Brief Description: Providing a sales and use tax exemption for recovered wood waste boiler equipment.

Sponsors: Representatives Murray and Dunn.

Hearing Date: 1/30/06

Staff: Mark Matteson (786-7145).

Background:

Retail sales and use taxes. The retail sales tax applies to the selling price of tangible personal property and of certain services purchased at retail. The use tax applies if retail sales tax has not been collected. Both the state and local governments impose sales and use taxes; the state rate is 6.5 percent and the average local rate is about 2 percent statewide. Sales taxes are collected by the seller from the buyer at the time of sale. Use tax is remitted directly to the Department of Revenue. State revenues are deposited to the state general fund.

Retail sales and use taxes apply to all items of tangible personal property unless specifically exempt. Examples of exemptions for property that is used to generate energy are machinery and equipment, including installation and labor costs, that are used directly in generating electricity from wind, sun, landfill gas, or fuel cells.

Wood waste boilers. Wood waste, including mill residues, lumber yard scraps, construction site materials, and other discarded wood, is used in such markets as hog fuel, pulp chips, compost and landscaping chips, composite building materials, and architectural wood. Hog fuel, created by processing wood wastes through a hog or grinder to produce course wood chips, is the largest market for discarded construction, demolition, or remodeling activity wood in King County, according to a 2004 market assessment of construction and demolition waste materials conducted for the King County Solid Waste Division. The fuel is burned in wood waste boilers to create steam and heat. In Washington the fuel is principally utilized by the pulp and paper industry.

At the time that the 2004 King County C&D waste material market assessment was issued, hog fuel was more than twice as economical for heat energy production as was natural gas in standard heat energy production equipment, according to the assessment.

Seattle Steam Company. The Seattle Steam Company operates a commercial steam plant that has been in existence since 1893. The company has operated the plant since 1972 and continues to produce pressurized steam for space heating and other purposes in the downtown Seattle area. The facility operates several boilers which are primarily fired using natural gas, although bunker fuel oil may also be used.

At a November 2005 forum sponsored by the International District Energy Association, a company representative presented the company's plans addressing rising costs in the energy market. Among other strategies, the company plans to acquire a boiler with a steam production capacity of 80,000 pounds per hour that would be fueled principally using wood in order to reduce operating costs.

Natural gas market. While the price of natural gas paid by residential and commercial users held fairly steady through the 1990s, the Energy Information Administration surveys show that prices have doubled in nominal terms from 1999 to 2005.

Summary of Bill:

An exemption from retail sales and use tax is provided for the acquisition of recovered wood waste boiler equipment used primarily in the production of steam for sale. Recovered wood waste is defined to mean discarded wood. The steam must be sold for use in sterilizing personal property, heating water, or heating buildings or personal property. The exemption also applies to repair or replacement parts and to associated labor and services. The types of equipment covered by the exemption include boilers, wood waste storage facilities located at the plant, conveyers to transport the waste from storage to the boilers, and associated emissions control equipment.

Appropriation: None.

Fiscal Note: Requested on January 20, 2006.

Effective Date: The bill takes effect on July 1, 2006.