BILL REQ. #:  H-4956.1 

READ FIRST TIME 02/6/04.   

     AN ACT Relating to tax incentives for alternative fuels; amending RCW 82.68.010, 82.68.030, 82.04.4334, 82.08.955, and 82.12.955; reenacting and amending RCW 82.04.260; adding a new chapter to Title 82 RCW; creating a new section; repealing RCW 82.68.040; providing an effective date; and providing contingent expiration dates.

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

NEW SECTION.  Sec. 1   The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (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 feedstock" means oil that is produced from an agricultural crop for the sole purpose of ultimately producing biodiesel fuel.
     (4) "Biodiesel fuel" means 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 in effect as of January 1, 2003.
     (5)(a) "Eligible investment project" means an investment project that meets the criteria in (b) and (c) of this subsection.
     (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, 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 that have already received deferrals under this chapter.
     (6) "Recipient" means a person receiving a tax deferral under this chapter.
     (7) "Department," "investment project," "manufacturing," "person," "qualified buildings," "qualified machinery and equipment," and "research and development" have the same meaning as in RCW 82.60.020.

NEW SECTION.  Sec. 2   Application, reporting, administrative, and confidentiality requirements relating to deferral of taxes under this chapter are the same as those in RCW 82.60.030, 82.60.040(2), 82.60.060(3), 82.60.070 (1) and (2), 82.60.080, 82.60.090, and 82.60.100 for tax deferrals for investment projects in rural counties under chapter 82.60 RCW.

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, if the investment project is undertaken for the purpose of manufacturing biodiesel, biodiesel feedstock, or alcohol fuel.
     (2) This section expires the earlier of:
     (a) July 1, 2009; or
     (b) July 1st of the fiscal year following the first calendar year in which the volume of biodiesel fuel manufactured in Washington exceeds twenty percent of the total of the volume of diesel fuel and biodiesel fuel manufactured in Washington, as determined by the department, in consultation with the department of community, trade, and economic development, using data reported by the federal energy information administration.

NEW SECTION.  Sec. 4   Deferred taxes need not be repaid if the department determines 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.

Sec. 5   RCW 82.68.010 and 2003 c 261 s 1 are each amended to read as follows:
     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 feedstock" means oil that is produced from an agricultural crop for the sole purpose of ultimately producing biodiesel fuel.
     (4) "Biodiesel fuel" means 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 in effect as of January 1, 2003.
     (5) "Department" means the department of revenue.
     (6) (("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, or a county that has a population of less than two hundred twenty-five thousand as determined by the office of financial management and has an area greater than two hundred twenty-five square miles.
     (7)))(a) "Eligible investment project" means an investment project ((in an eligible area)) that meets the criteria in (b) and (c) of this subsection.
     (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.
     (((8))) (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.
     (((9))) (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.
     (((10))) (9) "Person" has the meaning given in RCW 82.04.030.
     (((11))) (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.
     (((12))) (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.
     (((13))) (12) "Recipient" means a person receiving a tax deferral under this chapter.
     (((14))) (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.

Sec. 6   RCW 82.68.030 and 2003 c 261 s 3 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 is located in an eligible area as defined in RCW 82.68.010)), if the investment project is undertaken for the purpose of manufacturing biodiesel, biodiesel feedstock, or alcohol fuel.
     (2) This section expires the earlier of:
     (a) July 1, 2009; or
     (b) July 1st of the fiscal year following the first calendar year in which the volume of biodiesel fuel manufactured in Washington exceeds twenty percent of the total of the volume of diesel fuel and biodiesel fuel manufactured in Washington, as determined by the department, in consultation with the department of community, trade, and economic development, using data reported by the federal energy information administration.

Sec. 7   RCW 82.04.260 and 2003 2nd sp.s. c 1 s 4 and 2003 2nd sp.s. c 1 s 3 are each reenacted and 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;
     (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;
     (e) Alcohol fuel, biodiesel fuel, or biodiesel feedstock, 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, biodiesel fuel, or biodiesel feedstock manufactured, multiplied by the rate of 0.138 percent. This subsection (1)(e) expires the earlier of July 1, 2009, or July 1st of the fiscal year following the first calendar year in which the volume of biodiesel fuel manufactured in Washington exceeds twenty percent of the total of the volume of diesel fuel and biodiesel fuel manufactured in Washington, as determined by the department, in consultation with the department of community, trade, and economic development, using data reported by the federal energy information administration; and
     (f) Alcohol fuel or wood biomass 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 wood biomass 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.
     (13)(a) Beginning October 1, 2005, upon every person engaging within this state in the business of manufacturing commercial airplanes, or components of such airplanes, as to such persons the amount of tax with respect to such business shall, in the case of manufacturers, be equal to the value of the product manufactured, or in the case of processors for hire, be equal to the gross income of the business, multiplied by the rate of:
     (i) 0.4235 percent from October 1, 2005, through the later of June 30, 2007, or the day preceding the date final assembly of a superefficient airplane begins in Washington state, as determined under RCW 82.32.550; and
     (ii) 0.2904 percent beginning on the later of July 1, 2007, or the date final assembly of a superefficient airplane begins in Washington state, as determined under RCW 82.32.550.
     (b) Beginning October 1, 2005, upon every person engaging within this state in the business of making sales, at retail or wholesale, of commercial airplanes, or components of such airplanes, 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 airplanes or components multiplied by the rate of:
     (i) 0.4235 percent from October 1, 2005, through the later of June 30, 2007, or the day preceding the date final assembly of a superefficient airplane begins in Washington state, as determined under RCW 82.32.550; and
     (ii) 0.2904 percent beginning on the later of July 1, 2007, or the date final assembly of a superefficient airplane begins in Washington state, as determined under RCW 82.32.550.
     (c) For the purposes of this subsection (13), "commercial airplane," "component," and "final assembly of a superefficient airplane" have the meanings given in RCW 82.32.550.
     (d) In addition to all other requirements under this title, a person eligible for the tax rate under this subsection (13) must report as required under RCW 82.32.545.
     (e) This subsection (13) does not apply after the earlier of: July 1, 2024; or December 31, 2007, if assembly of a superefficient airplane does not begin by December 31, 2007, as determined under RCW 82.32.550.

