S-1536

AN ACT Relating to distressed area programs; amending RCW 82.14.370, 82.60.020, 82.60.040, 82.60.070, 82.62.010, 82.62.030, 82.08.820, 82.12.820, and 82.08.02565; adding new sections to chapter 82.04 RCW; adding a new section to chapter 82.62 RCW; adding a new section to chapter 82.08 RCW; adding a new section to chapter 82.12 RCW; adding a new section to chapter 82.16 RCW; creating new sections; repealing RCW 82.60.045 and 82.60.047; providing an effective date; and providing expiration dates.

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

LOCAL OPTION SALES AND USE TAX

Sec. 1. RCW 82.14.370 and 1998 c 55 s 6 are each amended to read as follows:

(1) The legislative authority of a distressed county may impose a sales and use tax in accordance with the terms of this chapter. The tax is in addition to other taxes authorized by law and shall be collected from those persons who are taxable by the state under chapters 82.08 and 82.12 RCW upon the occurrence of any taxable event within the county. The rate of tax shall not exceed 0.04 percent of the selling price in the case of a sales tax or value of the article used in the case of a use tax.

(2) The legislative authority of a distressed county may impose a sales and use tax in accordance with the terms of this chapter. The tax is in addition to other taxes authorized by law and shall be collected from those persons who are taxable by the state under chapters 82.08 and 82.12 RCW upon the occurrence of any taxable event within the county. The rate of tax shall not exceed 0.04 percent of the selling price in the case of a sales tax or value of the article used in the case of a use tax.

(3) The tax imposed under subsection (1) or (2) of this section shall be deducted from the amount of tax otherwise required to be collected or paid over to the department of revenue under chapter 82.08 or 82.12 RCW. The department of revenue shall perform the collection of such taxes on behalf of the county at no cost to the county.

((~~(3)~~)) (4) Moneys collected under subsection (1) of this section shall only be used for the purpose of financing public facilities in ((~~rural counties~~)) that county.

((~~(4)~~)) (5) Moneys collected under this section shall only be used for the purpose of financing public facilities in rural counties. The public facility must be listed as an item in the officially adopted county overall economic development plan, or the economic development section of the county's comprehensive plan, or the comprehensive plan of a city or town located within the county for those counties planning under RCW 36.70A.040. For those counties that do not have an adopted overall economic development plan and do not plan under the growth management act, the public facility must be listed in the county's capital facilities plan or the capital facilities plan of a city or town located within the county. In implementing this section, the county shall consult with cities, towns, and port districts located within the county. For the purposes of this section, "public facilities" means bridges, roads, and domestic and industrial water, sanitary sewer, storm sewer, railroad, electricity, natural gas, buildings or structures, telecommunications infrastructure, and port facilities in the state of Washington.

(6) No tax may be collected under this section before July 1, 1998. No tax may be collected under this section by a county more than twenty-five years after the date that a tax is first imposed under this section.

((~~(5)~~)) (7) For purposes of this section, "distressed county" means ((a county in which the average level of unemployment for the three years before the year in which a tax is first imposed under this section exceeds the average state unemployment for those years by twenty percent)) an eligible area as defined in RCW 82.60.020.

DISTRESSED AREA SALES AND USE TAX DEFERRAL

Sec. 2. RCW 82.60.020 and 1996 c 290 s 4 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) 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; (b) 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; (c) a metropolitan statistical area, as defined by the office of federal statistical policy and standards, United States department of commerce, in which the average level of unemployment for the calendar year immediately preceding the year in which an application is filed under this chapter exceeds the average state unemployment for such calendar year by twenty percent; (d) a designated community empowerment zone approved under RCW 43.63A.700 or a county containing such a community empowerment zone; (e) a town with a population of less than twelve hundred persons in those counties that are not covered under (a) of this subsection that are timber impact areas as defined in RCW 43.31.601; (f) a county designated by the governor as an eligible area under RCW 82.60.047; or (g) a county that is contiguous to a county that qualifies as an eligible area under (a) or (f) of this subsection)) a county with fewer than one hundred persons per square mile as determined annually by the office of financial management and published by the department of revenue effective for the period July 1st through June 30th.

