BILL REQ. #:  H-3605.1 

Read first time 04/21/2007.   Referred to Committee on Community & Economic Development & Trade.

     AN ACT Relating to providing a source of funding to assist small manufacturers in obtaining modernization and manufacturing extension services; reenacting and amending RCW 82.32.590; adding new sections to chapter 82.04 RCW; adding a new chapter to Title 43 RCW; and providing an expiration date.

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

NEW SECTION.  Sec. 1   The legislature finds that a viable manufacturing industry is critical to providing the state economy with family-wage jobs and improving the quality of life for workers and communities. To perform in the emerging global marketplace, Washington manufacturers must master new technologies, streamline production processes, improve quality assurance, expand environmental compliance, and enhance methods of work organization. Only through modernization techniques, reflecting the specific needs and capabilities of the individual firms, can Washington manufacturers both compete successfully in the market of the future and pay good living wages.
     Most small and midsize manufacturers do not have the resources that will allow them to easily access modernization technical assistance and the skills training needed to make them globally competitive. Because of the statewide public benefit to be gained from increasing the availability of modernization services, it is the intent of the legislature to create a new mechanism in a manner that reduces the up-front costs of these services for small and midsize manufacturing firms. It is further the intent of the legislature that Washington state increase its support for the manufacturing extension program, to expand the delivery of modernization services to small and midsize Washington manufacturers, and to leverage federal funding and private resources devoted to such efforts.
     The successful implementation of modernization services will enable a firm to reduce costs, increase sales, and to become more profitable. Such growth will result in increased revenue from the state business and occupation taxes paid by manufacturers who have engaged in modernization services. It is the intent of the legislature to set aside a portion of these new revenues to assure the success of a continuing modernization service program.

NEW SECTION.  Sec. 2   The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Costs of extension services" and "extension service costs" mean the direct costs experienced under a contract with a qualified manufacturing extension partnership affiliate for modernization extension services, including but not limited to amounts in the contract for costs of consulting, instruction, materials, equipment, rental of class space, marketing, and overhead.
     (2) "Department" means the department of community, trade, and economic development.
     (3) "Director" means the director of the department of community, trade, and economic development.
     (4) "Modernization extension allowance" and "allowance" mean a voucher, credit, or other instrument issued to a participant from the department, verifying that funds from the manufacturing modernization account will be forwarded to the qualified manufacturing extension partnership affiliate selected by the participant and will cover identified costs of extension services.
     (5) "Modernization extension services" and "service" mean a service funded under this chapter and performed by a qualified manufacturing extension partnership affiliate. The services may include but are not limited to strategic planning, continuous improvement, business development, six sigma, quality improvement, environmental health and safety, lean processes, energy management, innovation and product development, human resources and training, supply chain management, and project management.
     (6) "Outreach services" means those activities performed by an affiliate to increase the awareness of Washington manufacturers on the opportunities and benefits of implementing cutting edge technology, techniques, and best practices. "Outreach services" includes but is not limited to salaries of outreach staff, client follow-up, public educational events, manufacturing orientated trade shows, electronic communications, newsletters, advertising, direct mail efforts, and contacting business organizations for names of manufacturers who might need assistance.
     (7) "Program" means the Washington manufacturing modernization extension service program created in section 3 of this act.
     (8) "Qualified manufacturing extension partnership affiliate" and "affiliate" mean a private nonprofit organization established under RCW 24.50.010 or other organizations that are eligible or certified to receive federal matching funds from the national institute of standards and technology manufacturing extension partnership program of the United States department of commerce.
     (9) "Small manufacturer" means a private employer whose primary business is adding value to a product through a manufacturing process and employs one hundred or fewer employees within Washington state.

