BILL REQ. #:  H-0508.2 

Read first time 01/21/2003.   Referred to Committee on Technology, Telecommunications & Energy.

     AN ACT Relating to tax incentives for biodiesel and alcohol fuel production; amending RCW 82.29A.135 and 82.04.260; adding a new section to chapter 84.36 RCW; adding a new chapter to Title 82 RCW; creating a new section; providing effective dates; providing a contingent effective date; 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) "Alcohol fuel" has the same meaning as provided in RCW 82.29A.135.
     (2) "Applicant" means a person applying for a tax deferral under this chapter.
     (3) "Biodiesel fuel" means diesel fuel that consists of a mono alkyl ester of long chain fatty acids derived from vegetable oils or animal fats for use in compression-ignition engines and that meets the requirements of the American society of testing and materials specification D 6751 when blended with conventional diesel fuel.
     (4) "Department" means the department of revenue.
     (5) "Eligible area" means 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 effective for the period July 1st through June 30th.
     (6)(a) "Eligible investment project" means an investment project in an eligible area.
     (b) The lessor or 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.
     (c) "Eligible investment project" does not include any portion of an investment project undertaken by a light and power business as defined in RCW 82.16.010(5), 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.
     (7) "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.
     (8) "Manufacturing" means 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.
     (9) "Person" has the meaning given in RCW 82.04.030.
     (10) "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.
     (11) "Qualified machinery and equipment" means all new industrial and research fixtures, equipment, and support facilities that are an integral and necessary part of a manufacturing or research and development operation. "Qualified machinery and equipment" includes: Computers; software; data processing equipment; laboratory equipment; manufacturing components such as belts, pulleys, shafts, and moving parts; molds, tools, and dies; operating structures; and all equipment used to control or operate the machinery.
     (12) "Recipient" means a person receiving a tax deferral under this chapter.
     (13) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun. As used in this subsection, "commercial sales" excludes sales of prototypes or sales for market testing if the total gross receipts from such sales of the product, service, or process do not exceed one million dollars.

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. The application shall be made to the department in a form and manner prescribed by the department. The application shall contain information regarding the location of the investment project, the applicant's average employment in the state for the prior year, estimated or actual new employment related to the project, estimated or actual wages of employees related to the project, estimated or actual costs, time schedules for completion and operation, and other information required by the department.
     (2) The department shall rule on the application within sixty days. The department shall keep a running total of all deferrals granted under this chapter during each fiscal biennium.

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 that is located in an eligible area as defined in section 1 of this act, if the investment project is undertaken for the purpose of manufacturing biodiesel or alcohol fuel.
     (2) This section expires July 1, 2009.

NEW SECTION.  Sec. 4   (1) For the purposes of this section, "eligible investment project" means an investment project located anywhere within the state that is undertaken for the purpose of manufacturing biodiesel fuel if at least fifty percent of the feedstock is derived from recycled vegetable oils or animal fats.
     (2) 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.
     (3) All other provisions and eligibility requirements of this chapter apply to applicants eligible under this section.
     (4) This section expires July 1, 2009.

NEW SECTION.  Sec. 5   (1) For the purposes of this section:
     (a) "Eligible area" means a designated community empowerment zone approved under RCW 43.31C.020 or a county containing a community empowerment zone.
     (b) "Eligible investment project" means an investment project undertaken for the purpose of manufacturing biodiesel or alcohol fuel that is located in an eligible area.
     (c) "Qualified employment position" means a permanent full-time employee employed in the eligible investment project during the entire year.
     (2) In addition to the provisions of RCW 82.60.040, 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 is located in an eligible area, if the applicant establishes that at the time the project is operationally complete:
     (a) The applicant will hire at least one qualified employment position for each seven hundred fifty thousand dollars of investment on which a deferral is requested; and
     (b) The positions will be filled by persons who at the time of hire are residents of the community empowerment zone. As used in this subsection, "resident" means the person makes his or her home in the community empowerment zone. A mailing address alone is insufficient to establish that a person is a resident for the purposes of this section. The persons must be hired after the date the application is filed with the department.
     (3) All other provisions and eligibility requirements of this chapter apply to applicants eligible under this section.
     (4) The qualified employment position must be filled by the end of the calendar year following the year in which the project is certified as operationally complete. If a person does not meet the requirements for qualified employment positions by the end of the second calendar year following the year in which the project is certified as operationally complete, all deferred taxes are immediately due.

