S-4157.4

SENATE BILL 6303

BySenators Nguyen, Boehnke, and Kuderer

AN ACT Relating to providing tax incentives to encourage energy storage system and component parts manufacturing in Washington; amending RCW 82.89.010; amending 2022 c 185 s 11 (uncodified); adding new sections to chapter 82.04 RCW; and creating new sections.

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

NEW SECTION.  Sec. 2. A new section is added to chapter 82.04 RCW to read as follows:

(1) Beginning July 1, 2025, until June 30, 2040, upon every person engaging within this state in the business of making sales at retail or wholesale of energy storage systems, component parts used in the manufacture of energy storage systems, or both, the amount of tax on such business is equal to the gross proceeds of sales of the product manufactured, multiplied by the rate of 0.275 percent.

(2) Beginning July 1, 2025, until June 30, 2040, upon every person engaging within this state in the business of manufacturing energy storage systems, component parts used in the manufacture of energy storage systems, or both, the amount of tax on such business is equal to the value of the products manufactured, multiplied by the rate of 0.275 percent.

(3) Beginning July 1, 2025, until June 30, 2040, upon every person engaging within this state as a processor for hire of energy storage systems, component parts used in the manufacture of energy storage systems, or both, the amount of tax on such business is equal to the gross income of the business, multiplied by the rate of 0.275 percent.

(4) A person reporting under the tax rate provided in this section must electronically file with the department all returns, forms, and other information the department requires in an electronic format as provided or approved by the department. Any return, form, or information required to be filed in an electronic format under this section is not filed until received by the department in an electronic format. As used in this subsection, "returns" has the same meaning as "return" in RCW  82.32.050.

(5) A person reporting under the tax rate provided in this section must file a complete annual tax performance report with the department under RCW 82.32.534.

(6) For the purposes of this section, the following definitions apply.

(a) "Energy storage system" means a device or group of devices assembled together, capable of storing energy in order to supply electrical energy at a later time. Energy storage systems include the following categories:

(i) Mechanical systems, including pumped hydro energy storage, gravity storage technologies, compressed air energy storage, and flywheels;

(ii) Electromechanical systems, including all formulations of lead acid, lithium ion, flow, high temperature, and zinc batteries;

(iii) Thermal systems, including molten salt, chilled water, latent-ice, phase change materials, and thermochemicals; and

(iv) Electrical systems, including super capacitors and superconducting magnetic energy storage systems.

(b) "Component parts used in the manufacture of energy storage systems" means major components of energy storage systems including, but not limited to, cathodes, anodes, separators, membranes, electrolytes, battery modules and packs, battery management systems, silane and other industrial gases, and mechanical devices integral to the operation of energy storage systems.

NEW SECTION.  Sec. 3. A new section is added to chapter 82.04 RCW to read as follows:

(1) Subject to the limits and provisions of this section, a credit is authorized against the tax otherwise due under this chapter for persons engaged in the business of manufacturing energy storage systems, component parts used in the manufacture of energy storage systems, or both.

(2) The credit under this section equals $4,000 for each qualified employment position engaged in manufacturing production that takes place in a qualifying facility. A credit is earned for the calendar year a person fills a position. Additionally, a credit is earned for each year the position is maintained over the subsequent consecutive years, up to 10 years, but may not be earned after the date specified in subsection (8) of this section. Those positions that are not filled for the entire year are eligible for 50 percent of the credit if filled less than six months, and the entire credit if filled more than six months.

(3) The credit may not exceed the amount of tax due under this chapter. No refunds may be granted for credits under this section. The credit may be claimed against any tax due under this chapter, less any taxable amount for which a credit is allowed under RCW 82.04.440.

(4) If at any time the department finds that a person is not eligible for tax credit under this section, the amount of taxes for which a credit has been claimed is immediately due. The department must assess interest, but not penalties, on the taxes for which the person is not eligible. The interest must be assessed at the rate provided for delinquent excise taxes under chapter 82.32 RCW, is retroactive to the date the tax credit was claimed, and accrues until the taxes for which a credit has been used are repaid.

(5) A person claiming the credit under this section must file a complete annual tax performance report with the department under RCW 82.32.534.

