Read first time 01/28/2003.   Referred to Committee on Technology & Communications.

     AN ACT Relating to removing the expiration date on the research and development business and occupation tax credit; amending RCW 82.04.4452; adding a new section to chapter 50.38 RCW; adding a new section to chapter 82.32 RCW; adding a new section to chapter 44.28 RCW; and providing an expiration date.

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

Sec. 1   RCW 82.04.4452 and 2000 c 103 s 7 are each amended to read as follows:
     (1) In computing the tax imposed under this chapter, a credit is allowed for each person whose research and development spending during the year in which the credit is claimed exceeds 0.92 percent of the person's taxable amount during the same calendar year.
     (2) The credit is equal to the greater of the amount of qualified research and development expenditures of a person or eighty percent of amounts received by a person other than a public educational or research institution in compensation for the conduct of qualified research and development, multiplied by the rate provided in RCW 82.04.260(3) in the case of a nonprofit corporation or nonprofit association engaging within this state in research and development, and the rate provided in RCW 82.04.290(2) for every other person.
     (3) Any person entitled to the credit provided in subsection (2) of this section as a result of qualified research and development conducted under contract may assign all or any portion of the credit to the person contracting for the performance of the qualified research and development.
     (4) The credit, including any credit assigned to a person under subsection (3) of this section, shall be taken against taxes due for the same calendar year in which the qualified research and development expenditures are incurred. The credit, including any credit assigned to a person under subsection (3) of this section, for each calendar year shall not exceed the lesser of two million dollars or the amount of tax otherwise due under this chapter for the calendar year.
     (5) Any person taking the credit, including any credit assigned to a person under subsection (3) of this section, whose research and development spending during the calendar year in which the credit is claimed fails to exceed 0.92 percent of the person's taxable amount during the same calendar year shall be liable for payment of the additional taxes represented by the amount of credit taken together with interest, but not penalties. Interest shall be due at the rate provided for delinquent excise taxes retroactively to the date the credit was taken until the taxes are paid. Any credit assigned to a person under subsection (3) of this section that is disallowed as a result of this section may be taken by the person who performed the qualified research and development subject to the limitations set forth in subsection (4) of this section.
     (6) Any person claiming the credit, and any person assigning a credit as provided in subsection (3) of this section, shall file an affidavit form prescribed by the department which shall include the amount of the credit claimed, an estimate of the anticipated qualified research and development expenditures during the calendar year for which the credit is claimed, an estimate of the taxable amount during the calendar year for which the credit is claimed, and such additional information as the department may prescribe.
     (7) A person claiming the credit shall agree to supply the department with information necessary to measure the results of the tax credit program for qualified research and development expenditures.
     (8) The department shall use the information required under subsection (7) of this section to perform three assessments on the tax credit program authorized under this section. The assessments will take place in 1997, 2000, and 2003. The department shall prepare reports on each assessment and deliver their reports by September 1, 1997, September 1, 2000, and September 1, 2003. The assessments shall measure the effect of the program on job creation, the number of jobs created for Washington residents, company growth, the introduction of new products, the diversification of the state's economy, growth in research and development investment, the movement of firms or the consolidation of firms' operations into the state, and such other factors as the department selects.
     (9) For the purpose of this section:
     (a) "Qualified research and development expenditures" means operating expenses, including wages, compensation of a proprietor or a partner in a partnership as determined under rules adopted by the department, benefits, supplies, and computer expenses, directly incurred in qualified research and development by a person claiming the credit provided in this section. The term does not include amounts paid to a person other than a public educational or research institution to conduct qualified research and development. Nor does the term include capital costs and overhead, such as expenses for land, structures, or depreciable property.
     (b) "Qualified research and development" shall have the same meaning as in RCW 82.63.010.
     (c) "Research and development spending" means qualified research and development expenditures plus eighty percent of amounts paid to a person other than a public educational or research institution to conduct qualified research and development.
     (d) "Taxable amount" means the taxable amount subject to the tax imposed in this chapter required to be reported on the person's combined excise tax returns during the year in which the credit is claimed, less any taxable amount for which a credit is allowed under RCW 82.04.440.
     (10) This section expires ((December 31, 2004)) January 1, 2015.