NEW SECTION.  Sec. 6   (1) Each recipient of a deferral granted under this chapter after June 30, 2003, 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, the amount of deferred taxes outstanding for the project are immediately due.
     (3) Deferred taxes need not be repaid if the department determines, in accordance with the provisions of subsection (1) of this section, that the recipient has met the requirements of this chapter for the seven calendar years following the certification by the department that the investment project has been operationally completed.

NEW SECTION.  Sec. 7   The employment security department shall make, and certify to the department of revenue, all determinations of employment and wages as requested by the department 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 the department determines that an investment project for which an exemption is granted under this chapter competes with an investment project for which a deferral is granted under this chapter, the department shall study the impacts on the project for which a deferral is granted.

NEW SECTION.  Sec. 11   A new section is added to chapter 84.36 RCW to read as follows:
     (1) For the purposes of this section:
     (a) "Alcohol fuel" means any alcohol made from a product other than petroleum or natural gas, which is used alone or in combination with gasoline or other petroleum products for use as a fuel for motor vehicles, farm implements, and machines or implements of husbandry.
     (b) "Biodiesel fuel" means diesel fuel that consists of a mono alkyl ester of long chain fatty acids derived from vegetable oils or animal fats for use in compression-ignition engines and that meets the requirements of the American Society of Testing and Materials specification D 6751 when blended with conventional diesel fuel.
     (2) All buildings, machinery, equipment, and other personal property which is used primarily for the manufacturing of alcohol fuel or biodiesel fuel, the land upon which this property is located, and land that is reasonably necessary in the manufacturing of alcohol fuel or biodiesel fuel, but not land necessary for growing of crops, which together comprise a new alcohol or biodiesel manufacturing facility or an addition to an existing alcohol or biodiesel manufacturing facility, are exempt from property taxation for the six assessment years following the date on which the facility or the addition to the existing facility becomes operational.
     For alcohol or biodiesel manufacturing facilities which produce alcohol or biodiesel for use as alcohol fuel or biodiesel fuel and alcohol or biodiesel used for other purposes, the amount of the property tax exemption shall be based upon an annually determined percentage of the total gallons of alcohol or biodiesel produced that is sold or used as alcohol fuel or biodiesel fuel.
     (3) Claims for exemptions authorized by this section shall be filed with the county assessor on forms prescribed by the department of revenue and furnished by the assessor. Once filed, the exemption is valid for six years and shall not be renewed. The assessor shall verify and approve claims as the assessor determines to be justified and in accordance with this section. No claims may be filed after December 31, 2009.
     The department of revenue may promulgate such rules, pursuant to chapter 34.05 RCW, as necessary to properly administer this section.

Sec. 12   RCW 82.29A.135 and 1985 c 371 s 3 are each amended to read as follows:
     (1) For the purposes of this section((,)):
     (a) "Alcohol fuel" means any alcohol made from a product other than petroleum or natural gas, which is used alone or in combination with gasoline or other petroleum products for use as a fuel for motor vehicles, farm implements, and machines or implements of husbandry.
     (b) "Biodiesel fuel" means diesel fuel that consists of a mono alkyl ester of long chain fatty acids derived from vegetable oils or animal fats for use in compression-ignition engines and that meets the requirements of the American Society of Testing and Materials specification D 6751 when blended with conventional diesel fuel.
     (2) All leasehold interests in buildings, machinery, equipment, and other personal property which is used primarily for the manufacturing of alcohol fuel or biodiesel fuel, the land upon which ((such)) this property is located, and land that is reasonably necessary in the manufacturing of alcohol fuel or biodiesel fuel, but not land necessary for growing of crops, which together comprise a new alcohol or biodiesel manufacturing facility or an addition to an existing alcohol or biodiesel manufacturing facility, are exempt from leasehold taxes for a period of six years from the date on which the facility or the addition to the existing facility becomes operational.
     For alcohol or biodiesel manufacturing facilities which produce alcohol or biodiesel for use as alcohol fuel or biodiesel fuel and alcohol or biodiesel used for other purposes, the amount of the leasehold tax exemption shall be based upon an annually determined percentage of the total gallons of alcohol or biodiesel produced that is sold and used as alcohol fuel or biodiesel fuel.
     (3) Claims for exemptions authorized by this section shall be filed with the department of revenue on forms prescribed by the department of revenue and furnished by the department of revenue. Once filed, the exemption is valid for six years and shall not be renewed. The department of revenue shall verify and approve ((such)) claims as the department of revenue determines to be justified and in accordance with this section. No claims may be filed after December 31, ((1992)) 2009.
     The department of revenue may promulgate such rules, pursuant to chapter 34.05 RCW, as are necessary to properly administer this section.