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

~~(i)~~)) an investment project in an eligible area as defined in subsection (3)((~~(a), (b), (c), (e), or (f)~~)) of this section((~~; or~~

(ii) That portion of an investment project in an eligible area as defined in subsection (3)(d) or (g) of this section which 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 in an application approved before July 1, 1994, and for each seven hundred fifty thousand dollars of investment on which a deferral is requested in an application approved after June 30, 1994)).

(b) The lessor/owner of a qualified building is not eligible for a deferral unless the underlying ownership of the buildings, machinery, and equipment vests exclusively in the same person, or unless the lessor by written contract agrees to pass the economic benefit of the deferral to the lessee in the form of reduced rent payments.

(i) The department shall consider the entire investment project, including any investment in machinery and equipment that otherwise qualifies for exemption under RCW 82.08.02565 or 82.12.02565, for purposes of determining the portion of the investment project that qualifies for deferral as an eligible investment project; and

(ii) The number of new full-time qualified employment positions created by an investment project shall be deemed to be reduced by the number of full-time employment positions maintained by the recipient in any other community in this state that are displaced as a result of the investment project.

~~(d)~~)) "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), other than that portion of a cogeneration project that is used to generate power for consumption within the manufacturing site of which the cogeneration project is an integral part, or investment projects which have already received deferrals under this chapter.

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

(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)) the same as defined in RCW 82.04.120. "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) "Person" has the meaning given in RCW 82.04.030.

(8) "Qualified buildings" means construction of new structures, and expansion or renovation of existing structures for the purpose of increasing floor space or production capacity 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) ((~~"Qualified employment position" means a permanent full-time employee employed in the eligible investment project during the entire tax year.~~

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

((~~(12)~~)) (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. 3. RCW 82.60.040 and 1997 c 156 s 5 are each amended to read as follows:

(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 that((:

~~(a)~~)) is located in an eligible area as defined in RCW 82.60.020((~~(3) (a), (b), (c), (e), or (f);~~

(b) Is located in an eligible area as defined in RCW 82.60.020(3)(g) if seventy-five percent of the new qualified employment positions are to be filled by residents of a contiguous county that is an eligible area as defined in RCW 82.60.020(3) (a) or (f); or

(c) Is located in an eligible area as defined in RCW 82.60.020(3)(d) if seventy-five percent of the new qualified employment positions are to be filled by residents of a designated community empowerment zone approved under RCW 43.63A.700 located within the county in which the eligible investment project is located)).

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

(3) This section expires July 1, 2004.

Sec. 4. RCW 82.60.070 and 1995 1st sp.s. c 3 s 9 are each amended to read as follows:

(1) ((Each recipient of a deferral granted under this chapter prior to July 1, 1994, shall submit a report to the department on December 31st of each year during the repayment period until the tax deferral is repaid.)) Each recipient of a deferral granted under this chapter after June 30, 1994, shall submit a report to the department on December 31st of the year in which the investment project is certified by the department as having been operationally completed, and on December 31st of each of the seven succeeding calendar years. 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 for which a deferral has been granted under this chapter prior to July 1, 1994, 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 be assessed at the rate provided for delinquent excise taxes, shall be assessed retroactively to the date of deferral, and shall accrue until the deferred taxes are repaid.

(4) If, on the basis of a report under this section or other information, the department finds that an investment project for which a deferral has been granted under this chapter after June 30, 1994, has been operationally complete for three years and has failed to create the required number of qualified employment positions, the amount of taxes not eligible for deferral shall be immediately due. The department shall assess interest at the rate provided for delinquent excise taxes, but not penalties, retroactively to the date of deferral.

(5) If, on the basis of a report under this section or other information, the department finds that an investment project qualifying for deferral under RCW 82.60.040(1) (b) or (c) has failed to comply with any requirement of RCW 82.60.045 for any calendar year for which reports are required under subsection (1) of this section, twelve and one-half percent of the amount of deferred taxes shall be immediately due. The department shall assess interest at the rate provided for delinquent excise taxes, but not penalties, retroactively to the date of deferral.

~~(6)~~)) Notwithstanding any other subsection of this section, deferred taxes need not be repaid on machinery and equipment for lumber and wood products industries, and sales of or charges made for labor and services, of the type which qualifies for exemption under RCW 82.08.02565 or 82.12.02565 to the extent the taxes have not been repaid before July 1, 1995.

((~~(7)~~)) (4) Notwithstanding any other subsection of this section, deferred taxes on the following need not be repaid:

(a) Machinery and equipment, and sales of or charges made for labor and services, which at the time of purchase would have qualified for exemption under RCW 82.08.02565; and

(b) Machinery and equipment which at the time of first use would have qualified for exemption under RCW 82.12.02565.

