Senate Bill 5029 - State of Washington 67th Legislature (2021 Regular Session)
Summary
Senate Bill 5029 of the State of Washington 67th Legislature, 2021 Regular Session, is a bill by Senators Honeyford and Short, prefiled December 22, 2020, read first time January 11, 2021 and referred to the Committee on Business, Financial Services & Trade. The act relates to tax deferrals for investment projects in high unemployment counties and adds new sections to chapter 82.60 RCW. It defines a qualifying county as one with an unemployment rate at least 20 percent above the state average for the three calendar years preceding the year the list is established or updated. New sections direct the department to issue a sales and use tax deferral certificate on each eligible investment project and bar applications after June 30, 2031. The bill declares an emergency and takes effect July 1, 2021.
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“Senate Bill 5029 - State of Washington 67th Legislature (2021 Regular Session).”
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S-0133.5
SENATE BILL 5029
State of Washington 67th Legislature 2021 Regular Session
By Senators Honeyford and Short
Prefiled 12/22/20. Read first time 01/11/21. Referred to Committee
on Business, Financial Services & Trade.
1 AN ACT Relating to tax deferrals for investment projects in high
2 unemployment counties; amending RCW 82.60.010, 82.60.020, 82.60.049,
3 82.60.070, and 82.60.120; adding new sections to chapter 82.60 RCW;
4 repealing RCW 82.60.060 and 82.60.065; providing an effective date;
5 providing expiration dates; and declaring an emergency.
6 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
7 Sec. 1. RCW 82.60.010 and 2010 1st sp.s. c 16 s 1 are each
8 amended to read as follows:
9 The legislature finds that there are ((several areas)) counties
10 in the state that ((are characterized by very high levels of
11 unemployment and poverty)) experience chronically high levels of
12 unemployment and that state policies are necessary to promote
13 economic stimulation and new employment opportunities in these
14 counties. The legislature further finds that ((economic stagnation is
15 the primary cause of this high unemployment rate and poverty; that
16 new state policies are necessary in order to promote economic
17 stimulation and new employment opportunities in these distressed
18 areas; and that policies providing incentives for economic growth in
19 these distressed areas are essential)) firms participating in a tax
20 deferral program in high unemployment counties created more jobs and
21 experienced higher levels of income growth than firms that did not
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1 participate in the deferral. For these reasons, the legislature
2 reestablishes a tax deferral program to be effective solely in
3 ((distressed)) counties experiencing high levels of unemployment. The
4 legislature declares that this limited program serves the vital
5 public purpose of creating employment opportunities and reducing
6 poverty in ((the distressed)) counties experiencing levels of
7 unemployment that are higher than those of the state.
8 Sec. 2. RCW 82.60.020 and 2010 1st sp.s. c 16 s 2 are each
9 amended to read as follows:
10 Unless the context clearly requires otherwise, the definitions in
11 this section apply throughout this chapter.
12 (1) "Applicant" means a person applying for a tax deferral under
13 this chapter.
14 (2) "Department" means the department of revenue.
15 (3) "Eligible area" means((:
16 (a) Through June 30, 2010, a rural county as defined in RCW
17 82.14.370; and
18 (b) Beginning July 1, 2010,)) a qualifying county.
19 (4)(a) "Eligible investment project" means an investment project
20 that is located, as of the date the application required by ((RCW
21 82.60.030)) section 3 of this act is received by the department, in
22 an eligible area as defined in subsection (3) of this section.
23 (b) "Eligible investment project" does not include any portion of
24 an investment project undertaken by a light and power business as
25 defined in RCW 82.16.010(4), other than that portion of a
26 cogeneration project that is used to generate power for consumption
27 within the manufacturing site of which the cogeneration project is an
28 integral part, or investment projects that have already received
29 deferrals under this chapter.
30 (5) "Initiation of construction" has the same meaning as in RCW
31 82.63.010.
32 (6) "Investment project" means an investment in qualified
33 buildings or qualified machinery and equipment, including labor and
34 services rendered in the planning, installation, and construction of
35 the project.
36 (7) "Manufacturing" means the same as defined in RCW 82.04.120.
