Passed by the House April 18, 2019 Yeas 93 Nays 1 Speaker of the House of Representatives Passed by the Senate April 12, 2019 Yeas 32 Nays 9 President of the Senate	CERTIFICATE I, Bernard Dean, Chief Clerk of the House of Representatives of the State of Washington, do hereby certify that the attached is SUBSTITUTE HOUSE BILL 1746 as passed by the House of Representatives and the Senate on the dates hereon set forth. Chief Clerk Chief Clerk
Approved	FILED
	Secretary of State State of Washington

AN ACT Relating to incentivizing the development of commercial office space in cities in a county with a population of less than one million five hundred thousand; amending RCW 81.104.170; adding a new section to chapter 82.14 RCW; adding a new chapter to Title 35 RCW; and providing an expiration date.

NEW SECTION. Sec. 1. The legislature finds that the cost of developing high-quality, commercial office space is prohibitive in cities located outside of a major metropolitan area. The legislature finds these cities plan to locate commercial office space within those urban centers. The legislature also finds that solely planning for commercial office space within urban centers is inadequate and an incentive should be created to stimulate commercial office space development in urban centers outside major metropolitan areas. The legislature intends to provide these cities with local options to incentivize the development of commercial office space in urban centers with access to transit, transportation systems, and other amenities.

(1) "Commercial office space" means a high quality building or buildings in the local market, as determined by a city's governing authority. High quality must be reflected in the finishes, construction, and infrastructure of the project building. The building or buildings must be at least fifty thousand square feet, and at least three stories. The building must be centrally located in a city, provide close access to available public transportation and freeways, be managed professionally, and offer amenities and advanced technology options to tenants.

(2) "Commercial office space development area" means an area that has been designated by the city legislative authority as a commercial office space development area. Each area is limited to contiguous tracts, lots, pieces, or parcels of land without the creation of islands of property not included in the commercial office space development area. The commercial office space development area or areas within a city cannot contain more than twenty-five percent of the total assessed value of the taxable real property within the boundaries of the city at the time the area is established.

(4) "Family living wage job" means a job with a wage that is sufficient for raising a family. A family living wage job must have an average wage of eighteen dollars an hour or more, working two thousand eighty hours per year, as adjusted annually by the consumer price index. The family living wage may be increased by the local authority based on regional factors and wage conditions.

(6) "Public improvement" means infrastructure improvements to be owned by a public entity within the commercial office space development area that include:

(h) Seismic improvements to buildings eligible for or eligible for listing in the Washington state register of historic places (RCW 27.34.220) or the national register of historic places as defined in the national historic preservation act of 1966 (Title 1, Sec. 101, P.L. 89-665; 80 Stat. 915; 16 U.S.C. Sec. 470) as now or hereafter amended;

(a) Design; planning; acquisition, including land acquisition; site preparation, including land clearing; construction; reconstruction; rehabilitation; improvements; and installation of public improvements;

(d) Financing public improvements, including interest during construction; legal, and other professional services; taxes; insurance; principal and interest costs on general indebtedness issued to finance public improvements; and any necessary reserves for general indebtedness; and

(e) Administrative expenses and feasibility studies reasonably necessary and related to these costs, including related costs that may have been incurred before adoption of the ordinance authorizing the public improvements and use of funds deposited into the commercial office development public improvement fund.

(8) "Qualifying project" means new construction or rehabilitation of a building or group of buildings intended for use as commercial office space. A "qualifying project" may include mixed-use buildings, not solely intended to be used as office space, but does not include any portion of a project intended for residential use or noncommercial use. A "qualifying project" may include new construction, or rehabilitation of an existing building, which included an area intended to be used for childcare facilities at or near the commercial office space. "Qualifying project" does not include the land associated with the new construction or rehabilitation.

(9) "Rehabilitation" and "rehabilitation improvements" means modifications to an existing building or buildings made to achieve substantial improvements such that the building or buildings can be categorized as commercial office space.

(10) "Rehabilitation improvements" means modifications to an existing building or buildings made to achieve substantial improvements such that the building or buildings can be categorized as commercial office space.

(11) "Urban center" means a compact identifiable district where urban residents may obtain a variety of products and services. An urban center must contain:

(a) Several existing or previous, or both, business establishments that may include but are not limited to shops, offices, banks, restaurants, and governmental agencies;

(c) A mixture of uses and activities that may include housing, recreation, and cultural activities in association with either commercial or office use, or both commercial and office use.

