H-2237

AN ACT Relating to encouraging job opportunities in rural areas of the state by providing excise tax incentives for technology businesses and by providing increased taxing authority for distressed counties; adding new sections to chapter 82.04 RCW; adding a new section to chapter 82.62 RCW; creating a new section; providing an effective date; and declaring an emergency.

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

NEW SECTION. Sec. 1. It is the intent of the legislature to attract and retain technology-based businesses in distressed counties. Section 2 of this act provides a tax incentive to those businesses that develop or manufacture software in distressed counties. Section 3 of this act provides a tax incentive to those businesses that are engaged in the business of providing technical support services from distressed counties. Encouragement of these types of business will stimulate the information technology industry and be of benefit to the state economy in general. To further the impact and benefit of this program, this incentive is limited to those counties of the state that are characterized by unemployment or low income. The legislature finds that providing this targeted incentive will both increase its effectiveness and create a high technology work force in distressed counties.

NEW SECTION. Sec. 2. A new section is added to chapter 82.04 RCW to read as follows:

(1) Subject to the limits and provisions of this section, a credit is authorized against the tax otherwise due under this chapter for persons engaged in a distressed county in the business of manufacturing or programming of software, as those terms are defined in this section.

(2) A person who partially or totally relocates a business from one distressed county to another distressed county is eligible for any qualifying new jobs created as a result of the relocation but is not eligible to receive credit for the jobs moved from one county to the other.

(3)(a) To qualify for the credit, the qualifying activity of the person must be conducted in a distressed county and the qualified employment position must be located in the distressed county.

(b) If an activity is conducted both from a distressed county and outside of a distressed county, the credit is available if at least ninety percent of the qualifying activity takes place within a distressed county. If the qualifying activity is a service taxable activity, the place where the work is performed is the place at which the activity is conducted.

(4)(a) The credit under this section shall equal one thousand dollars for each qualified employment position created after July 1, 1999, in an eligible area. A credit is earned for the calendar year the person is hired to fill the position. Additionally a credit is earned for each year the position is maintained over the subsequent consecutive years, up to six years. The county must meet the definition of a distressed county at the time the position is filled. If the county does not have a distressed county status the following year or years, the position is still eligible for the remaining years if all other conditions are met.

(b) Credit may not be taken for hiring of persons into positions that exist before July 1, 1999. Credit is authorized for new employees hired for new positions created on or after July 1, 1999. New positions filled by existing employees are eligible for the credit under this section only if the position vacated by the existing employee is filled by a new hire. A business that is a sole proprietorship without any employees is equivalent to one employee position and this type of business is eligible to receive credit for one position.

(c) If a position is filled before July 1st, this position is eligible for the full yearly credit. If it is filled after June 30th, this position is eligible for half of the credit.

(d) A person that has engaged in qualifying activities in the distressed county before the effective date of this section qualifies for the credit under this section for positions created and filled after the effective date of this section.

(5) No application is necessary for the tax credit. The person must keep records necessary for the department to verify eligibility under this section. This information includes information relating to description of qualifying activity engaged in the distressed county and outside the distressed county by the person as well as detailed records on positions and employees. The department shall, in consultation with a representative group of affected taxpayers, develop a method of segregating activity and related income so that those persons who engage in multiple activities can determine eligibility for credit under this section.

(6) If at any time the department finds that a person is not eligible for tax credit under this section, the amount of taxes for which a credit has been claimed shall be immediately due. The department shall assess interest, but not penalties, on the taxes for which the person is not eligible. The interest shall be assessed at the rate provided for delinquent excise taxes under chapter 82.32 RCW, shall be assessed retroactively to the date the tax credit was taken, and shall accrue until the taxes for which a credit has been used are repaid.

(7) The credit under this section may be used against any tax due under this chapter, but in no case may a credit earned during one calendar year be carried over to be credited against taxes incurred in a subsequent calendar year. A person is not eligible to receive a credit under this section if the person is receiving credit for the same position under chapter 82.62 RCW or RCW 82.04.44525 or is taking the credit under section 3 of this act. No refunds may be granted for credits under this section.

(8) County eligibility under this section shall be based on the same list as published by the department under chapter 82.60 RCW. The eligibility period is from July 1st of each year to June 30th of the next year.

(9) A person taking tax credits under this section shall make an annual report to the department. The report shall be in a letter form and shall include the following information: Number of positions for which credit is being claimed, type of position for which credit is being claimed, type of activity in which the person is engaged in the county, and how long the person has been located in the county. The report must be filed by January 30th of each year for which credit was claimed during the previous year.

(10) Transfer of ownership does not affect credit eligibility; however, the credit is available to the successor for remaining periods in the seven years only if the eligibility conditions of this section are met.

(11) As used in this section:

(a) "Distressed county" means either (i) a county in which the average level of unemployment for the previous three years exceeds the average state unemployment for those years by twenty percent or (ii) a county that has a median household income that is less than seventy-five percent of the state median household income for the previous three years.