DISTRESSED AREA BUSINESS AND OCCUPATION TAX JOB CREDIT

Sec. 5. RCW 82.62.010 and 1996 c 290 s 5 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 manufacturing or research and development activities which are conducted by an applicant in an eligible area at a specific facility, provided 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.

(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) "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)) the same as defined in RCW 82.04.120. "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) "Person" has the meaning given in RCW 82.04.030.

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

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

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

(10) "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. 6. RCW 82.62.030 and 1997 c 366 s 5 are each amended to read as follows:

(1) A person shall be allowed a credit against the tax due under chapter 82.04 RCW as provided in this section. ((For an application approved before January 1, 1996, the credit shall equal one thousand dollars for each qualified employment position directly created in an eligible business project. For an application approved on or after January 1, 1996, the credit shall equal two thousand dollars for each qualified employment position directly created in an eligible business project. For an application approved on or after July 1, 1997,)) The credit shall equal: (a) Four thousand dollars for each qualified employment position with wages and benefits greater than forty thousand dollars annually that is directly created in an eligible business((~~. For an application approved on or after July 1, 1997, the credit shall equal~~)) and (b) two thousand dollars for each qualified employment position with wages and benefits less than or equal to forty thousand dollars annually that is directly created in an eligible business.

(2) The department shall keep a running total of all credits granted under this chapter during each fiscal year. The department shall not allow any credits which would cause the tabulation to exceed ((~~five million five hundred thousand dollars in fiscal year 1998 or 1999 or~~)) seven million five hundred thousand dollars in any fiscal year ((~~thereafter~~)). 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 fiscal year. However, the applicant's carryover into the next fiscal year is only permitted if the tabulation for the next fiscal year does not exceed the cap for that fiscal year as of the date on which the department has disallowed the application.

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

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

SOFTWARE

NEW SECTION. Sec. 7. It is the intent of the legislature to attract and retain technology-based businesses in distressed counties. Section 8 of this act provides a tax incentive to those businesses that develop or manufacture software in distressed counties. Section 9 of this act provides a tax incentive to those businesses that are engaged in the business of providing technical support services from distressed counties. Sections 12 and 13 of this act provide a sales and use tax exemption for buildings and equipment used by technical support service businesses. 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. 8. 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 9 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 an eligible area as defined in RCW 82.60.020.

(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.

HELP DESK SERVICES

NEW SECTION. Sec. 9. 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. A person is not eligible to receive a credit under this section if the person is receiving credit under section 8 of this act or RCW 82.04.44525 or chapter 82.62 RCW. 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:

(a) "Distressed county" means an eligible area as defined in RCW 82.60.020.

(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. 10. 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 8 of this act or RCW 82.04.44525 or is receiving a credit under section 9 of this act.

NEW SECTION. Sec. 11. The following acts or parts of acts are each repealed:

(1) RCW 82.60.045 (Eligible projects--Additional requirements) and 1995 1st sp.s. c 3 s 7 & 1994 sp.s. c 1 s 4; and

(2) RCW 82.60.047 (Governor designation of county as eligible area‑-Natural disaster, business closure, military base closure, mass layoff) and 1994 sp.s. c 1 s 9.

SALES AND USE TAX EXEMPTION FOR HELP DESKS

NEW SECTION. Sec. 12. A new section is added to chapter 82.08 RCW to read as follows:

(1) The following definitions apply throughout this section and section 13 of this act, unless the context requires otherwise.

(a) "Building" means a structure with walls and a roof, used to house machinery and equipment used exclusively at the eligible facility and/or used to house personnel who staff the eligible facility.

(b) "Distressed county" means an eligible area as defined in RCW 82.60.020.

(d) "Equipment" means fixtures and devices that are integral and necessary to the operation of the eligible facility, including tangible personal property that becomes an ingredient or component of a fixture or device, and including repair parts and replacement parts. The term includes office and administrative equipment that is integral and necessary to the operation of the eligible facility. "Equipment" does not include: (i) Hand-powered tools, such as hammers, screwdrivers, pliers, and saws; (ii) property with a useful life of less than one year, such as consumables, supplies, single-use items, and other property with a useful life of less than one year; or (iii) transmission equipment between facilities, such as cable, trunks, wires, satellites, or other such equipment.