NEW SECTION.  Sec. 2   A new section is added to chapter 50.38 RCW to read as follows:
     (1) Based upon information provided to the department by the department of revenue and data obtained by the department from employers for other lawful purposes, the department shall identify for the year before and every five years after the renewal of the tax credit in RCW 82.04.4452 the following information:
     (a) North American industry classification for businesses utilizing the tax credit;
     (b) The number of employees, reported in aggregate by North American industry classification, employed by businesses utilizing the tax credit;
     (c) The average wages received by persons, reported by North American industry classification, employed by businesses utilizing the tax credit.
     (2) The department shall provide to the joint legislative audit and review committee, for the year before and every five years after the renewal of the tax credit in RCW 82.04.4452, a report containing the following information:
     (a) The number of businesses, reported in aggregate by North American industry classification, utilizing the tax credit;
     (b) The number of employees, reported in aggregate by North American industry classification, employed by businesses utilizing the tax credit;
     (c) The average wages of employees employed by businesses utilizing the tax credit reported in aggregate, and grouped by North American industry classification.
     (3) All information shall be based on calendar year data and shall be provided to the joint legislative audit and review committee by the fifteenth day of March of the year before and every five years after the renewal of the tax credit in RCW 82.04.4452.
     (4) Nothing in this section shall be construed to affect in any way the right of privacy and confidentiality as to individual and employer records maintained by the department, as provided under RCW 50.13.020.

NEW SECTION.  Sec. 3   A new section is added to chapter 82.32 RCW to read as follows:
     (1) Based upon information provided by taxpayers, on Form 26-0003e-1, or its successor form, or Form Rev 81-1013-1, or its successor form, or Form 81-1012, or its successor form, to the department, the department shall identify for the year before and every five years after the renewal of the tax credit in RCW 82.04.4452 the following information:
     (a) The businesses utilizing the tax credit;
     (b) The total value of the tax credit taken by each business for that year;
     (c) The qualifying investment made by the business utilizing the tax credit.
     (2) The department shall provide to the employment security department a list of all businesses utilizing the tax credit and the North American industry classification of each business. This information shall be based on calendar year data and shall be provided to the employment security department by the fifteenth day of February of the year before and every five years after the renewal of the tax credit in RCW 82.04.4452.
     (3) The department shall provide to the joint legislative audit and review committee the number of businesses utilizing the tax credit, the value of the credit received, and the value of qualifying investments made by businesses utilizing the tax credit, reported in aggregate by North American industry classification. This information shall be based on calendar year data and shall be provided to the joint legislative audit and review committee by the fifteenth day of February of the year before and every five years after the renewal of the tax credit in RCW 82.04.4452.
     (4) Nothing in this section shall be construed to affect in any way the right of privacy and confidentiality as to individual and employer records maintained by the department as provided under RCW 82.32.330.

NEW SECTION.  Sec. 4   A new section is added to chapter 44.28 RCW to read as follows:
     (1) The joint legislative audit and review committee shall provide a report to the legislature the year before and every five years after the renewal of the tax credit in RCW 82.04.4452. The report shall be based upon information provided by the employment security department and the department of revenue. Proprietary information shall remain confidential as otherwise provided by law. The report shall include, but is not limited to:
     (a) Total value of tax revenue forgone as a result of the tax credit;
     (b) Total value of qualifying investments made under the tax credit;
     (c) Direct employment created or retained that is associated with the tax credit and average wages, reported in aggregate by North American industry classification;
     (d) Total indirect employment created or retained associated with the tax deferral;
     (e) Additional sales, property, and business and occupation tax revenues associated with the tax credit.
     (2) In conducting this evaluation, the joint legislative audit and review committee shall use a generally accepted economic model and may contract with outside economic experts.