Fiscal Note - 5029 SB Investment project tax defs. (Multiple Agency)
Summary
Multiple Agency Fiscal Note Summary for bill 5029 SB, titled Investment project tax defs., with a Department of Revenue fiscal note and a local government fiscal note. The Department of Revenue rollup lists estimated cash receipts of (13,608,000) in GF-State for 2021-23 and estimated operating expenditures of 138,900 with 0.3 FTE for the same period. Its narrative says that, under current law, applications for the deferral and the department's authority to issue deferral certificates expired July 1, 2020, and that the bill adds new sections to Chapter 82.60. The local government fiscal note lists a total of (5,930,100) for 2021-23.
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“Fiscal Note - 5029 SB Investment project tax defs. (Multiple Agency).”
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Multiple Agency Fiscal Note Summary
Bill Number: 5029 SB Title: Investment project tax defs.
Estimated Cash Receipts
Agency Name 2021-23 2023-25 2025-27
GF-State NGF-Outlook Total GF-State NGF-Outlook Total GF-State NGF-Outlook Total
Department of (13,608,000) (13,608,000) (13,630,000) (17,971,000) (17,971,000) (18,000,000) (20,667,000) (20,667,000) (20,700,000)
Revenue
Total $ (13,608,000) (13,608,000) (13,630,000) (17,971,000) (17,971,000) (18,000,000) (20,667,000) (20,667,000) (20,700,000)
Agency Name 2021-23 2023-25 2025-27
GF- State Total GF- State Total GF- State Total
Local Gov. Courts
Loc School dist-SPI
Local Gov. Other (5,930,100) (7,821,000) (8,989,200)
Local Gov. Total (5,930,100) (7,821,000) (8,989,200)
Estimated Operating Expenditures
Agency Name 2021-23 2023-25 2025-27
FTEs GF-State NGF-Outlook Total FTEs GF-State NGF-Outlook Total FTEs GF-State NGF-Outlook Total
Department of .3 138,900 138,900 138,900 .2 38,800 38,800 38,800 .2 38,800 38,800 38,800
Revenue
Total $ 0.3 138,900 138,900 138,900 0.2 38,800 38,800 38,800 0.2 38,800 38,800 38,800
Estimated Capital Budget Expenditures
Agency Name 2021-23 2023-25 2025-27
FTEs Bonds Total FTEs Bonds Total FTEs Bonds Total
Department of Revenue .0 0 0 .0 0 0 .0 0 0
Total $ 0.0 0 0 0.0 0 0 0.0 0 0
Estimated Capital Budget Breakout
NONE
Prepared by: Ramona Nabors, OFM Phone: Date Published:
(360) 902-0547 Final 1/25/2021
FNPID: 61285
FNS029 Multi Agency rollup
Department of Revenue Fiscal Note
Bill Number: 5029 SB Title: Investment project tax defs. Agency: 140-Department of
Revenue
Part I: Estimates
No Fiscal Impact
Estimated Cash Receipts to:
Account FY 2022 FY 2023 2021-23 2023-25 2025-27
GF-STATE-State (5,631,000) (7,977,000) (13,608,000) (17,971,000) (20,667,000)
01 - Taxes 01 - Retail Sales Tax
Performance Audits of Government (9,000) (13,000) (22,000) (29,000) (33,000)
Account-State
01 - Taxes 01 - Retail Sales Tax
Total $ (5,640,000) (7,990,000) (13,630,000) (18,000,000) (20,700,000)
Estimated Expenditures from:
FY 2022 FY 2023 2021-23 2023-25 2025-27
FTE Staff Years 0.5 0.2 0.3 0.2 0.2
Account
GF-STATE-State 001-1 119,500 19,400 138,900 38,800 38,800
Total $ 119,500 19,400 138,900 38,800 38,800
Estimated Capital Budget Impact:
NONE
The cash receipts and expenditure estimates on this page represent the most likely fiscal impact. Factors impacting the precision of these estimates,
and alternate ranges (if appropriate), are explained in Part II.
Check applicable boxes and follow corresponding instructions:
If fiscal impact is greater than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete entire fiscal note
X
form Parts I-V.
If fiscal impact is less than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete this page only (Part I).
X Capital budget impact, complete Part IV.
X Requires new rule making, complete Part V.
Legislative Contact: Clinton McCarthy Phone: 360-786-7319 Date: 01/11/2021
Agency Preparation: Marianne McIntosh Phone: 360-534-1505 Date: 01/13/2021
Agency Approval: Don Gutmann Phone: 360-534-1510 Date: 01/13/2021
OFM Review: Ramona Nabors Phone: (360) 902-0547 Date: 01/25/2021
Request # 5029-1-1
Form FN (Rev 1/00) 162,052.00 1 Bill # 5029 SB
FNS062 Department of Revenue Fiscal Note
Part II: Narrative Explanation
II. A - Brief Description Of What The Measure Does That Has Fiscal Impact
Briefly describe, by section number, the significant provisions of the bill, and any related workload or policy assumptions, that have revenue or
expenditure impact on the responding agency.
Note: This fiscal note reflects language in SB 5029, 2021 Legislative Session.