NEW SECTION.  Sec. 3   (1) The Washington manufacturing modernization extension service program is created to provide assistance to small manufacturers located in the state of Washington.
     (2)(a) Application to receive funding under this program must be made to the department of community, trade, and economic development in a form and manner specified by the department. Successful applicants are eligible to receive a modernization extension allowance from the department to cover the costs of assistance by a qualified manufacturing extension partnership affiliate. An applicant may not receive an allowance or allowances of over two hundred thousand dollars per calendar year.
     (b) The department must grant allowances to applicants who meet the following criteria:
     (i) The applicant has a valid agreement with a qualified manufacturing extension partnership affiliate to engage in modernization extension services;
     (ii) The applicants must agree to: (A) Make a payment to the manufacturing modernization account created in section 8 of this act in an amount equal to one-quarter of the amount of the modernization extension allowance, upon completion of the modernization extension service; and (B) make monthly or quarterly payments over the subsequent eighteen months, as specified in their agreement with the affiliate, to the manufacturing modernization account created in section 8 of this act in an amount equal to three-quarters of the amount of the modernization extension allowance;
     (iii) The applicant is a small manufacturer at the time the applicant entered into an agreement with a qualified manufacturing extension partnership affiliate; and
     (iv) The applicant must ensure that the number of employees the applicant has in the state during the calendar year following the completion of the program will be equal to or greater than the number of employees the applicant had in the state in the calendar year preceding the start of the program.
     (3) The director may solicit and receive gifts, grants, funds, fees, and endowments, in trust or otherwise, from tribal, local, federal, or other governmental entities, as well as private sources, for the purpose of providing modernization extension allowances under this chapter. All revenue solicited and received by the department under this chapter must be deposited into the manufacturing modernization account created in section 8 of this act.
     (4) The department may adopt rules to implement this section.

NEW SECTION.  Sec. 4   This chapter, being necessary for the welfare of the state and its inhabitants, shall be liberally construed to effect its purposes. Insofar as the provisions of this chapter are inconsistent with the provisions of any general or special law, or parts thereof, the provisions of this chapter shall be controlling.

NEW SECTION.  Sec. 5   A new section is added to chapter 82.04 RCW to read as follows:
     In computing the tax imposed under this chapter, a credit is allowed for participants in the Washington manufacturing modernization extension services program created in section 3 of this act. The credit allowed under this section is equal to fifty percent of the value of a program participant's payments to the manufacturing modernization account created in section 8 of this act. If a participant in the program does not meet the qualifications in section 3(2)(b)(iv) of this act, the participant must remit to the department the value of any credits taken plus interest. The credit earned by a participant in one calendar year may be carried over to be credited against taxes incurred in a subsequent calendar year.

NEW SECTION.  Sec. 6   A new section is added to chapter 82.04 RCW to read as follows:
     (1) The legislature finds that accountability and effectiveness are important aspects of setting tax policy. In order to make policy choices regarding the best use of limited state resources the legislature needs information on how a tax incentive is used.
     (2) Each person claiming a tax credit under section 5 of this act shall report information to the department by filing a complete annual survey. The survey is due by March 31st of the year following any calendar year in which a tax credit under section 5 of this act is taken. The department may extend the due date for timely filing of annual surveys under this section as provided in RCW 82.32.590. The survey shall include the amount of tax credit taken. The survey shall also include the following information for employment positions in Washington:
     (a) The number of total employment positions;
     (b) Full-time, part-time, and temporary employment positions as a percent of total employment;
     (c) The number of employment positions according to the following wage bands: Less than thirty thousand dollars; thirty thousand dollars or greater, but less than sixty thousand dollars; and sixty thousand dollars or greater. A wage band containing fewer than three individuals may be combined with another wage band; and
     (d) The number of employment positions that have employer-provided medical, dental, and retirement benefits, by each of the wage bands.
     The first survey filed under this subsection shall also include information for the twelve-month period immediately before first use of a tax incentive.
     (3) The department may request additional information necessary to measure the results of the credit program, to be submitted at the same time as the survey.
     (4) All information collected under this section, except the amount of the tax credit taken, is deemed taxpayer information under RCW 82.32.330. Information on the amount of tax credit taken is not subject to the confidentiality provisions of RCW 82.32.330.
     (5) If a person fails to submit an annual survey under subsection (2) of this section by the due date of the report or any extension under RCW 82.32.590, the department shall declare the amount of taxes credited for the previous calendar year to be immediately due and payable. The department shall assess interest, but not penalties, on the amounts due under this section. The interest shall be assessed at the rate provided for delinquent taxes under this chapter, retroactively to the date the credit was claimed, and shall accrue until the taxes for which the credit was claimed are repaid. This information is not subject to the confidentiality provisions of RCW 82.32.330.
     (6) The department shall use the information from this section to prepare summary descriptive statistics by category. No fewer than three taxpayers shall be included in any category. The department shall report these statistics to the legislature each year by September 1st.
     (7) The department shall study the tax credit authorized in section 5 of this act. The department shall submit a report to the appropriate committees of the legislature by December 1, 2013. The report shall measure the effect of the credit on job creation, job retention, company growth, the movement of firms or the consolidation of firms' operations into the state, and such other factors as the department selects.