37 "Manufacturing" also includes:
38 (a) ((Before July 1, 2010: (i) Computer programming, the
39 production of computer software, and other computer-related services,
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1 but only when the computer programming, production of computer
2 software, or other computer-related services are performed by a
3 manufacturer as defined in RCW 82.04.110 and contribute to the
4 production of a new, different, or useful substance or article of
5 tangible personal property for sale; (ii) the activities performed by
6 research and development laboratories and commercial testing
7 laboratories; and (iii) the conditioning of vegetable seeds; and
8 (b) Beginning July 1, 2010: (i))) The activities performed by
9 research and development laboratories and commercial testing
10 laboratories; and (((ii) the))
11 (b) The conditioning of vegetable seeds.
12 (8) "Meaningful construction" means an active construction site,
13 where excavation of a building site, laying of a building foundation,
14 or other tangible signs of construction are taking place and that
15 clearly show a progression in the construction process at the
16 location designated by the taxpayer in the application for deferral.
17 Planning, permitting, or land clearing before excavation of the
18 building site, without more, does not constitute "meaningful
19 construction."
20 (9) "Person" has the meaning given in RCW 82.04.030.
21 (((9))) (10) "Qualified buildings" means construction of new
22 structures, and expansion or renovation of existing structures for
23 the purpose of increasing floor space or production capacity used for
24 manufacturing or research and development activities, including plant
25 offices and warehouses or other facilities for the storage of raw
26 material or finished goods if such facilities are an essential or an
27 integral part of a factory, mill, plant, or laboratory used for
28 manufacturing or research and development. If a building is used
29 partly for manufacturing or research and development and partly for
30 other purposes, the applicable tax deferral must be determined by
31 apportionment of the costs of construction under rules adopted by the
32 department.
33 (((10))) (11) "Qualified employment position" means a permanent
34 full-time employee employed in the eligible investment project during
35 the entire tax year. The term "entire tax year" means a full-time
36 position that is filled for a period of ((twelve)) 12 consecutive
37 months. The term "full-time" means at least ((thirty-five)) 35 hours
38 a week, ((four hundred fifty-five)) 455 hours a quarter, or ((one
39 thousand eight hundred twenty)) 1,820 hours a year.
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1 (((11))) (12) "Qualified machinery and equipment" means all new
2 industrial and research fixtures, equipment, and support facilities
3 that are an integral and necessary part of a manufacturing or
4 research and development operation. "Qualified machinery and
5 equipment" includes: Computers; software; data processing equipment;
6 laboratory equipment; manufacturing components such as belts,
7 pulleys, shafts, and moving parts; molds, tools, and dies; operating
8 structures; and all equipment used to control or operate the
9 machinery.
10 (((12))) (13) "Qualifying county" means a county that has an
11 unemployment rate, as determined by the employment security
12 department, which is at least ((twenty)) 20 percent above the state
13 average for the three calendar years immediately preceding the year
14 in which the list of qualifying counties is established or updated,
15 as the case may be, as provided in RCW 82.60.120.
16 (((13))) (14) "Recipient" means a person receiving a tax deferral
17 under this chapter.
18 (((14))) (15) "Research and development" means the development,
19 refinement, testing, marketing, and commercialization of a product,
20 service, or process before commercial sales have begun, but only when
21 such activities are intended to ultimately result in the production
22 of a new, different, or useful substance or article of tangible
23 personal property for sale. As used in this subsection, "commercial
24 sales" excludes sales of prototypes or sales for market testing if
25 the total gross receipts from such sales of the product, service, or
26 process do not exceed ((one million dollars)) $1,000,000.
27 NEW SECTION. Sec. 3. A new section is added to chapter 82.60
28 RCW to read as follows:
29 (1) Application for deferral of taxes under this chapter must be
30 made before initiation of the construction of the investment project
31 or acquisition of equipment or machinery. The application must be
32 made to the department in a form and manner prescribed by the
33 department. The application must contain information regarding the
34 location of the investment project, the applicant's average
35 employment in the state for the prior year, estimated or actual new
36 employment related to the project, estimated or actual wages of
37 employees related to the project, estimated or actual costs, time
38 schedules for completion and operation, and other information
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1 required by the department. The department must rule on the
2 application within 60 days.
