BILL REQ. #:  S-2900.1 

Read first time 03/28/2007.   Referred to Committee on Ways & Means.

     AN ACT Relating to excise tax relief for aerospace product development businesses; amending RCW 82.08.981, 82.12.981, 82.04.4487, 82.32.545, and 82.04.4463; reenacting and amending RCW 82.04.440; adding a new section to chapter 82.04 RCW; providing an effective date; and providing an expiration date.

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

Sec. 1   RCW 82.08.981 and 2006 c 177 s 1 are each amended to read as follows:
     (1) The tax levied by RCW 82.08.020 does not apply to sales of computer hardware, computer peripherals, or software, not otherwise eligible for exemption under RCW 82.08.02565 or 82.08.975, used primarily in ((the development, design, and engineering of commercial airplanes)) aerospace product development, or components of such airplanes, or to sales of or charges made for labor and services rendered in respect to installing the computer hardware, computer peripherals, or software. 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.
     (2) As used in this section:
     (a) "Aerospace product development" means the development, design, or engineering of:
     (i) Commercial airplanes and components of such airplanes;
     (ii) Tooling that is used in the manufacturing or processing for hire of commercial airplanes or components of such airplanes.
     (b) "Commercial airplane" and "component" have the meanings in RCW 82.32.550.
     (((b))) (c) "Peripherals" includes keyboards, monitors, mouse devices, and other accessories that operate outside of the computer, excluding cables, conduit, wiring, and other similar property.
     (3) This section expires July 1, 2024.

Sec. 2   RCW 82.12.981 and 2006 c 177 s 2 are each amended to read as follows:
     (1) The provisions of this chapter do not apply in respect to the use of computer hardware, computer peripherals, or software, not otherwise eligible for exemption under RCW 82.12.02565 or 82.12.975, used primarily in ((the development, design, and engineering of commercial airplanes or components of such airplanes)) aerospace product development, or to the use of labor and services rendered in respect to installing the computer hardware, computer peripherals, or software.
     (2) ((As used in this section:
     (a) "Commercial airplane" and "component" have the meanings in RCW 82.32.550.
     (b) "Peripherals" includes keyboards, monitors, mouse devices, and other accessories that operate outside of the computer, excluding cables, conduit, wiring, and other similar property)) The definitions in section 1 of this act apply to this section.
     (3) This section expires July 1, 2024.

Sec. 3   RCW 82.04.4487 and 2006 c 177 s 3 are each amended to read as follows:
     (1) In computing the tax imposed under this chapter, a credit is allowed for each person for qualified ((preproduction)) aerospace product development expenditures occurring after July 1, 2006.
     (2) The credit is equal to the amount of qualified ((preproduction)) aerospace product development expenditures of a person, multiplied by the rate of 1.5 percent.
     (3) The credit shall be taken against taxes due for the same calendar year in which the qualified ((preproduction)) aerospace product development expenditures are incurred. Credits may not be carried over. The credit for each calendar year may not exceed the amount of tax otherwise due under this chapter for the calendar year. Refunds may not be granted in the place of a credit.
     (4) Any person entitled to the credit in this section as a result of qualified ((preproduction)) aerospace product development conducted under contract may assign all or any portion of the credit to the person contracting for the performance of the qualified ((preproduction)) aerospace product development.     
     (5) The definitions in this subsection apply throughout this section.
     (a) (("Aeronautics" means the study of flight and the science of building and operating commercial aircraft.
     (b) "Preproduction)) (i) "Aerospace product development" means research, design, and engineering activities performed in relation to the development of a product, product line, model, or model derivative, including prototype development, testing, and certification. ((The term)) The development of a product, product line, model, or model derivative, shall be for:
     (A) Commercial airplanes and components of such airplanes; or
     (B) Tooling that is used in the manufacturing or processing for hire of commercial airplanes or components of such airplanes.
     (ii) "Aerospace product development" includes the discovery of technological information, the translating of technological information into new or improved products, processes, techniques, formulas, or inventions, and the adaptation of existing products and models into new products or new models, or derivatives of products or models. The term does not include manufacturing activities or other production-oriented activities. The term does not include surveys and studies, social science and humanities research, market research or testing, quality control, sale promotion and service, computer software developed for internal use, and research in areas such as improved style, taste, and seasonal design.
     (((c))) (b) "Qualified ((preproduction)) aerospace product development" means ((preproduction)) aerospace product development performed within this state ((in the field of aeronautics)).
     (((d))) (c) "Qualified ((preproduction)) aerospace product development expenditures" means operating expenses, including wages, compensation of a proprietor or a partner in a partnership as determined by the department, benefits, supplies, and computer expenses, directly incurred in qualified ((preproduction)) aerospace product 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 ((preproduction)) aerospace product development. The term does not include capital costs and overhead, such as expenses for land, structures, or depreciable property.
     (6) Credit may not be claimed for expenditures for which a credit is claimed under RCW 82.04.4452 or 82.04.4461.
     (7) This section expires July 1, 2024.