Sec. 8   RCW 82.04.4334 and 2003 c 63 s 1 are each amended to read as follows:
     (1) In computing tax there may be deducted from the measure of tax amounts received from the retail sale, or for the distribution, of:
     (a) Biodiesel fuel; or
     (b) Alcohol fuel, if the alcohol fuel is at least eighty-five percent of the volume of the fuel being sold or distributed.
     (2) For the purposes of this section and RCW 82.08.955 and 82.12.955, the following definitions apply:
     (a) "Biodiesel fuel" means 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 in effect as of January 1, 2003.
     (b) "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.
     (c) "Distribution" means any of the actions specified in RCW 82.36.020(2).
     (3) This section expires the earlier of July 1, 2009, or July 1st of the fiscal year following the first calendar year in which the volume of biodiesel fuel manufactured in Washington exceeds twenty percent of the total of the volume of diesel fuel and biodiesel fuel manufactured in Washington, as determined by the department, in consultation with the department of community, trade, and economic development, using data reported by the federal energy information administration.

Sec. 9   RCW 82.08.955 and 2003 c 63 s 2 are each amended to read as follows:
     (1) The tax levied by RCW 82.08.020 does not apply to sales of machinery and equipment, or to services rendered in respect to constructing structures, installing, constructing, repairing, cleaning, decorating, altering, or improving of structures or machinery and equipment, or to sales of tangible personal property that becomes an ingredient or component of structures or machinery and equipment, if the machinery, equipment, or structure is used directly for the retail sale of a biodiesel or alcohol fuel blend. Structures and machinery and equipment that are used for the retail sale of a biodiesel or alcohol fuel blend and for other purposes are exempt only on the portion used directly for the retail sale of a biodiesel or alcohol fuel blend.
     (2) The tax levied by RCW 82.08.020 does not apply to sales of fuel delivery vehicles or to sales of or charges made for labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the vehicles including repair parts and replacement parts if at least seventy-five percent of the fuel distributed by the vehicles is a biodiesel or alcohol fuel blend.
     (3) A person taking the exemption under this section must keep records necessary for the department to verify eligibility under this section. The exemption is available only when the buyer provides 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.
     (4) For the purposes of this section, the definitions in RCW 82.04.4334 and this subsection apply.
     (a) "Alcohol fuel blend" means fuel that contains at least eighty-five percent alcohol fuel by volume.
     (b) "Biodiesel blend" means fuel that contains at least twenty percent biodiesel fuel by volume.
     (c) "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 that are integral and necessary for the delivery of biodiesel or alcohol fuel blends into the fuel tank of a motor vehicle.
     (5) This section expires the earlier of July 1, 2009, or July 1st of the fiscal year following the first calendar year in which the volume of biodiesel fuel manufactured in Washington exceeds twenty percent of the total of the volume of diesel fuel and biodiesel fuel manufactured in Washington, as determined by the department, in consultation with the department of community, trade, and economic development, using data reported by the federal energy information administration.

Sec. 10   RCW 82.12.955 and 2003 c 63 s 3 are each amended to read as follows:
     (1) The provisions of this chapter do not apply in respect to the use of machinery and equipment, or to services rendered in respect to installing, repairing, cleaning, altering, or improving of eligible machinery and equipment, or tangible personal property that becomes an ingredient or component of machinery and equipment used directly for the retail sale of a biodiesel or alcohol fuel blend.
     (2) The provisions of this chapter do not apply in respect to the use of fuel delivery vehicles including repair parts and replacement parts and to services rendered in respect to installing, repairing, cleaning, altering, or improving the vehicles if at least seventy-five percent of the fuel distributed by the vehicles is a biodiesel or alcohol fuel blend.
     (3) For the purposes of this section, the definitions in RCW 82.04.4334 and 82.08.955 apply.
     (4) This section expires the earlier of July 1, 2009, or July 1st of the fiscal year following the first calendar year in which the volume of biodiesel fuel manufactured in Washington exceeds twenty percent of the total of the volume of diesel fuel and biodiesel fuel manufactured in Washington, as determined by the department, in consultation with the department of community, trade, and economic development, using data reported by the federal energy information administration.

NEW SECTION.  Sec. 11   RCW 82.68.040 (Additional investment projects that qualify for sales and use tax deferral) and 2003 c 261 s 4 are each repealed.

NEW SECTION.  Sec. 12   (1) Sections 5 and 6 of this act are null and void if RCW 82.60.050 is effective after June 30, 2004.
     (2) Sections 1 through 4 of this act are null and void if RCW 82.60.050 expires July 1, 2004.

NEW SECTION.  Sec. 13   Sections 1 through 4 of this act constitute a new chapter in Title 82 RCW.

NEW SECTION.  Sec. 14   This act takes effect July 1, 2004.