(e) "Information technology help desk services facility" means a discrete physical location from which information technology help desk services, as defined in section 9 of this act, are provided to third parties.

(2) The tax levied by RCW 82.08.020 shall not apply to sales to a person engaged in the activity of providing information technology help desk services from an eligible facility of (a) equipment used exclusively at an eligible facility, and labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the equipment; or (b) construction of a building, including materials, and including service and labor costs. Construction includes expansion of floor space but it does not include renovation, remodeling, or repair of existing space. The purchaser shall provide the seller with an exemption certificate in a form and manner prescribed by the department. The seller shall retain a copy of the certificate for the seller's files.

NEW SECTION. Sec. 13. A new section is added to chapter 82.12 RCW to read as follows:

The provisions of this chapter shall not apply with respect to equipment used exclusively at an eligible facility and with respect to materials incorporated in the construction of an eligible facility. The seller shall retain a copy of the certificate for the seller's files. The definitions in section 12 of this act apply to this section.

WAREHOUSES

Sec. 14. RCW 82.08.820 and 1997 c 450 s 2 are each amended to read as follows:

(1) Wholesalers or third-party warehousers who own or operate warehouses or grain elevators and retailers who own or operate distribution centers, and who have paid the tax levied by RCW 82.08.020 on:

(a) Material-handling and racking equipment, and labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the equipment; or

(b) Construction of a warehouse or grain elevator, including materials, and including service and labor costs,

are eligible for an exemption in the form of a remittance. The amount of the remittance is computed under subsection (3) of this section and is based on the state share of sales tax.

(2) For purposes of this section and RCW 82.12.820:

(a) "Agricultural products" has the meaning given in RCW 82.04.213;

(b) "Construction" means the actual construction of a warehouse or grain elevator that did not exist before the construction began. "Construction" includes expansion if the expansion adds at least two hundred thousand square feet of additional space to an existing warehouse or additional storage capacity of at least one million bushels to an existing grain elevator. "Construction" does not include renovation, remodeling, or repair;

(d) "Distribution center" means a warehouse that is used exclusively by a retailer solely for the storage and distribution of finished goods to retail outlets of the retailer. "Distribution center" does not include a warehouse at which retail sales occur;

(e) "Finished goods" means tangible personal property intended for sale by a retailer or wholesaler. "Finished goods" does not include agricultural products stored by wholesalers, third-party warehouses, or retailers if the storage takes place on the land of the person who produced the agricultural product. "Finished goods" does not include logs, minerals, petroleum, gas, or other extracted products stored as raw materials or in bulk;

(f) "Grain elevator" means a structure used for storage and handling of grain in bulk;

(g) "Material-handling equipment and racking equipment" means equipment in a warehouse or grain elevator that is primarily used to handle, store, organize, convey, package, or repackage finished goods. The term includes tangible personal property with a useful life of one year or more that becomes an ingredient or component of the equipment, including repair and replacement parts. The term does not include equipment in offices, lunchrooms, restrooms, and other like space, within a warehouse or grain elevator, or equipment used for nonwarehousing purposes. "Material-handling equipment" includes but is not limited to: Conveyers, carousels, lifts, positioners, pick-up-and-place units, cranes, hoists, mechanical arms, and robots; mechanized systems, including containers that are an integral part of the system, whose purpose is to lift or move tangible personal property; and automated handling, storage, and retrieval systems, including computers that control them, whose purpose is to lift or move tangible personal property; and forklifts and other off-the-road vehicles that are used to lift or move tangible personal property and that cannot be operated legally on roads and streets. "Racking equipment" includes, but is not limited to, conveying systems, chutes, shelves, racks, bins, drawers, pallets, and other containers and storage devices that form a necessary part of the storage system;

(h) "Person" has the meaning given in RCW 82.04.030;

(i) "Retailer" means a person who makes "sales at retail" as defined in chapter 82.04 RCW of tangible personal property;

(j) "Square footage" means the product of the two horizontal dimensions of each floor of a specific warehouse. The entire footprint of the warehouse shall be measured in calculating the square footage, including space that juts out from the building profile such as loading docks. "Square footage" does not mean the aggregate of the square footage of more than one warehouse at a location or the aggregate of the square footage of warehouses at more than one location;

