BP BHEAD INT S

AN ACT Relating to the deferral of taxation where the deferred tax payments are for investments or costs that result in the creation of a specified number of jobs; amending RCW 82.60.050 and 82.61.040; adding a new chapter to Title 82 RCW; and declaring an emergency.

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

NEW SECTION. Sec. 1. 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) "Person" has the meaning given in RCW 82.04.030.

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

(5) "Certificate" means a tax deferral certificate issued by the department under this chapter.

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

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

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

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

(10) "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 of that labor or skill 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" 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.

(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 the sales of the product, service, or process do not exceed one million dollars.

(12) "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.

(13) "Qualified buildings" means new structures used for manufacturing or research and development activities, including plan offices and warehouses or other facilities for the storage of raw material or finished goods if the 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.

(14) "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.

(15) "Eligible investment project" means that portion of an investment project that:

(a) 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

(b) 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

(c) Constructs new buildings and acquires new related machinery and equipment when the buildings, machinery, and equipment are to be used for either manufacturing or research and development activities if construction is commenced after July 1, 1993; or

(d) 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. However, the lessor or 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.

"Eligible investment project" does not mean any portion of an investment project undertaken by a light and power business as defined in RCW 82.16.010(5) or investment projects that have already received deferrals under this chapter.

NEW SECTION. Sec. 2. (1) Application for deferral of taxes under this chapter must be made before initiation of the construction of the investment project or acquisition of equipment or machinery or plant. The application shall be made to the department in a form and manner prescribed by the department.

(2) The application shall contain, at a minimum:

(a) Information regarding the location of the investment project;

(b) The applicant's average employment in the state for the prior year;

(d) Estimated or actual wages of employees related to the project;

(e) Estimated or actual costs; and

(f) Time schedules for completion and operation.

Additional information may also be required by the department.

(3) Application for deferral of taxes shall be made within one hundred eighty days of the acquisition of equipment or machinery.

(4) The department shall rule on the application within sixty days and, if approved, issue a tax deferral certificate to the applicant.

(5) A certificate holder shall initiate construction of the investment project within one hundred eighty days of receiving the tax deferral certificate from the department.

NEW SECTION. Sec. 3. (1) The department shall 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. The use of the certificate shall be governed by rules established by the department.

(2) The department shall keep a running total of all deferrals granted under this chapter during each fiscal biennium.

NEW SECTION. Sec. 4. (1) On an annual basis, 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.

(2) 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 the effects.

(3) The report shall be submitted by January 1, 1996, and by January 1 of each year thereafter.

NEW SECTION. Sec. 5. (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, as appropriate.

(2) The first payment is due on December 31st of the third calendar year after the certified date. Subsequent annual payments are due on December 31st of the following four years. Amounts of payment are to be scheduled as follows:

Repayment Year % of Deferred Tax Repaid

1 10%

2 15%

3 20%

4 25%

5 30%

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

(4) Interest shall not be charged on any taxes deferred under this chapter for the period of deferral. However, any other penalties and interest applicable to delinquent excise taxes may be assessed and imposed for payments delinquent under this chapter.

(5) The debt for deferred taxes will not be extinguished by insolvency or other failure of the recipient.

NEW SECTION. Sec. 6. (1) Each recipient shall submit a report to the department on December 31st of each year during the repayment period until the tax deferral is repaid. The report shall contain information, as required by the department, from which the department may determine whether the recipient is meeting the requirements of this chapter. If the recipient fails to submit a report or submits an inadequate report, the department may declare the amount of deferred taxes outstanding to be immediately assessed and payable.

(2) If, on the basis of a report under this section or other information, the department finds that an investment project is not eligible for tax deferral under this chapter for reasons other than failure to create the required number of qualified employment positions, the amount of deferred taxes outstanding for the project shall be immediately due.

(3) If, on the basis of a report under this section or other information, the department finds that an investment project has been operationally complete for three years and has failed to create the required number of qualified employment positions, the department shall assess interest, but not penalties, on the deferred taxes for the project. The interest shall:

(a) Be assessed at the rate provided for delinquent excise taxes;

(b) Be assessed retroactively to the date of deferral; and

NEW SECTION. Sec. 7. The employment security department shall make, and certify to the department, all determinations of employment and wages required under this chapter.

NEW SECTION. Sec. 8. Chapter 82.32 RCW applies to the administration of this chapter.

NEW SECTION. Sec. 9. Applications, reports, and any other information received by the department under this chapter shall not be confidential and shall be subject to disclosure.

NEW SECTION. Sec. 10. 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.

NEW SECTION. Sec. 11. This act shall not be construed as affecting any existing right acquired or liability or obligation incurred under the sections repealed in this act or under any rule or order adopted under those sections, nor as affecting any proceeding instituted under those sections.

NEW SECTION. Sec. 12. No taxes may be deferred prior to July 1, 1993.

NEW SECTION. Sec. 13. This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and shall take effect immediately.

NEW SECTION. Sec. 14. Sections 1 through 12 of this act shall constitute a new chapter in Title 82 RCW.

Sec. 15. RCW 82.60.050 and 1988 c 41 s 5 are each amended to read as follows:

RCW 82.60.030 and 82.60.040 shall expire July 1, ((~~1994~~)) 1993.

Sec. 16. RCW 82.61.040 and 1988 c 41 s 2 are each amended to read as follows:

RCW 82.61.020 and 82.61.030 shall expire July 1, ((~~1994~~)) 1993.