NEW SECTION. Sec. 4. (1) In order for a city to approve a qualifying project to receive a sales and use tax remittance and participate in a local property tax reinvestment program, the city legislative authority must adopt an ordinance designating a commercial office space development area or areas. In the ordinance, the city legislative authority must:

(c) Find that the area lacks sufficient available, desirable, high-quality, and convenient commercial office space to provide family living wage jobs in the urban center;

(d) Outline standards and guidelines consistent with section 5 of this act to accept and approve applications for qualifying projects to be considered for a local sales and use tax remittance or a property tax reinvestment program; and

(2) The city legislative authority must hold a public hearing on the ordinance establishing the commercial office space development area or areas. The city legislative authority must give notice of a hearing held under this section by publication of the notice once each week for two consecutive weeks, not less than seven days, nor more than thirty days before the date of the hearing in a paper having a general circulation in the city where the proposed commercial office space development area or areas would be located. The notice must state the time, date, place, and purpose of the hearing and generally identify the area proposed to be designated as a commercial office space development area.

NEW SECTION. Sec. 5. (1) In order to approve the sales and use tax remittance and property tax reinvestment for a qualifying project under section 4 of this act, an owner of a qualifying project must, in coordination with the city, submit an application to the city consistent with the standards and guidelines provided in section 4 of this act. Additionally, the application must include:

(a) Whether the qualifying project is located within a commercial office space development area, in accordance with an adopted ordinance under section 4 of this act;

(d) A description of the qualifying project, including a physical description of proposed building or buildings including estimated square footage, number of floors, and a list of features and amenities;

(f) Whether the qualifying project is or will be, at the time of completion, in conformance with all local plans and regulations that apply at the time the application is approved; and

(g) A statement that the qualifying project is not anticipated to be used for the purpose of relocating a business from outside of the commercial office space development area, but within the state, to within the commercial office space development area. This does not exclude the incentives authorized under this chapter and section 11 of this act from being used for the expansion of a business, including the development of additional offices or satellite facilities.

(a) A written agreement for the use of the local sales and use tax remittance from any taxing authority that imposes a sales or use tax under chapter 82.14 RCW or RCW 81.104.170. The agreement must be authorized by the governing body of such participating taxing authorities. If a taxing authority does not provide a written agreement, the sales and use tax for that taxing authority may not be remitted and the revenue may not be estimated in the application;

(d) The criteria under this section by which a qualifying project can later receive certification under section 11(4) of this act confirming that a taxpayer is eligible for the remittance.

(a) A written agreement of the participation of any taxing authority that collects a local property tax allocation. The agreement must be authorized by the governing body of such participating local taxing authorities. If a taxing authority does not provide written agreement, the local property tax for that taxing authority may not be remitted to the city legislative authority that established a commercial office development public improvement fund;

(b) An estimated amount of property tax to be deposited into a commercial office development public improvement fund resulting from the qualifying project; and

(b) The proposed qualifying project is or will be, at the time of completion, in conformance with all local plans and regulations that apply at the time the application is approved;

(d) The site is located in a commercial office space development area that has been designated by the city legislative authority in accordance with the procedures and guidelines indicated in section 4 of this act.

(2) If the application is approved, the city must issue the owner of the property a conditional certificate of acceptance of the project for the sales and use tax remittance and participation in a property tax reinvestment program.

(3) If the application is denied by the authorized administrative official or committee authorized by the city legislative authority, the deciding administrative official or committee must state in writing the reasons for denial and send the notice to the applicant at the applicant's last known address within ten days of the denial.

(4) Upon denial by a duly authorized administrative official or committee, an applicant may appeal the denial to the city legislative authority within thirty days after receipt of the denial. The appeal before the governing authority must be based upon the record made before the administrative official or committee with the burden of proof on the applicant to show that there was no substantial evidence to support the administrative official's or committee's decision. The decision of the city legislative authority in denying or approving the application is final.

NEW SECTION. Sec. 7. (1) Once the city approves an application for a qualifying project to participate in a property tax reinvestment program, the city must deposit into a commercial office development public improvement fund, the equivalent of the city's share of the ad valorem property taxation on the value of new construction and rehabilitation improvements of real property for qualifying projects under this chapter for a period of ten successive years beginning January 1st of the calendar year immediately following the calendar year in which the application is initially approved.

(2) For a period of ten successive years beginning January 1st of the calendar year immediately following the calendar year in which the application is initially approved, taxing districts participating under this section that provide a written agreement under section 5 of this act must transfer to the city an amount equivalent to the portion of the taxing district's ad valorem property tax on the value of new construction and rehabilitation improvements of real property for qualifying projects for the city to deposit into a commercial office development public improvement fund.

(a) Are to construct the public improvement that was identified in the approved application, requesting the property tax reinvestment submitted under section 5 of this act and approved under section 6 of this act;

(b) Transfer funding to the project applicant to construct the public improvement and transfer ownership of the public improvement to a public agency; and

(2) The city and the project applicant must enter into a written agreement outlining the specifics of the public improvement, associated public improvement costs, responsible parties, and any other information required by the city.