3 (2) The department may not accept applications for the deferral
4 under this chapter after June 30, 2031.
5 (3) This section expires July 1, 2031.
6 NEW SECTION. Sec. 4. A new section is added to chapter 82.60
7 RCW to read as follows:
8 (1) The department must issue a sales and use tax deferral
9 certificate for state and local sales and use taxes due under
10 chapters 82.08, 82.12, and 82.14 RCW on each eligible investment
11 project.
12 (2) The department must keep a running total of all deferrals
13 granted under this chapter during each fiscal biennium.
14 (3) This section expires July 1, 2031.
15 NEW SECTION. Sec. 5. A new section is added to chapter 82.60
16 RCW to read as follows:
17 (1) The recipient of a deferral certificate under section 4 of
18 this act must begin meaningful construction on an eligible investment
19 project within two years of receiving a deferral certificate, unless
20 construction was delayed due to circumstances beyond the recipient's
21 control. Lack of funding is not considered a circumstance beyond the
22 recipient's control.
23 (2) If the recipient does not begin meaningful construction on an
24 eligible investment project within two years of receiving a deferral
25 certificate, the deferral certificate issued under section 4 of this
26 act is invalid and taxes deferred under this chapter are due
27 immediately.
28 Sec. 6. RCW 82.60.049 and 2010 1st sp.s. c 16 s 7 are each
29 amended to read as follows:
30 (1) For the purposes of this section:
31 (a) "Eligible area" also means a designated community empowerment
32 zone approved under RCW 43.31C.020.
33 (b) "Eligible investment project" also means an investment
34 project in an eligible area as defined in this section.
35 (2) In addition to the provisions of ((RCW 82.60.040)) section 4
36 of this act, the department shall issue a sales and use tax deferral
37 certificate for state and local sales and use taxes due under
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1 chapters 82.08, 82.12, and 82.14 RCW, on each eligible investment
2 project that is located in an eligible area, if the applicant
3 establishes that at the time the project is operationally complete:
4 (a) The applicant will hire at least one qualified employment
5 position for each ((seven hundred fifty thousand dollars)) $750,000
6 of investment for which a deferral is requested; and
7 (b) The positions will be filled by persons who at the time of
8 hire are residents of the community empowerment zone. As used in this
9 subsection, "resident" means the person makes his or her home in the
10 community empowerment zone or the county in which the zone is
11 located. A mailing address alone is insufficient to establish that a
12 person is a resident for the purposes of this section. The persons
13 must be hired after the date the application is filed with the
14 department.
15 (3) All other provisions and eligibility requirements of this
16 chapter apply to applicants eligible under this section.
17 (4) The qualified employment position must be filled by the end
18 of the calendar year following the year in which the project is
19 certified as operationally complete. If a person does not meet the
20 requirements for qualified employment positions by the end of the
21 second calendar year following the year in which the project is
22 certified as operationally complete, all deferred taxes are
23 immediately due.
24 Sec. 7. RCW 82.60.070 and 2017 c 135 s 36 are each amended to
25 read as follows:
26 (1)(a) Each recipient of a deferral of taxes granted under this
27 chapter must file a complete annual tax performance report with the
28 department under RCW 82.32.534 during the period covered by the
29 schedule under subsection (2) of this section. If the economic
30 benefits of the deferral are passed to a lessee as provided in RCW
31 82.60.025, the lessee must file a complete annual tax performance
32 report, and the applicant is not required to file a complete annual
33 tax performance report.
34 (b) The ((department)) joint legislative audit and review
35 committee, as part of its tax preference review process under chapter
36 43.136 RCW, must use the information reported on the annual tax
37 performance report required by this section to study the tax deferral
38 program authorized under this chapter. The ((department)) committee
39 must report to the legislature by December 1, ((2018)) 2028. The
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1 report must measure the effect of the program on job creation, the
2 number of jobs created for residents of eligible areas, company
3 growth, and such other factors as the ((department)) committee
4 selects.
