AN ACT Relating to the taxation of mineral resource production; amending RCW 82.32.045; adding a new chapter to Title 82 RCW; adding a new section to 84.36 RCW; and adding a new section to chapter 43.99 RCW.

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

NEW SECTION. Sec. 1. TITLE. This chapter may be known and cited as the property tax relief act for minerals.

NEW SECTION. Sec. 2. LEGISLATIVE INTENT. (1) The legislature recognizes the difficulty in assessing mineral deposits for payment of ad valorem taxes. An important purpose of this act is to exempt mineral resources from ad valorem taxes, and institute a tax that is easier for the state and local governments to administer, and which will provide more certainty for mineral owners.

(2) The legislature further recognizes that the production of nonrenewable resources within the state of Washington creates jobs and other important public benefits. However, the production of these resources may also create financial demands on the state and local governments that are not adequately compensated for under the state's existing taxation system.

(3) The legislature further recognizes that nonrenewable resources produced in one generation are not available to future generations. To partially offset this inequity, the legislature seeks to take measures that will provide lasting benefits to future generations when nonrenewable mineral resources are extracted.

NEW SECTION. Sec. 3. DEFINITIONS. Unless the context clearly indicates otherwise, the definitions in this section apply throughout this chapter:

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

(2) "Interest owner" means a person owning an entire or fractional interest of whatever kind or nature in the products at the time of severance, or who has a right to a monetary payment which is determined by the value of such products which individually or in any combination represent one hundred percent of the interests in the minerals produced.

(3) "Invoice price" means either the price of the mineral resource produced and prepared for shipment free-on-board (f.o.b.) mine or wellhead, or a price imputed by the department of revenue under section 6 of this act.

(4) "Mineral" or "mineral resource" means coal, oil, natural gas, gold, silver, copper, lead, uranium, sand, gravel, clay, stone, precious stones, or other nonrenewable merchantable mineral products extracted from the surface or subsurface of the state of Washington.

(5) "Person" means person as defined in RCW 82.04.030.

(6) "Produced" or "production" means acts taken to sever, contain, and save a mineral resource, and includes all acts necessary to bring the mineral to merchantable condition or pipeline quality on the premises of the lease or property from which it was severed.

(7) "Producer" means any person who produces or extracts in any manner minerals from the earth or waters of the state.

NEW SECTION. Sec. 4. A new section is added to chapter 84.36 RCW to read as follows:

Interests in mineral reserves are exempt from taxation. This section does not in any way exempt buildings, machinery, appliances, pipelines, tanks, vehicles, and other equipment used in the development, operation, and transportation of the mineral resource.

NEW SECTION. Sec. 5. SEVERANCE TAX‑-RATES IMPOSED. (1) There is imposed, and the department of revenue shall collect, in addition to any other tax, an excise tax upon the production of minerals in this state. The tax shall apply to minerals produced from private lands or waters, all publicly owned lands or waters, and Indian, Indian tribe, and Indian lands or waters to the extent authorized or permitted by law.

(2) The tax shall be based on a percentage of the invoice price at the time of sale. The rate of tax imposed is .......... .

NEW SECTION. Sec. 6. WHEN VALUE OF MINERAL RESOURCE MAY BE IMPUTED. (1) The department may impute a value to the mineral production which approximates the market value free-on-board (f.o.b.) mine or well where:

(a) The operator is using the production in an energy- conversion or other manufacturing process;

(b) A person sells the natural resource under a contract which is not an arm's-length agreement; or

(2) When imputing value, the department may apply the factors used by the federal government under 26 U.S.C. Sec. 613, or that provision as it may later exist, in determining gross income from mining, or the department may apply any other or additional criteria it considers appropriate. Each subject taxpayer shall, upon request by the department, furnish a copy of its federal income tax return, with any amendments, filed for the year in which the value of production is being imputed and copies of the contracts under which it is selling mineral resources at any time. When the department's estimate of market value is contested in any proceeding, the burden of proof is on the contesting party.

NEW SECTION. Sec. 7. CREDIT FOR INVESTMENTS PRIOR TO PRODUCTION. (1) There is allowed a credit against the tax imposed in section 5 of this act equal to one hundred fifty percent of all money contributed to local governments at least twelve months prior to production to pay for services, facilities, and other normal governmental expenses, provided such payments are not otherwise required by law. Contributions shall be made to local governments impacted or likely to be impacted, by the mineral extraction operation.