(k) "Third-party warehouser" means a person taxable under RCW 82.04.280(4);

(l) "Warehouse" means an enclosed building or structure in which finished goods are stored. A warehouse building or structure may have more than one storage room and more than one floor. Office space, lunchrooms, restrooms, and other space within the warehouse and necessary for the operation of the warehouse are considered part of the warehouse as are loading docks and other such space attached to the building and used for handling of finished goods. Landscaping and parking lots are not considered part of the warehouse. A storage yard is not a warehouse, nor is a building in which manufacturing takes place; and

(m) "Wholesaler" means a person who makes "sales at wholesale" as defined in chapter 82.04 RCW of tangible personal property, but "wholesaler" does not include a person who makes sales exempt under 82.04.330.

(3)(a) A person claiming an exemption from state tax in the form of a remittance under this section must pay the tax imposed by RCW 82.08.020. The buyer may then apply to the department for remittance of all or part of the tax paid under RCW 82.08.020. For grain elevators with bushel capacity of one million but less than two million, the remittance is equal to fifty percent of the amount of tax paid. For warehouses with square footage of two hundred thousand or more and for grain elevators with bushel capacity of two million or more, the remittance is equal to one hundred percent of the amount of tax paid for qualifying construction, materials, service, and labor, and fifty percent of the amount of tax paid for qualifying material-handling equipment and racking equipment, and labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the equipment.

(b) This subsection (3)(b) applies to persons located in an eligible area as defined in RCW 82.60.020. For warehouses with square footage of one hundred thousand or more square feet, except as otherwise provided, the remittance is equal to one hundred percent of the amount of tax paid for qualifying construction, materials, service, and labor, and fifty percent of the amount of tax paid for qualifying material-handling equipment and racking equipment, and labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the equipment. The minimum square footage for controlled atmosphere storage warehouses is forty thousand square feet. Controlled atmosphere storage means the same as defined in RCW 15.30.010.

(c) The department shall determine eligibility under this section based on information provided by the buyer and through audit and other administrative records. The buyer shall on a quarterly basis submit an information sheet, in a form and manner as required by the department by rule, specifying the amount of exempted tax claimed and the qualifying purchases or acquisitions for which the exemption is claimed. The buyer shall retain, in adequate detail to enable the department to determine whether the equipment or construction meets the criteria under this section: Invoices; proof of tax paid; documents describing the material-handling equipment and racking equipment; location and size of warehouses and grain elevators; and construction invoices and documents.

((~~(c)~~)) (d) The department shall on a quarterly basis remit exempted amounts to qualifying persons who submitted applications during the previous quarter.

(4) Warehouses, grain elevators, and material-handling equipment and racking equipment for which an exemption, credit, or deferral has been or is being received under chapter 82.60, 82.61, 82.62, or 82.63 RCW or RCW 82.08.02565 or 82.12.02565 are not eligible for any remittance under this section. Warehouses and grain elevators upon which construction was initiated before May 20, 1997, are not eligible for a remittance under this section.

(5) The lessor or owner of a warehouse or grain elevator is not eligible for a remittance under this section unless the underlying ownership of the warehouse or grain elevator and the material-handling equipment and racking equipment vests exclusively in the same person, or unless the lessor by written contract agrees to pass the economic benefit of the remittance to the lessee in the form of reduced rent payments.

Sec. 15. RCW 82.12.820 and 1997 c 450 s 3 are each amended to read as follows:

(1) Wholesalers or third-party warehousers who own or operate warehouses or grain elevators, and retailers who own or operate distribution centers, and who have paid the tax levied under RCW 82.12.020 on:

(a) Material-handling equipment and racking equipment; or

(b) Materials incorporated in the construction of a warehouse or grain elevator,

are eligible for an exemption on tax paid in the form of a remittance or credit against tax owned. The amount of the remittance or credit is computed under subsection (2) of this section and is based on the state share of use tax.

(2)(a) A person claiming an exemption from state tax in the form of a remittance under this section must pay the tax imposed by RCW 82.12.020 to the department. The person may then apply to the department for remittance of all or part of the tax paid under RCW 82.12.020. For grain elevators with bushel capacity of one million but less than two million, the remittance is equal to fifty percent of the amount of tax paid. For warehouses with square footage of two hundred thousand and for grain elevators with bushel capacity of two million or more, the remittance is equal to one hundred percent of the amount of tax paid for qualifying construction materials, and fifty percent of the amount of tax paid for qualifying material-handling equipment and racking equipment.