Sec. 7   RCW 82.32.590 and 2006 c 354 s 17, 2006 c 300 s 10, 2006 c 177 s 8, 2006 c 112 s 7, and 2006 c 84 s 7 are each reenacted and amended to read as follows:
     (1) If the department finds that the failure of a taxpayer to file an annual survey or annual report under RCW 82.04.4452, section 6 of this act, 82.32.5351, 82.32.650, 82.32.635, 82.32.640, 82.32.630, 82.32.610, or 82.74.040 by the due date was the result of circumstances beyond the control of the taxpayer, the department shall extend the time for filing the survey or report. Such extension shall be for a period of thirty days from the date the department issues its written notification to the taxpayer that it qualifies for an extension under this section. The department may grant additional extensions as it deems proper.
     (2) In making a determination whether the failure of a taxpayer to file an annual survey or annual report by the due date was the result of circumstances beyond the control of the taxpayer, the department shall be guided by rules adopted by the department for the waiver or cancellation of penalties when the underpayment or untimely payment of any tax was due to circumstances beyond the control of the taxpayer.

NEW SECTION.  Sec. 8   (1) The manufacturing modernization account is hereby created in the custody of the state treasurer. Only the director may authorize expenditures from the account and no appropriation is required for expenditures.
     (2) The money in the account must be used solely for allowances under the Washington manufacturing modernization extension services program created in section 3 of this act, conducting outreach services by a qualified manufacturing extension partnership affiliate, or the department's costs for the administration of the Washington manufacturing modernization extension service program.
     (3) Annually, the director must appropriate ten percent of the funds in the manufacturing modernization account to qualified manufacturing extension partnership affiliates for the purpose of conducting outreach services.
     (4) Upon receipt of a modernization extension allowance, the director must make an appropriation to the qualified manufacturing extension partnership affiliate chosen by the program participant in an amount equal to the full costs of extension services.
     (5) All payments received from a program participant in the Washington manufacturing modernization extension services program created in section 3 of this act must be deposited into the manufacturing modernization account. The deposit of payments under this section from a program participant cease when the department specifies that the program participant has met the monetary obligations of the program.
     (6) All revenue solicited and received under the provisions of section 3(3) of this act must be deposited into the manufacturing modernization account.
     (7) The legislature intends that all appropriations from the manufacturing modernization account made to qualified manufacturing extension partnership affiliates will be eligible as the state match in an affiliate's application for federal matching funds under the manufacturing extension partnership program of the United States department of commerce's national institute of standards and technology.
     (8) The definitions in section 2 of this act apply to this section.

NEW SECTION.  Sec. 9   A new section is added to chapter 82.04 RCW to read as follows:
     (1) On an annual basis, qualified manufacturing extension partnership affiliates must provide the department with a list of companies with which they have conducted modernization services during the previous year. The department will identify the amount of the business and occupation taxes that each of these companies paid to the state during the year when the affiliate provided modernization services. This amount will become the company's base tax year payment.
     (2) During the first year following the year in which the modernization service was conducted by the affiliate, the department will identify the amount of the business and occupation taxes paid by the company. If the amount exceeds the company's base tax year payment under subsection (1) of this section, ninety percent of the portion of the payment that is in excess of the base tax year payment will be deposited into the manufacturing modernization account and the remainder will be deposited into the state general fund.
     (3) During the second year following the year in which the modernization service was conducted by the affiliate, the department will identify the amount of the business and occupation taxes paid by the company. If the amount exceeds the company's base tax year payment, seventy-five percent of the portion of the payment that is in excess of the base tax year payment will be deposited into the manufacturing modernization account and the remainder will be deposited into the state general fund.
     (4) The definitions in section 2 of this act apply to this section.

NEW SECTION.  Sec. 10   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 11   Sections 1 through 4 and 8 of this act constitute a new chapter in Title 43 RCW.

NEW SECTION.  Sec. 12   Section 5 of this act expires July 1, 2018.