(2) Before the credit is allowed, the contribution shall be approved by the department of community development as being made for the type of expenses described in this subsection. The department of community development shall develop guidelines for allowable contributions.

NEW SECTION. Sec. 8. IMPOSITION, PAYMENT, AND COLLECTION OF TAX. (1) The taxes imposed by this chapter on the production of mineral resources shall be the primary liability of the interest owner. In cases of multiple ownership, the interest owners shall designate a person who will be responsible for paying the tax, and notify the department of the designee. The designee shall deduct and withhold the ratable share of the tax from payments made to the other interest owners in proportion to their interest, and remit the same to the department.

(2) All of chapter 82.32 RCW, except RCW 82.32.040, applies to the tax imposed by this chapter, in addition to any other provisions of law for the payment and enforcement of the tax imposed by this chapter. The department shall provide for the effective administration of this chapter by rules which shall include, but not be limited to, the determination of value at the time of sale and a determination of methods of metering and measuring mineral production and sales reasonably required for such administration.

NEW SECTION. Sec. 9. COLLECTION AND DEPOSIT OF REVENUE FROM THE SEVERANCE TAX-SHARING OF REVENUE WITH LOCAL GOVERNMENTS AND RECREATION, FISH, AND WILDLIFE PERMANENT FUND. (1) The department of revenue shall deposit thirty percent of the money collected by it under section 5 of this act in the general fund for use by the public schools.

(2) The local government mineral severance tax account is hereby established in the general fund into which thirty percent of the money collected under section 5 of this act shall be deposited. Moneys in this account shall be distributed to local taxing districts in proportion to the value of mineral production occurring within the taxing districts' boundaries and the relative levy rate for the taxing district.

(3) The recreation, fish, and wildlife permanent fund is hereby established in the custody of the state treasurer, into which forty percent of the money collected under section 5 of this act shall be deposited. The permanent fund shall be administered by the interagency committee for outdoor recreation in accordance with section 10 of this act.

NEW SECTION. Sec. 10. A new section is added to chapter 43.99 RCW to read as follows:

(1) The interagency committee for outdoor recreation shall administer a grant program utilizing the proceeds from the recreation, fish, and wildlife permanent fund established in section 9 of this act.

(2) The interagency committee for outdoor recreation shall distribute the interest, dividends, and other earnings from the account as grants to state and local recreational, fish, and wildlife agencies, and nonprofit organizations for projects and acquisitions that improve access to fish and wildlife resources, protect or enhance fish and wildlife habitats, or provide enhanced recreational opportunities for the state's citizens and its visitors. The principal of the permanent fund shall not be expended.

(3) When deciding how the grants will be allocated, the interagency commission for outdoor recreation shall consider the following criteria:

(a) Number of people likely to be served by the proposed project;

(b) Consistency of the project with the state-wide comprehensive recreation plan pursuant to RCW 43.99.122;

(d) Amount of matching contributions; and

(e) Immediacy of the proposed project or acquisition.

(4) The interagency committee for outdoor recreation shall establish guidelines for the grant program. Up to ten percent of the annual earnings of the permanent fund may be used by the committee for program administration.

Sec. 11. Section 1, chapter 7, Laws of 1981 as last amended by section 63, chapter 3, Laws of 1983 2nd ex. sess. and RCW 82.32.045 are each amended to read as follows:

(1) Except as otherwise provided in this chapter, payments of the taxes imposed under chapters 82.04, 82.08, 82.12, 82.14, and 82.16 RCW, and section 5 of this act, along with reports and returns on forms prescribed by the department, are due monthly within twenty-five days after the end of the month in which the taxable activities occur.

(2) The department of revenue may relieve any taxpayer or class of taxpayers from the obligation of remitting monthly and may require the return to cover other longer reporting periods, but in no event may returns be filed for a period greater than one year. For these taxpayers, tax payments are due on or before the last day of the month next succeeding the end of the period covered by the return.

(3) The department of revenue may also require verified annual returns from any taxpayer, setting forth such additional information as it may deem necessary to correctly determine tax liability.

NEW SECTION. Sec. 12. Sections 1 through 3 and 5 through 9 of this act shall constitute a new chapter in Title 82 RCW.

NEW SECTION. Sec. 13. Section captions as used in this act do not constitute any part of the law.

NEW SECTION. Sec. 14. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.