(b) "Manufacturing" means the same as "to manufacture" under RCW 82.04.120. Manufacturing includes the activities of both manufacturers and processors for hire.

(c) "Programming" means the activities that involve the creation or modification of software, as that term is defined in this chapter, and that are taxable as "service and other" under RCW 82.04.290(2) or retail under RCW 82.04.050.

(d) "Qualifying activity" means manufacturing or programming of software.

(e) "Qualified employment position" means a permanent full-time position doing programming of software or manufacturing of software. This excludes administrative, professional, service, executive, and other similar positions. If an employee is either voluntarily or involuntarily separated from employment, the employment position is considered filled on a full-time basis if the employer is either training or actively recruiting a replacement employee. Full-time means a position for at least thirty-five hours a week.

(f) "Software" has the same meaning as defined in this chapter.

NEW SECTION. Sec. 3. A new section is added to chapter 82.04 RCW to read as follows:

(1) Subject to the limits and provisions of this section, a credit is authorized against the tax otherwise due under this chapter for persons engaged in a distressed county in the business of providing information technology help desk services to third parties.

(2) To qualify for the credit, the help desk services must be conducted from a distressed county.

(3)(a) For the first eighty-four months in which the person is engaged in the activity of providing information technology help desk services in the distressed county, the amount of the credit shall be equal to one hundred percent of the amount of tax due under this chapter that is attributable to providing the services from the distressed county. In order to qualify for the credit under this subsection (3)(a), the county must meet the definition of "distressed county" at the time the person begins to conduct qualifying business in the county. If the county subsequently does not qualify for distressed county status, the person may continue to take the credit for the remaining time in the eighty-four months if all other conditions are met. A person who locates in a county during a period of time for which the county does not meet the distressed county status is not eligible to receive the credit under this subsection (3)(a).

(b) A person who is not eligible for the credit under (a) of this subsection is potentially eligible for credit under this subsection (3)(b). If the person is engaged in the activity of providing information technology help desk services in a distressed county, the amount of the credit shall equal sixty-eight percent of the amount of tax due under this chapter that is attributable to providing the service from the distressed county. In order to qualify for the credit under this subsection, the county must meet the definition of "distressed county" during the period of time for which the credit is being claimed. A person is not eligible for a credit under this subsection (3)(b) for activity conducted during any period of time the county does not have a distressed county status.

(c) A person who that has engaged in providing information technology help desk services in the distressed county before the effective date of this section qualifies for the credit under (a) of this subsection for any remaining time in the eighty-four months, after which time the person is potentially eligible for the credit under (b) of this subsection. A person who has engaged in providing information technology help desk services in the distressed county before the effective date of this section for more than eighty-four months is potentially eligible for the credit under (b) of this subsection.

(4) No application is necessary for the tax credit. The person must keep records necessary for the department to verify eligibility under this section. These records include information relating to description of activity engaged in a distressed county by the person.

(5) If at any time the department finds that a person is not eligible for tax credit under this section, the amount of taxes for which a credit has been used is immediately due. The department shall assess interest, but not penalties, on the credited taxes for which the person is not eligible. The interest shall be assessed at the rate provided for delinquent excise taxes under chapter 82.32 RCW, shall be assessed retroactively to the date the tax credit was taken, and shall accrue until the taxes for which a credit has been used are repaid.

(6) The credit under this section may be used against any tax due under this chapter, but in no case may a credit earned during one calendar year be carried over to be credited against taxes incurred in a subsequent calendar year. No refunds may be granted for credits under this section.

(7) County eligibility under this section shall be based on the same list as published by the department under chapter 82.60 RCW. The eligibility period is from July 1st of each year to June 30th of the next year.

(8) A person taking tax credits under this section shall make an annual report to the department. The report shall be in a letter form and shall include the following information: Type of activity in which the person is engaged in the county, number of employees in the distressed county, and how long the person has been located in the county. The report must be filed by January 30th of each year for which credit was claimed during the previous year.

(9) Transfer of ownership does not affect credit eligibility; however, the credit is available to the successor only if the eligibility conditions of this section are met.

(10) As used in this section:

(b) "First eighty-four months" means the eighty-four months of operation in a county following commencement of business activity. Business activity is deemed to commence upon the act of engaging in the business of providing the help desk services from the county.

(c) "Information technology help desk services" means the following services performed using electronic and telephonic communication:

(i) Software maintenance;

(ii) Software diagnostics and troubleshooting;

(iii) Software installation;

(iv) Software repair;

(v) Software information and training; and

(vi) Software upgrade.

NEW SECTION. Sec. 4. A new section is added to chapter 82.62 RCW to read as follows:

A person is not eligible to receive a credit under this chapter if the person is receiving credit for the same position under section 2 of this act or RCW 82.04.44525 or is receiving a credit under section 3 of this act.

NEW SECTION. Sec. 5. Sections 1 through 4 of this act are necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and take effect July 1, 1999.