under this chapter.

((~~(11)~~)) (12) "Certificate holder" means an applicant to whom a tax deferral certificate has been issued.

((~~(12)~~)) (13) "Operationally complete" means constructed or improved to the point of being functionally useable for the intended purpose.

((~~(13)~~)) (14) "Initiation of construction" means that date upon which on-site construction commences.

((~~(14)~~)) (15) "Concurrence waiver" means a written waiver of an otherwise required concurrence from a bargaining unit. The department of trade and economic development may issue a concurrence waiver only if:

(a) The department determines an applicant has made a good faith effort to obtain the required concurrence from a bargaining unit; and

(b) The department determines that granting the concurrence waiver is clearly in the best interests of the people of this state.

Sec. 6. Section 2, chapter 2, Laws of 1985 ex. sess. as amended by section 2, chapter 497, Laws of 1987 and RCW 82.61.020 are each amended to read as follows:

Application for deferral of taxes under this chapter shall be made before initiation of the construction of the investment project or acquisition of equipment or machinery or plant or prior to completion of an employee buyout. Application for deferral of taxes for modernization projects as defined in RCW 82.61.010(4)(d) shall be made during the calendar year in which construction begins or acquisition of equipment or machinery occurs. The application shall be made to the department in a form and manner prescribed by the department. The application shall contain such information as the department may require. For eligible investment projects under RCW 82.61.010(4) (a) through (d), the application shall contain information regarding the location of the investment project, estimated or actual costs, time schedules for completion and operation, and other information required by the department. The department shall rule on the application within sixty days. A certificate holder shall initiate construction of the investment project under RCW 82.61.010(4) (a) through (d) within one hundred eighty days of receiving approval from the department and issuance of the tax deferral certificate.

Sec. 7. Section 3, chapter 2, Laws of 1985 ex. sess. as amended by section 3, chapter 497, Laws of 1987 and RCW 82.61.030 are each amended to read as follows:

(1) Except for eligible projects within the definitions in RCW 82.61.010(4) (c) ((or)), (d), or (e), a tax deferral certificate 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. 8. 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~~)) 1991.

Sec. 9. Section 5, chapter 2, Laws of 1985 ex. sess. as amended by section 4, chapter 497, Laws of 1987 and RCW 82.61.060 are each amended to read as follows:

(1) The recipient shall begin paying the deferred taxes in the third year after the date certified by the department as the date on which the construction project is operationally complete ((or)), the plant resumes operation, or the employee buyout is complete, as appropriate. 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:

Repay!ttment Year!sc ,5% of Defe!ttrred Tax Repaid

!tc1!tc10%

!tc2!tc15%

!tc3!tc20%

!tc4!tc25%

!tc5!tc30%

(2) The department may authorize an accelerated repayment schedule upon request of the recipient.

(3) Interest shall not be charged on any taxes deferred under this chapter for the period of deferral, although all other penalties and interest applicable to delinquent excise taxes may be assessed and imposed for delinquent payments under this chapter. The debt for deferred taxes is not extinguished by insolvency or other failure of the recipient.

Sec. 10. 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 and employee buyouts 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, the number of employee buyouts, 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~~)) 1992.

Sec. 11. Section 15, chapter 116, Laws of 1986 and RCW 82.62.010 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 credit under this chapter.

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

(4)(a) "Eligible business project" means:

(i) Manufacturing or research and development activities which are conducted by an applicant in an eligible area at a specific facility: PROVIDED, That the applicant's average full-time qualified employment positions at the specific facility will be at least fifteen percent greater in the year for which the credit is being sought than the applicant's average full-time qualified employment positions at the same facility in the immediately preceding year; or

(ii) Employee buyouts which are conducted by an applicant in an eligible area at a specific facility.

(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 or those recipients of a sales tax deferral under chapter 82.61 RCW.

(5) "Employee buyout" means the purchase of at least fifty percent of the property and assets of a business by the employees of such business in an attempt to prevent a shutdown. To qualify as an employee buyout, at least fifty percent of the total number of employees of the new business shall possess an ownership interest, and the new business must be organized as an employee-cooperative or an employee stock ownership plan.

(6) "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 shall include the production or fabrication of specially made or custom made articles. "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.

((~~(6)~~)) (7) "Person" has the meaning given in RCW 82.04.030.

((~~(7)~~)) (8) "Qualified employment position" means a permanent full-time employee employed in the eligible business project during the entire tax year.

((~~(8)~~)) (9) "Tax year" means the calendar year in which taxes are due.

((~~(9)~~)) (10) "Recipient" means a person receiving tax credits under this chapter.

((~~(10)~~)) (11) "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.

Sec. 12. Section 16, chapter 116, Laws of 1986 and RCW 82.62.020 are each amended to read as follows:

Application for tax credits under this chapter must be made before the actual hiring of qualified employment positions or prior to completion of an employee buyout. The application shall be made to the department in a form and manner prescribed by the department. The application shall contain such information as the department may require. For eligible business projects under RCW 82.62.010(4)(a)(i), the application shall contain information regarding the location of the business project, the applicant's average employment, if any, at the facility 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 rule on the application within sixty days.

Sec. 13. Section 17, chapter 116, Laws of 1986 and RCW 82.62.030 are each amended to read as follows:

(1) A person shall be allowed a credit against the tax due under chapter 82.04 RCW of an amount equal to one thousand dollars for each qualified employment position directly created in or, in the case of an employee buyout, directly saved by an eligible business project.

(2) The department shall keep a running total of all credits granted under this chapter during each fiscal biennium. The department shall not allow any credits which would cause the tabulation for a biennium to exceed fifteen million dollars. If all or part of an application for credit is disallowed under this subsection, the disallowed portion shall be carried over for approval the next biennium. However, the applicant's carryover into the next biennium is only permitted if the tabulation for the next biennium does not exceed fifteen million dollars as of the date on which the department has disallowed the application.

(3) No recipient is eligible for tax credits in excess of three hundred thousand dollars.

(4) No recipient may use the tax credits to decertify a union or to displace existing jobs in any community in the state.

(5) No recipient may receive a tax credit on taxes which have not been paid during the taxable year.

Sec. 14. Section 22, chapter 116, Laws of 1986 and RCW 82.62.040 are each amended to read as follows:

RCW 82.62.020 and 82.62.030 shall expire July 1, ((~~1988~~)) 1991.