Sec. 13   RCW 82.04.260 and 2001 2nd sp.s. c 25 s 2 are each amended to read as follows:
     (1) Upon every person engaging within this state in the business of manufacturing:
     (a) Wheat into flour, barley into pearl barley, soybeans into soybean oil, canola into canola oil, canola meal, or canola byproducts, or sunflower seeds into sunflower oil; as to such persons the amount of tax with respect to such business shall be equal to the value of the flour, pearl barley, oil, canola meal, or canola byproduct manufactured, multiplied by the rate of 0.138 percent;
     (b) Seafood products which remain in a raw, raw frozen, or raw salted state at the completion of the manufacturing by that person; as to such persons the amount of tax with respect to such business shall be equal to the value of the products manufactured, multiplied by the rate of 0.138 percent;
     (c) By canning, preserving, freezing, processing, or dehydrating fresh fruits and vegetables, or selling at wholesale fresh fruits and vegetables canned, preserved, frozen, processed, or dehydrated by the seller and sold to purchasers who transport in the ordinary course of business the goods out of this state; as to such persons the amount of tax with respect to such business shall be equal to the value of the products canned, preserved, frozen, processed, or dehydrated multiplied by the rate of 0.138 percent. As proof of sale to a person who transports in the ordinary course of business goods out of this state, the seller shall annually provide a statement in a form prescribed by the department and retain the statement as a business record; ((and))
     (d) Dairy products that as of September 20, 2001, are identified in 21 C.F.R., chapter 1, parts 131, 133, and 135, including byproducts from the manufacturing of the dairy products such as whey and casein; or selling the same to purchasers who transport in the ordinary course of business the goods out of state; as to such persons the tax imposed shall be equal to the value of the products manufactured multiplied by the rate of 0.138 percent. As proof of sale to a person who transports in the ordinary course of business goods out of this state, the seller shall annually provide a statement in a form prescribed by the department and retain the statement as a business record; and
     (e) Alcohol fuel or biodiesel fuel, as those terms are defined in RCW 82.29A.135; as to such persons the amount of tax with respect to the business shall be equal to the value of alcohol fuel or biodiesel fuel manufactured, multiplied by the rate of 0.138 percent.
     (2) Upon every person engaging within this state in the business of splitting or processing dried peas; as to such persons the amount of tax with respect to such business shall be equal to the value of the peas split or processed, multiplied by the rate of 0.138 percent.
     (3) Upon every nonprofit corporation and nonprofit association engaging within this state in research and development, as to such corporations and associations, the amount of tax with respect to such activities shall be equal to the gross income derived from such activities multiplied by the rate of 0.484 percent.
     (4) Upon every person engaging within this state in the business of slaughtering, breaking and/or processing perishable meat products and/or selling the same at wholesale only and not at retail; as to such persons the tax imposed shall be equal to the gross proceeds derived from such sales multiplied by the rate of 0.138 percent.
     (5) Upon every person engaging within this state in the business of making sales, at retail or wholesale, of nuclear fuel assemblies manufactured by that person, as to such persons the amount of tax with respect to such business shall be equal to the gross proceeds of sales of the assemblies multiplied by the rate of 0.275 percent.
     (6) Upon every person engaging within this state in the business of manufacturing nuclear fuel assemblies, as to such persons the amount of tax with respect to such business shall be equal to the value of the products manufactured multiplied by the rate of 0.275 percent.
     (7) Upon every person engaging within this state in the business of acting as a travel agent or tour operator; as to such persons the amount of the tax with respect to such activities shall be equal to the gross income derived from such activities multiplied by the rate of 0.275 percent.