(b) This subsection (2)(b) applies to persons located in an eligible area as defined in RCW 82.60.020. For warehouses with square footage of one hundred thousand or more square feet, except as otherwise provided, the remittance is equal to one hundred percent of the amount of tax paid for qualifying construction materials, and fifty percent of the amount of tax paid for qualifying material-handling equipment and racking equipment. The minimum square footage for controlled atmosphere storage warehouses is forty thousand square feet. Controlled atmosphere storage means the same as defined in RCW 15.30.010.

(c) The department shall determine eligibility under this section based on information provided by the buyer and through audit and other administrative records. The buyer shall on a quarterly basis submit an information sheet, in a form and manner as required by the department by rule, specifying the amount of exempted tax claimed and the qualifying purchases or acquisitions for which the exemption is claimed. The buyer shall retain, in adequate detail to enable the department to determine whether the equipment or construction meets the criteria under this section: Invoices; proof of tax paid; documents describing the material-handling equipment and racking equipment; location and size of warehouses, if applicable; and construction invoices and documents.

((~~(c)~~)) (d) The department shall on a quarterly basis remit or credit exempted amounts to qualifying persons who submitted applications during the previous quarter.

(3) Warehouse, grain elevators, and material-handling equipment and racking equipment for which an exemption, credit, or deferral has been or is being received under chapter 82.60, 82.61, 82.62, or 82.63 RCW or RCW 82.08.02565 or 82.12.02565 are not eligible for any remittance under this section. Materials incorporated in warehouses and grain elevators upon which construction was initiated prior to May 20, 1997, are not eligible for a remittance under this section.

(4) The lessor or owner of the warehouse or grain elevator is not eligible for a remittance or credit under this section unless the underlying ownership of the warehouse or grain elevator and material‑handling equipment and racking equipment vests exclusively in the same person, or unless the lessor by written contract agrees to pass the economic benefit of the exemption to the lessee in the form of reduced rent payments.

(5) The definitions in RCW 82.08.820 apply to this section.

ELECTRIC UTILITIES

NEW SECTION. Sec. 16. The legislature finds that it is necessary to employ multiple approaches to revitalize the economy of Washington state's rural areas. The legislature also finds that where possible, Washington state should develop programs which can compliment other private, state, and federal programs. It is the intent of section 17 of this act to compliment such rural economic development efforts by creating a public utility tax offset program to help establish locally based electric utility revolving fund programs to be used for economic development and job creation.

NEW SECTION. Sec. 17. A new section is added to chapter 82.16 RCW to read as follows:

(1) The following definitions apply to this section:

(a) "Qualifying project" means a project designed to achieve job creation or business retention, to add or upgrade nonelectrical infrastructure, to add or upgrade health and safety facilities, to accomplish energy and water use efficiency improvements, including renewable energy development, or to add or upgrade emergency services in any designated qualifying rural area.

(b) "Qualifying rural area" means:

(i) An eligible area as defined in RCW 82.60.020; or

(ii) Any geographic area in the state that receives electricity from a light and power business with fewer than twenty-six meters per mile of distribution line as determined and published by the department of revenue effective July 1st of each year. The department shall use current data provided by the electricity industry.

(c) "Electric utility rural economic development revolving fund" means a fund devoted exclusively to funding qualifying projects in qualifying rural areas.

(d) "Local board" is a board of directors with at least, but not limited to, three members who have been appointed by the sponsoring electric utility to oversee and direct the activities of the electric utility rural economic development revolving fund.

(e) "Geographic area" means any portion of a light and power business' service territory, either in whole or any subdivision thereof.

(2) A light and power business with fewer than twenty-six active meters per mile of distribution line in any geographic area in the state shall be allowed a credit against taxes due under this chapter in an amount equal to fifty percent of contributions made in any calendar year directly to an electric utility rural economic development revolving fund. The credit under this section shall not exceed one hundred thousand dollars per calendar year. The credit may not exceed the tax that would otherwise be due under this chapter. Refunds shall not be granted in the place of credits and excess expenditures shall not be carried over to subsequent years.

(3) The right to claim tax credits under this section expires December 31, 2005. However any credits claimed prior to that date remain available for use indefinitely, subject to restrictions set forth in subsection (6) of this section.

