Senate Bill Report SB 5029

Summary

A Senate Bill Report on SB 5029, an act relating to tax deferrals for investment projects in high unemployment counties, prepared by staff of the Senate Committee on Business, Financial Services & Trade as of January 25, 2021, with committee activity listed for 1/26/21. The report explains that the prior rural county sales and use tax deferral program expired on July 1, 2020. It summarizes the bill's creation of a new program from July 1, 2021, to June 30, 2031, for counties with unemployment at least 20 percent above the state average for three years and community empowerment zones. It describes application procedures, a 60-day ruling period, repayment if meaningful construction does not begin within two years, and a narrower definition of manufacturing. The sponsors are listed as Senators Honeyford and Short.

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                            SENATE BILL REPORT
                                  SB 5029

                                      As of January 25, 2021

Title: An act relating to tax deferrals for investment projects in high unemployment counties.

Brief Description: Concerning tax deferrals for investment projects in high unemployment
     counties.

Sponsors: Senators Honeyford and Short.

Brief History:
     Committee Activity: Business, Financial Services & Trade: 1/26/21.


                                     Brief Summary of Bill
           • Creates a rural county sales and use tax deferral program from July 1,
             2021, to June 30, 2031, in high unemployment counties.




SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE

     Staff: Clinton McCarthy (786-7319)

     Background: The retail sales tax applies to the selling price of tangible personal property
     and of certain services purchased at retail. Sales tax is paid by the purchaser and collected
     by the seller. The use tax is imposed on items used in the state that were not subject to the
     retail sales tax and includes purchases made in other states and from sellers who do not
     collect Washington sales tax.

     In 2010, the Legislature extended the rural county sales and use tax deferral program from
     July 1, 2010, to July 1, 2020. Counties with an unemployment rate which is at least 20
     percent above the state average for three years and Community Empowerment Zones
     (CEZs) were made eligible under the program. For the purpose of hiring in CEZs, residents
     include people living within a county in which the zone is located.



     This analysis was prepared by non-partisan legislative staff for the use of legislative
     members in their deliberations. This analysis is not part of the legislation nor does it
     constitute a statement of legislative intent.

Senate Bill Report                              -1-                                             SB 5029
     The Department of Revenue (DOR) was directed to establish a list of qualifying counties by
     July 1, 2010, and update the list every two years based on Employment Security
     Department data.

     The definition of manufacturing was retroactively clarified to include computer
     programming and other related services only if the service provides a new, different, or
     useful substance or article of tangible personal property for sale. Computer programming
     and other computer related services are eliminated from the definition of manufacturing
     beginning July 1, 2010.

     Tax deferrals remained in place for up to two years during periods of temporary shutdowns
     in counties with a population of less than 20,000 people. To qualify for relief from paying
     deferred taxes during a temporary shutdown, the remaining labor force must be greater than
     10 percent of the recipient's labor force at the time the deferral was approved by DOR. If
     the number of employment positions falls below the 10 percent threshold during the two
     year period, the amount of deferred taxes outstanding is due immediately. Recipients
     seeking relief from paying deferred taxes must apply to and be approved by DOR. A
     recipient is entitled to this relief only once.

     The rural county sales and use tax deferral program expired on July 1, 2020.

     Summary of Bill: The rural county sales and use tax deferral program is created for a
     period from July 1, 2021, to June 30, 2031. Counties with an unemployment rate which is
     at least 20 percent above the state average for three years and community empowerment
     zones (CEZ) are eligible under the program. For the purpose of hiring in CEZs, residents
     include people living within a county in which the zone is located.

     Applying for a Tax Deferral. DOR is directed to issue a sales and use tax deferral
     certificate for state and local sales and use taxes on each eligible investment project. DOR
     has the authority to develop the application. Applications to defer must be made before the
     initiation of construction, and DOR must rule on the application within 60 days. DOR may
     not accept applications for deferral after June 30, 2031.

     Revocation of a Tax Deferral from a Recipient. Recipients for a deferral certificate must
     begin meaningful construction on an eligible investment project within two years of
     receiving a deferral certificate, unless there was a delay due to circumstances unrelated to
     funding beyond the applicant's control. If meaningful construction does not begin within
     two years of receiving a deferral certificate, the deferral certificate that has been issued is
     invalid and taxes deferred are due immediately.

     If the investment project is not operationally complete within five years from the issuance
     of the tax deferral certificate, or DOR finds an investment project is used for purposes other
     than a qualified manufacturing or research and development operation, a portion of the


Senate Bill Report                              -2-                                         SB 5029
     taxes is immediately due according to a schedule. If the economic benefits of the deferral
     are passed to a lessee, the lessee is responsible for payment to the extent the lessee has
     received the benefit. DOR must assess interest at the rate provided for delinquent taxes, but
     not penalties, retroactively to the date of deferral for a recipient who must repay deferred
     taxes.

     Changes in Definitions. The definition of manufacturing under the program is more
     narrowly defined to include only activities performed by research and development
     laboratories and commercial testing laboratories. Computer programing and other related
     activities are removed from the definition. The term "meaningful construction" means an
     active construction site where tangible signs of construction are taking place that show a
     progression in the construction process at the location designated by the taxpayer in the
     application for deferral.

     Qualified Counties. DOR, with the assistance of the Employment Security Department,
     must establish a list of qualifying counties effective July 1, 2021, and update the list every
     two years on July 1st.

     Appropriation: None.

     Fiscal Note: Available.

     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: The bill takes effect on July 1, 2021.




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