NEW SECTION.  Sec. 4   A new section is added to chapter 82.04 RCW to read as follows:
     (1)(a) Upon every person engaging within this state in the business of manufacturing tooling that is used in the manufacturing of commercial airplanes or components of such airplanes; as to such persons the amount of the tax with respect to the 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 0.2904 percent.
     (b) Upon every person engaging within this state in the business of making sales, at retail or wholesale, of tooling manufactured by that person that is used in the manufacturing of commercial airplanes or components of such airplanes; as to such persons the amount of the tax with respect to the business shall be equal to the gross income of the business, multiplied by the rate of 0.2904 percent.
     (2) For purposes of this section, "manufacturing" means the same as "to manufacture" in RCW 82.04.120 and includes the activities of both manufacturers and processors for hire.
     (3) This section expires July 1, 2024.

Sec. 5   RCW 82.32.545 and 2003 2nd sp.s. c 1 s 16 are each amended 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)(a) A person who reports taxes under RCW 82.04.260(((13))) (11) or section 4 of this act or who claims an exemption or credit under RCW 82.04.4461, 82.08.980, 82.12.980, 82.29A.137, 84.36.655, and 82.04.4463 shall make an annual report to the department detailing employment, wages, and employer-provided health and retirement benefits per job at the manufacturing site. The report shall not include names of employees. The report shall also detail employment by the total number of full-time, part-time, and temporary positions. The first report filed under this subsection shall include employment, wage, and benefit information for the twelve-month period immediately before first use of a preferential tax rate under RCW 82.04.260(((13))) (11) or section 4 of this act, or tax exemption or credit under RCW 82.04.4461, 82.08.980, 82.12.980, 82.29A.137, 84.36.655, and 82.04.4463. The report is due by March 31st following any year in which a preferential tax rate under RCW 82.04.260(((13))) (11) or section 4 of this act is used, or tax exemption or credit under RCW 82.04.4461, 82.08.980, 82.12.980, 82.29A.137, 84.36.655, and 82.04.4463 is taken. This information is not subject to the confidentiality provisions of RCW 82.32.330 and may be disclosed to the public upon request.
     (b) If a person fails to submit an annual report under (a) of this subsection by the due date of the report, the department shall declare the amount of taxes exempted or credited, or reduced in the case of the preferential business and occupation tax rate, for that year to be immediately due and payable. Excise taxes payable under this subsection are subject to interest but not penalties, as provided under this chapter. This information is not subject to the confidentiality provisions of RCW 82.32.330 and may be disclosed to the public upon request.
     (3) By November 1, 2010, and by November 1, 2023, the fiscal committees of the house of representatives and the senate, in consultation with the department, shall report to the legislature on the effectiveness of chapter 1, Laws of 2003 2nd sp. sess. and chapter . . . (Substitute House Bill No. 1554), Laws of 2007 in regard to keeping Washington competitive. The report shall measure the effect of chapter 1, Laws of 2003 2nd sp. sess. and chapter . . . (Substitute House Bill No. 1554), Laws of 2007 on job retention, net jobs created for Washington residents, company growth, diversification of the state's economy, cluster dynamics, and other factors as the committees select. The reports shall include a discussion of principles to apply in evaluating whether the legislature should reenact any or all of the tax preferences in chapter 1, Laws of 2003 2nd sp. sess. and chapter . . . (Substitute House Bill No. 1554), Laws of 2007.