(4) To qualify for the credit in subsection (2) of this section, the light and power business shall establish an electric utility rural economic development revolving fund which is governed by a local board whose members shall reside in the qualifying rural area served by the light and power business. The local board shall have authority to determine all criteria and conditions for the expenditure of funds from the electric utility rural economic development fund, and for the terms and conditions of repayment.

(5) Any funds repaid to the electric utility rural economic development fund by recipients shall be made available for additional qualifying projects.

(6) If at any time the electric utility rural economic development fund is dissolved, any moneys claimed as a tax credit under this section shall either be granted to a qualifying project or refunded to the state within two years of termination.

MANUFACTURING AND RESEARCH SALES TAX

EXEMPTION FOR RURAL COUNTIES

Sec. 18. RCW 82.08.02565 and 1998 c 330 s 1 are each amended to read as follows:

(1) The tax levied by RCW 82.08.020 shall not apply to sales to a manufacturer or processor for hire of machinery and equipment used directly in a manufacturing operation or research and development operation, or to sales of or charges made for labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the machinery and equipment, but only when the purchaser provides the seller with an exemption certificate in a form and manner prescribed by the department by rule. The seller shall retain a copy of the certificate for the seller's files.

(2) For purposes of this section and RCW 82.12.02565:

(a) "Machinery and equipment" means industrial fixtures, devices, and support facilities, and tangible personal property that becomes an ingredient or component thereof, including repair parts and replacement parts. "Machinery and equipment" includes pollution control equipment installed and used in a manufacturing operation or research and development operation to prevent air pollution, water pollution, or contamination that might otherwise result from the manufacturing operation or research and development operation.

(b) "Machinery and equipment" does not include:

(i) Hand tools;

(ii) Property with a useful life of less than one year;

(iii) Buildings, other than machinery and equipment that is permanently affixed to or becomes a physical part of a building; and

(iv) Building fixtures that are not integral to the manufacturing operation or research and development operation that are permanently affixed to and become a physical part of a building, such as utility systems for heating, ventilation, air conditioning, communications, plumbing, or electrical.

(c) Machinery and equipment is "used directly" in a manufacturing operation or research and development operation if the machinery and equipment:

(i) Acts upon or interacts with an item of tangible personal property;

(ii) Conveys, transports, handles, or temporarily stores an item of tangible personal property at the manufacturing site;

(iii) Controls, guides, measures, verifies, aligns, regulates, or tests tangible personal property;

(iv) Provides physical support for or access to tangible personal property;

(v) Produces power for, or lubricates machinery and equipment;

(vi) Produces another item of tangible personal property for use in the manufacturing operation or research and development operation;

(vii) Places tangible personal property in the container, package, or wrapping in which the tangible personal property is normally sold or transported; or

(viii) Is integral to research and development as defined in RCW 82.63.010.

(d) "Manufacturing operation" means the manufacturing of articles, substances, or commodities for sale as tangible personal property. The manufacturing operation begins at the point where the raw materials enter the manufacturing site and ends at the point where the finished product leaves the manufacturing site. The term also includes that portion of a cogeneration project that is used to generate power for consumption within the manufacturing site of which the cogeneration project is an integral part. The term does not include the production of electricity by a light and power business as defined in RCW 82.16.010 other than competitive generating facilities in rural areas or the preparation of food products on the premises of a person selling food products at retail.

(e) "Cogeneration" means the simultaneous generation of electrical energy and low-grade heat from the same fuel.

(f) "Research and development operation" means engaging in research and development as defined in RCW 82.63.010 by a manufacturer or processor for hire.

(g) "Competitive generating facilities" means electrical generating facilities that are competing as the low-cost producers in the energy market and are not guaranteed a rate of return for any part of the power they produce.

(h) "Rural areas" means counties with population density of less than one hundred persons per square mile as determined annually by the office of financial management and published by the department of revenue.

MISCELLANEOUS

NEW SECTION. Sec. 19. Part headings used in this act are not any part of the law.

NEW SECTION. Sec. 20. This act takes effect August 1, 1999.

NEW SECTION. Sec. 21. Section 18 of this act expires July 1, 2002.

NEW SECTION. Sec. 22. Sections 2 through 6 and 11 of this act do not affect any existing right acquired or liability or obligation under the sections amended or repealed in those sections or any rule or order adopted under those sections, nor does it affect any proceeding instituted under those sections.