(6) To claim a credit under this chapter, a person must electronically file with the department all returns, forms, and other information the department requires in an electronic format as provided or approved by the department. Any return, form, or information required to be filed in an electronic format under this section is not filed until received by the department in an electronic format. As used in this subsection, "returns" has the same meaning as "return" in RCW  82.32.050.

(7) For the purposes of this section, the following definitions apply.

(a) "Energy storage systems" and "component parts used in the manufacturing of energy storage systems" have the same meanings as provided in section 2 of this act.

(b) "Qualified employment position" means a permanent full-time position engaged in manufacturing energy storage systems, component parts used in the manufacture of energy storage systems, or both. If an employee is either voluntarily or involuntarily separated from employment, the employment position is considered filled on a full-time basis if the employer is either training or actively recruiting a replacement employee and the cumulative period of any vacancies in that position is not more than 120 days in the four-quarter period.

(c) "Qualifying facility" means a facility primarily used for manufacturing energy storage systems, component parts used in the manufacture of energy storage systems, or both.

(8) Credits may be earned for new employment positions created on or after January 1, 2025, or after the date commercial production of energy storage systems, component parts used in the manufacture of energy storage systems, or both has commenced, whichever is later, and on or before June 30, 2035. Credits may be claimed on tax returns filed for reporting periods beginning on or after July 1, 2025. No credits may be claimed on tax returns filed for reporting periods beginning on or after July 1, 2040.

(9) A person may not claim a credit under this section and chapter 82.62 RCW for the same qualified employment position.

Sec. 4. RCW 82.89.010 and 2022 c 185 s 1 are each amended to read as follows:

The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

(1) "Applicant" means a person applying for a tax deferral under this chapter.

(2) "Component parts used in the manufacture of energy storage systems" means major components of energy storage systems including, but not limited to, cathodes, anodes, separators, membranes, electrolytes, battery modules and packs, battery management systems, silane and other industrial gases, and mechanical devices integral to the operation of energy storage systems.

(3) "Eligible investment project" means an investment project of at least $2,000,000 in either qualified buildings or qualified machinery and equipment, or both, for any of the following new, renovated, or expanded:

(a) Manufacturing operations;

(b) Facilities to produce clean fuels, subject to the limitations in subsection (((8)))(10)(d) of this section, renewable hydrogen, green electrolytic hydrogen, or green hydrogen carriers; or

(c) Storage facilities.

(((3)))(4) "Energy storage system" means a device or group of devices assembled together, capable of storing energy in order to supply electrical energy at a later time. Energy storage systems include the following categories:

(5)"Green electrolytic hydrogen" means hydrogen produced through electrolysis and does not include hydrogen manufactured using steam reforming or any other conversion technology that produces hydrogen from a fossil fuel feedstock.

(((4)))(6) "Green hydrogen carrier" means a chemical compound, created using electricity or renewable resources as energy input and without use of fossil fuel as a feedstock, from renewable hydrogen or green electrolytic hydrogen for the purposes of transportation, storage, and dispensing of hydrogen.

(((5)))(7)(a) "Initiation of construction" means the date that a building permit is issued under the building code adopted under RCW  19.27.031 for:

(i) Construction of the qualified building, if the underlying ownership of the building vests exclusively with the person receiving the economic benefit of the deferral;

(ii) Construction of the qualified building, if the economic benefits of the deferral are passed to a lessee as provided in RCW 82.89.020; or

(iii) Tenant improvements for a qualified building, if the economic benefits of the deferral are passed to a lessee as provided in RCW 82.89.020.

(b) "Initiation of construction" does not include soil testing, site clearing and grading, site preparation, or any other related activities that are initiated before the issuance of a building permit for the construction of the foundation of the building.

(c) If the eligible investment project is a phased project, "initiation of construction" applies separately to each phase.

(((6)))(8) "Investment project" means an investment in either qualified buildings or qualified machinery and equipment, or both, including labor and services rendered in the planning, installation, and construction of the project.

(((7)))(9) "Manufacturing" has the same meaning as "to manufacture" in RCW  82.04.120.