     (8) Upon every person engaging within this state in business as an international steamship agent, international customs house broker, international freight forwarder, vessel and/or cargo charter broker in foreign commerce, and/or international air cargo agent; as to such persons the amount of the tax with respect to only international activities shall be equal to the gross income derived from such activities multiplied by the rate of 0.275 percent.
     (9) Upon every person engaging within this state in the business of stevedoring and associated activities pertinent to the movement of goods and commodities in waterborne interstate or foreign commerce; as to such persons the amount of tax with respect to such business shall be equal to the gross proceeds derived from such activities multiplied by the rate of 0.275 percent. Persons subject to taxation under this subsection shall be exempt from payment of taxes imposed by chapter 82.16 RCW for that portion of their business subject to taxation under this subsection. Stevedoring and associated activities pertinent to the conduct of goods and commodities in waterborne interstate or foreign commerce are defined as all activities of a labor, service or transportation nature whereby cargo may be loaded or unloaded to or from vessels or barges, passing over, onto or under a wharf, pier, or similar structure; cargo may be moved to a warehouse or similar holding or storage yard or area to await further movement in import or export or may move to a consolidation freight station and be stuffed, unstuffed, containerized, separated or otherwise segregated or aggregated for delivery or loaded on any mode of transportation for delivery to its consignee. Specific activities included in this definition are: Wharfage, handling, loading, unloading, moving of cargo to a convenient place of delivery to the consignee or a convenient place for further movement to export mode; documentation services in connection with the receipt, delivery, checking, care, custody and control of cargo required in the transfer of cargo; imported automobile handling prior to delivery to consignee; terminal stevedoring and incidental vessel services, including but not limited to plugging and unplugging refrigerator service to containers, trailers, and other refrigerated cargo receptacles, and securing ship hatch covers.
     (10) Upon every person engaging within this state in the business of disposing of low-level waste, as defined in RCW 43.145.010; as to such persons the amount of the tax with respect to such business shall be equal to the gross income of the business, excluding any fees imposed under chapter 43.200 RCW, multiplied by the rate of 3.3 percent.
     If the gross income of the taxpayer is attributable to activities both within and without this state, the gross income attributable to this state shall be determined in accordance with the methods of apportionment required under RCW 82.04.460.
     (11) Upon every person engaging within this state as an insurance agent, insurance broker, or insurance solicitor licensed under chapter 48.17 RCW; as to such persons, the amount of the tax with respect to such licensed activities shall be equal to the gross income of such business multiplied by the rate of 0.484 percent.
     (12) Upon every person engaging within this state in business as a hospital, as defined in chapter 70.41 RCW, that is operated as a nonprofit corporation or by the state or any of its political subdivisions, as to such persons, the amount of tax with respect to such activities shall be equal to the gross income of the business multiplied by the rate of 0.75 percent through June 30, 1995, and 1.5 percent thereafter. The moneys collected under this subsection shall be deposited in the health services account created under RCW 43.72.900.

NEW SECTION.  Sec. 14   Section 11 of this act applies to taxes levied for collection in 2004 and thereafter.

NEW SECTION.  Sec. 15   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 takes effect July 1, 2003, except for section 3 of this act, which takes effect July 1, 2004.

NEW SECTION.  Sec. 16   Section 3 of this act is null and void and does not take effect July 1, 2004, if the legislature passes and the governor signs any bill into law during the 2003 or 2004 legislative session that extends the termination date in RCW 82.60.050.

NEW SECTION.  Sec. 17   Sections 1 through 10, 15, and 16 of this act constitute a new chapter in Title 82 RCW.