Sec. 6   RCW 82.04.440 and 2006 c 300 s 8 and 2006 c 84 s 6 are each reenacted and amended to read as follows:
     (1) Every person engaged in activities that are subject to tax under two or more provisions of RCW 82.04.230 through 82.04.298, inclusive, shall be taxable under each provision applicable to those activities.
     (2) Persons taxable under RCW 82.04.2909(2), 82.04.250, 82.04.270, 82.04.294(2), section 4(1)(b) of this act, or 82.04.260 (1)(c), (4), (11), or (12) with respect to selling products in this state, including those persons who are also taxable under RCW 82.04.261, shall be allowed a credit against those taxes for any (a) manufacturing taxes paid with respect to the manufacturing of products so sold in this state, and/or (b) extracting taxes paid with respect to the extracting of products so sold in this state or ingredients of products so sold in this state. Extracting taxes taken as credit under subsection (3) of this section may also be taken under this subsection, if otherwise allowable under this subsection. The amount of the credit shall not exceed the tax liability arising under this chapter with respect to the sale of those products.
     (3) Persons taxable as manufacturers under RCW 82.04.240 or 82.04.260 (1)(b) or (12), including those persons who are also taxable under RCW 82.04.261, shall be allowed a credit against those taxes for any extracting taxes paid with respect to extracting the ingredients of the products so manufactured in this state. The amount of the credit shall not exceed the tax liability arising under this chapter with respect to the manufacturing of those products.
     (4) Persons taxable under RCW 82.04.230, 82.04.240, 82.04.2909(1), 82.04.294(1), 82.04.2404, section 4(1)(a) of this act, or 82.04.260 (1), (2), (4), (11), or (12), including those persons who are also taxable under RCW 82.04.261, with respect to extracting or manufacturing products in this state shall be allowed a credit against those taxes for any (i) gross receipts taxes paid to another state with respect to the sales of the products so extracted or manufactured in this state, (ii) manufacturing taxes paid with respect to the manufacturing of products using ingredients so extracted in this state, or (iii) manufacturing taxes paid with respect to manufacturing activities completed in another state for products so manufactured in this state. The amount of the credit shall not exceed the tax liability arising under this chapter with respect to the extraction or manufacturing of those products.
     (5) For the purpose of this section:
     (a) "Gross receipts tax" means a tax:
     (i) Which is imposed on or measured by the gross volume of business, in terms of gross receipts or in other terms, and in the determination of which the deductions allowed would not constitute the tax an income tax or value added tax; and
     (ii) Which is also not, pursuant to law or custom, separately stated from the sales price.
     (b) "State" means (i) the state of Washington, (ii) a state of the United States other than Washington, or any political subdivision of such other state, (iii) the District of Columbia, and (iv) any foreign country or political subdivision thereof.
     (c) "Manufacturing tax" means a gross receipts tax imposed on the act or privilege of engaging in business as a manufacturer, and includes (i) the taxes imposed in RCW 82.04.240, 82.04.2404, 82.04.2909(1), section 4(1)(a) of this act, 82.04.260 (1), (2), (4), (11), and (12), and 82.04.294(1); (ii) the tax imposed under RCW 82.04.261 on persons who are engaged in business as a manufacturer; and (iii) similar gross receipts taxes paid to other states.
     (d) "Extracting tax" means a gross receipts tax imposed on the act or privilege of engaging in business as an extractor, and includes (i) the tax imposed on extractors in RCW 82.04.230 and 82.04.260(12); (ii) the tax imposed under RCW 82.04.261 on persons who are engaged in business as an extractor; and (iii) similar gross receipts taxes paid to other states.
     (e) "Business", "manufacturer", "extractor", and other terms used in this section have the meanings given in RCW 82.04.020 through 82.04.212, notwithstanding the use of those terms in the context of describing taxes imposed by other states.

Sec. 7   RCW 82.04.4463 and 2006 c 177 s 10 are each amended to read as follows:
     (1) In computing the tax imposed under this chapter, a credit is allowed for property taxes and leasehold excise taxes paid during the calendar year.
     (2) The credit is equal to:
     (a)(i)(A) Property taxes paid on new buildings, and land upon which this property is located, built after December 1, 2003, and used exclusively in ((manufacturing commercial airplanes or components of such airplanes)) aerospace product development; and
     (B) Leasehold excise taxes paid with respect to a building built after January 1, 2006, the land upon which the building is located, or both, if the building is used exclusively in ((manufacturing commercial airplanes or components of such airplanes)) aerospace product development; or
     (ii) Property taxes attributable to an increase in assessed value due to the renovation or expansion, after December 1, 2003, of a building used exclusively in ((manufacturing commercial airplanes or components of such airplanes)) aerospace product development; and
     (b) An amount equal to property taxes paid on machinery and equipment exempt under RCW 82.08.02565 or 82.12.02565 and acquired after December 1, 2003, multiplied by a fraction. The numerator of the fraction is the total taxable amount subject to the tax imposed under RCW 82.04.260(11) and section 4 of this act. The denominator of the fraction is the total taxable amount subject to the tax imposed under all manufacturing classifications in chapter 82.04 RCW, required to be reported on the person's returns for the calendar year before the calendar year in which the credit under this section is earned. No credit is available under this subsection (2)(b) if either the numerator or the denominator of the fraction is zero. If the fraction is greater than or equal to nine-tenths, then the fraction is rounded to one. For purposes of this subsection, "returns" means the combined excise tax returns for the calendar year.
     (3) ((For the purposes of this section,)) The definitions in this subsection apply to this section.
     (a) "Aerospace product development" means the manufacturing of:
     (i) Commercial airplanes or components of such airplanes; or
     (ii) Tooling that is used in the manufacturing of commercial airplanes or components of such airplanes.
     (b) "Commercial passenger airplane" and "component" have the meanings given in RCW 82.32.550.
     (4) A person taking the credit under this section is subject to all the requirements of chapter 82.32 RCW. ((In addition, the person must report as required under RCW 82.32.545.)) A credit earned during one calendar year may be carried over to be credited against taxes incurred in a subsequent calendar year, but may not be carried over a second year. No refunds may be granted for credits under this section.
     (5) In addition to all other requirements under this title, a person taking the credit under this section must report as required under RCW 82.32.545.
     (6) This section expires July 1, 2024.

NEW SECTION.  Sec. 8   This act takes effect October 1, 2007.