(((8)))(10) "Manufacturing operation" means manufacturing tangible personal property exclusively incorporated as an ingredient or component of or used in the generation of:

(a) Passenger cars, light duty trucks, medium duty passenger vehicles, buses, commercial vehicles as defined in RCW 46.04.140, or motorcycles that emit no exhaust gas from the onboard source of power, other than water vapor;

(b) Charging and fueling infrastructure for electric, hydrogen, or other vehicle types that emits no exhaust gas from the onboard source of power, other than water vapor;

(c) Renewable and green electrolytic hydrogen, including preparing renewable and green electrolytic hydrogen for distribution or converting it to a green hydrogen carrier;

(d) Clean fuel with associated greenhouse gas emissions not exceeding 80 percent of the 2017 levels established under RCW 70A.535.020 or its successor statute under chapter 70A.535 RCW;

(e) Electricity from renewable resources; ((or))

(f) Storage facilities;

(h) Component parts used in the manufacture of energy storage systems.

(((9)))(11) "Meaningful construction" means an active construction site, where excavation of a building site, laying of a building foundation, or other tangible signs of construction are taking place and that clearly show a progression in the construction process at the location designated by the taxpayer in the application for deferral. Planning, permitting, or land clearing before excavation of the building site, without more, does not constitute "meaningful construction."

(((10)))(12) "Operationally complete" means the eligible investment project is capable of being used for its intended purpose as described in the application.

(((11)))(13) "Person" has the same meaning as in RCW  82.04.030.

(((12)))(14) "Qualified buildings" means construction of new structures, and expansion or renovation of existing structures for the purpose of increasing floor space or production capacity, used for manufacturing, including plant offices and warehouses or other buildings for the storage of raw materials or finished goods if the facilities are an essential or an integral part of a factory, mill, plant, or laboratory used for manufacturing. If a qualified building is used partly for manufacturing and partly for other purposes, the applicable tax deferral must be determined by apportionment of the costs of construction under rules adopted by the department.

(((13)))(15) "Qualified machinery and equipment" means all new industrial fixtures, equipment, and support facilities that are an integral and necessary part of a manufacturing operation. "Qualified machinery and equipment" includes: Computers; software; data processing equipment; laboratory equipment; manufacturing components such as belts, pulleys, shafts, and moving parts; molds, tools, and dies; operating structures; and all equipment used to control, monitor, or operate the machinery.

(((14)))(16) "Recipient" means a person receiving a tax deferral under this chapter.

(((15)))(17) "Renewable resource" has the same meaning as in RCW  82.08.816.

(((16)))(18) "Storage facility" means a facility that:

(a) Accepts electricity as an energy source and uses a chemical, thermal, mechanical, or other process to store energy for subsequent delivery or consumption in the form of electricity; or

(b) Stores renewable hydrogen, green electrolytic hydrogen, or green hydrogen carrier for subsequent delivery or consumption.

Sec. 5. 2022 c 185 s 11 (uncodified) is amended to read as follows:

(1) This section is the tax preference performance statement for the tax preference contained in chapter 185, Laws of 2022 and section 4, chapter . . ., Laws of 2024 (section 4 of this act). This performance statement is only intended to be used for subsequent evaluation of the tax preference. It is not intended to create a private right of action by any party or to be used to determine eligibility for preferential tax treatment.

(2) The legislature categorizes this tax preference as one intended to induce certain designated behavior by taxpayers, improve industry competitiveness, and create jobs.

(3) It is the legislature's specific public policy objective to build manufacturing capacity for carbon-free electricity and to financially incentivize the use of high labor standards.

(4)(a) To measure the effectiveness of the tax preference ((in this act)), the joint legislative audit and review committee must evaluate at least the first five years of available data, reporting its findings to the legislature by December 31, 2028. The review must include evaluation of:

(i) The average construction wages for eligible projects;

(ii) The number of jobs created in the clean technology sector;

(iii) The use of apprenticeship programs, and women, minority, or veteran-owned businesses by eligible projects;

(iv) The degree to which the preference encouraged manufacturing and component production for technologies that reduce greenhouse gas emissions;

(v) Whether facilities benefiting from the preference would have been developed without the preference; and(vi) Any other relevant metric.

(b) The legislature does not intend to change the expiration of the preference based on the findings of the review.

(5) In order to obtain the data necessary to perform the review in subsection (4) of this section, the joint legislative audit and review committee may refer to any data collected by the state.

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