5 (2) ((Except as provided in RCW 82.60.063, if, on the basis of a
6 tax performance report under RCW 82.32.534 or other information, the
7 department finds that an investment project is not eligible for tax
8 deferral under this chapter, the amount of deferred taxes outstanding
9 for the project, according to the repayment schedule in RCW
10 82.60.060, is immediately due.)) (a) Except as otherwise provided in
11 this chapter, taxes deferred under this chapter need not be repaid.
12 (b) If the investment project is not operationally complete
13 within five calendar years from the issuance of the tax deferral
14 certificate, or if, on the basis of the tax performance report under
15 RCW 82.32.534 or other information, the department finds that an
16 investment project is used for purposes other than a qualified
17 manufacturing or research and development operation at any time
18 during the calendar year in which the investment project is certified
19 by the department as having been operationally completed, or at any
20 time during any of the seven succeeding calendar years, a portion of
21 deferred taxes is immediately due according to the following
22 schedule:
23 Year in which % of deferred taxes due
24 use occurs
25 1 100%
26 2 87.5%
27 3 75%
28 4 62.5%
29 5 50%
30 6 37.5%
31 7 25%
32 8 12.5%
33 (c) If the economic benefits of the deferral are passed to a
34 lessee as provided in RCW 82.60.025, the lessee is responsible for
35 payment to the extent the lessee has received the economic benefit.
36 (3) For purposes of ((this)) subsection (2) of this section, the
37 repayment schedule ((in RCW 82.60.060)) is tolled during the period
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1 of time that a taxpayer is receiving relief from repayment of
2 deferred taxes under RCW 82.60.063.
3 (((3))) (4) A recipient who must repay deferred taxes under
4 subsection (((2))) (3) of this section because the department has
5 found that an investment project is not eligible for tax deferral
6 under this chapter is no longer required to file annual tax
7 performance reports under RCW 82.32.534 beginning on the date an
8 investment project is used for nonqualifying purposes.
9 (((4))) (5) The department must assess interest at the rate
10 provided for delinquent taxes, but not penalties, retroactively to
11 the date of deferral for a recipient who must repay deferred taxes
12 under subsection (3) of this section because the department has found
13 that an investment project is not eligible for tax deferral. The debt
14 for deferred taxes will not be extinguished by insolvency or other
15 failure of the recipient. Transfer of ownership does not terminate
16 the deferral. The deferral is transferred, subject to the successor
17 meeting the eligibility requirements of this chapter, for the
18 remaining periods of the deferral.
19 (6) Notwithstanding any other provision of this section or RCW
20 82.32.534, deferred taxes on the following need not be repaid:
21 (a) Machinery and equipment, and sales of or charges made for
22 labor and services, which at the time of purchase would have
23 qualified for exemption under RCW 82.08.02565; and
24 (b) Machinery and equipment which at the time of first use would
25 have qualified for exemption under RCW 82.12.02565.
26 Sec. 8. RCW 82.60.120 and 2010 1st sp.s. c 16 s 3 are each
27 amended to read as follows:
28 The department, with the assistance of the employment security
29 department, must establish a list of qualifying counties, effective
30 July 1, ((2010)) 2021. The list of qualifying counties is effective
31 for a ((twenty-four)) 24-month period and must be updated by July 1st
32 of the year that is two calendar years after the list was established
33 or last updated, as the case may be.
34 NEW SECTION. Sec. 9. The following acts or parts of acts are
35 each repealed:
36 (1) RCW 82.60.060 (Repayment schedule) and 2010 1st sp.s. c 16 s
37 8, 2000 c 106 s 5, & 1985 c 232 s 5; and
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1 (2) RCW 82.60.065 (Tax deferral on construction labor and
2 investment projects—Repayment forgiven) and 1995 1st sp.s. c 3 s 8,
3 1994 sp.s. c 1 s 6, & 1986 c 116 s 14.
4 NEW SECTION. Sec. 10. This act is necessary for the immediate
5 preservation of the public peace, health, or safety, or support of
6 the state government and its existing public institutions, and takes
7 effect July 1, 2021.
--- END ---
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