NEW SECTION. Sec. 9. If a qualifying project participating in the property tax reinvestment program under this chapter changes ownership, the property continues to qualify for the reinvestment, if the new owner complies with all of the application requirements, procedures, terms, conditions, and reporting requirements under this chapter, and meets all of the criteria established by the city to which the application was submitted under this chapter.

NEW SECTION. Sec. 10. (1) The joint legislative audit and review committee must study the effectiveness of the local sales and use tax remittance and the local property tax reinvestment programs authorized in this chapter, and submit a report as provided in subsection (3) of this section.

(2) The report must include, but is not limited to, an assessment of the local sales and use tax remittance and the property tax reinvestment programs authorized under this chapter and an evaluation of:

(3) By October 1, 2028, and in compliance with RCW 43.01.036, the joint legislative audit and review committee must submit to the appropriate committees of the legislature a final report with their findings and recommendations under this section.

(1) Subject to the requirements of chapter 35.--- RCW (the new chapter created in section 12 of this act) and RCW 81.104.170, a project is eligible for a sales and use tax remittance under the authority of this chapter on:

(a) The sale of or charge made for labor and services rendered in respect to construction or rehabilitation of a qualifying project located in a city; and

(b) The sales or use of tangible personal property that will be incorporated as an ingredient or component of a qualifying project located in a city during the course of the constructing or rehabilitating.

(2)(a) A qualifying project owner claiming a remittance under this section must pay all applicable state and local sales and use taxes imposed or authorized under RCW 82.08.020, 82.12.020, and this chapter on all purchases and uses qualifying for the remittance.

(b) The amount of the remittance is one hundred percent of the local sales and use taxes paid under an ordinance enacted under the authority of this chapter for purchases or uses qualifying under subsection (1) of this section, if the taxing authorities imposing taxes under the authority of this chapter have authorized the use of the remittance to the city legislative authority as provided under section 6 of this act.

(3) After the qualifying project has been operationally complete for eighteen months, but not more than thirty-six months, and after all local sales and use taxes for purchases and uses qualifying under subsection (1) of this section have been paid, a qualifying project owner who submits an application for a building permit for that qualifying project prior to July 1, 2027, may apply to the department for a remittance of local sales and use taxes.

(4) A qualifying project owner requesting a remittance under this section must obtain certification from the governing authority of a city verifying that the qualifying project has satisfied the criteria in section 6 of this act.

(5) A qualifying project owner must specify the amount of exempted tax claimed and the qualifying purchases or uses for which the exemption is claimed. The qualifying project owner must retain, in adequate detail, records to enable the department to determine whether the qualifying project owner is entitled to an exemption under this section, including invoices, proof of tax paid, and construction contracts.

(6) The department must determine eligibility under this section based on information provided by the qualifying project owner, which is subject to audit verification by the department.

(7)(a) A person otherwise eligible for a remittance under this section that transfers the ownership of the qualifying project before the requirements in subsection (3) of this section are met may assign the right to the remittance under this section to the subsequent owner of the qualifying project.

(b) Persons applying for the remittance as an assignee must provide the department the following documentation in a form and manner as provided by the department:

(1) Cities that operate transit systems, county transportation authorities, metropolitan municipal corporations, public transportation benefit areas, high capacity transportation corridor areas, and regional transit authorities may submit an authorizing proposition to the voters and if approved by a majority of persons voting, fix and impose a sales and use tax in accordance with the terms of this chapter, solely for the purpose of providing high capacity transportation service.

(2) The tax authorized pursuant to this section is in addition to the tax authorized by RCW 82.14.030 and must be collected from those persons who are taxable by the state pursuant to chapters 82.08 and 82.12 RCW upon the occurrence of any taxable event within the taxing district.

(a) Except for the tax imposed under (b) of this subsection by regional transit authorities that include a county with a population of more than one million five hundred thousand, the maximum rate of such tax must be approved by the voters and may not exceed one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax). The maximum rate of such tax that may be imposed may not exceed nine-tenths of one percent in any county that imposes a tax under RCW 82.14.340, or within a regional transit authority if any county within the authority imposes a tax under RCW 82.14.340.

(b) The maximum rate of such tax that may be imposed by a regional transit authority that includes a county with a population of more than one million five hundred thousand must be approved by the voters and may not exceed 1.4 percent. If a regional transit authority imposes the tax authorized under this subsection (2)(b) in excess of 0.9 percent, the authority may not receive any state grant funds provided in an omnibus transportation appropriations act except transit coordination grants created in chapter 11, Laws of 2015 3rd sp. sess.

(3)(a) The exemptions in RCW 82.08.820 and 82.12.820 are for the state portion of the sales and use tax and do not extend to the tax authorized in this section.