CURRENT LAW
Chapter 82.60 provides a sales and use tax deferral for qualified investment projects located in high unemployment counties or
community empowerment zones. To qualify a firm must be involved in manufacturing, activities of research and development
or commercial testing laboratories, or conditioning of vegetable seeds. The investment project includes qualified buildings or
machinery and equipment, including labor and services rendered in the planning, installation and construction of the project.
High unemployment counties means a county with an unemployment rate, as determined by the Department of Employment
Security, of at least 20% above the state average for the three calendar years immediately preceding the year in which the list
of qualifying counties is established or updated. The qualifying county list is effective for a 24 month period and must be
updated by July 1st, two years following the last update.
For investment projects located in a community empowerment zone, applicants must hire at least one qualified employment
position for each $750,000 of investment. The position must be filled by persons who, at the time of hire, are residents of the
community empowerment zone or the county in which the zone is located. The qualified position must be filled by the end of
the calendar year in which the project is operationally complete. If the position is not filled by the end of the second calendar
year following the year in with the project is operationally complete, then all deferred taxes are immediately due.
The deferral becomes a waiver of the tax if the business maintains qualified business activities for eight years. If the
investment project is no longer utilized for qualifying business activities prior to fulfilling the eight year requirement, the
deferred taxes become immediately due based on the following schedule:
Year qualifying activities cease Percent tax due
1 100%
2 100%
3 100%
4 100%
5 90%
6 75%
7 55%
8 30%
Applications for the deferral as well as the Department of Revenue’s (Department) authority to issue deferral certificates
expired July 1, 2020. Deferral applications approved prior to July 1, 2020 are valid as long as the requirements stated in
Chapter 82.60 are met.
Persons receiving the benefit of the deferral are required to file an annual tax performance report beginning the year following
the year in which the project is operationally complete and continue filing for next seven years.
PROPOSED LAW
The bill adds new sections to Chapter 82.60 to allow the Department to accept new deferral applications and issue deferral
certificates. Both sections expire July 1, 2031.
The bill adds a new section to 82.60 to include the requirement that recipients of a deferral certificate must begin meaningful
Request # 5029-1-1
Form FN (Rev 1/00) 162,052.00 2 Bill # 5029 SB
FNS062 Department of Revenue Fiscal Note
construction on an eligible investment project within two years of receiving a deferral certificate, unless construction was
delayed due to circumstances beyond the recipient’s control. Lack of funding is not considered beyond the recipient’s control.
If the recipient does not begin meaningful construction within two years, the issued deferral certificate is invalid and taxes
deferred are due immediately. 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.
The bill amends the repayment schedule if the investment project is not being utilized for qualifying purposes for the seven
years immediately following the project certified as operationally complete. In addition, if the investment project is not
operationally complete within five calendar years from the issuance of the tax deferral certificate, then the deferred taxes are
due immediately. The payment schedule is amended to the following:
Year in which use occurs Percent of deferred tax due
1 100%
2 87.5%
3 75%
4 62.5%
5 50%
6 37.5%
7 25%
8 12.5%
RCW 82.60.060 (repayment schedule) and RCW 82.60.065 (Tax deferral on construction labor and investment projects -
repayment forgiven) are repealed. Deferrals qualifying prior to July 1, 2020 continue to follow the repayment schedule under
RCW 82.60.060 if the project is not being utilized for qualifying activity for the seven years after certified operationally
complete.
EFFECTIVE DATE
This bill takes effect on July 1, 2021.
II. B - Cash receipts Impact
Briefly describe and quantify the cash receipts impact of the legislation on the responding agency, identifying the cash receipts provisions by section
number and when appropriate the detail of the revenue sources. Briefly describe the factual basis of the assumptions and the method by which the
cash receipts impact is derived. Explain how workload assumptions translate into estimates. Distinguish between one time and ongoing functions.
ASSUMPTIONS
- Nine month impact for Fiscal Year 2022, applications accepted beginning July 1, 2021 and the Department has 60 days to
review.
- This estimate uses a national level investment in fixed assets data that has been adjusted to reflect Washington State
investment levels.
- Large investments in new structures, machinery, and equipment expenditures that would qualify for the
deferral/exemption are difficult to predict; therefore, this estimate assumes no large new structures will be built in
Washington. Large projects may significantly change the fiscal impact.
- The statewide average local tax rate is 2.88533 percent.
- Annual growth is equal to the growth in non-residential investment in R&D and private investment in industrial facilities
for the United - States as reflected in the November 2020 IHS Markit forecast.
- 25 of the 39 counties qualify for the high unemployment deferral based on Employment Security Department's 2019
"Distressed areas list" as of May 12, 2020.
- The qualifying counties are as follows:
Adams Douglas Grays Harbor Mason Skamania
Benton Ferry Jefferson Okanogan Spokane
Clallam Franklin Kittitas Pacific Stevens
Request # 5029-1-1
Form FN (Rev 1/00) 162,052.00 3 Bill # 5029 SB
FNS062 Department of Revenue Fiscal Note
Columbia Garfield Klickitat Pend Oreille Wahkiakum
Cowlitz Grant Lewis Skagit Yakima
- It is assumed the qualifying counties remain high unemployment counties until the deferral expires.
- The Department may not accept deferral applications after June 30, 2031.
DATA SOURCES
- Employment Security Department, 2019 list of distressed areas
- Department of Revenue, Excise tax returns and high unemployment county deferral data
- IHS Market forecast for non-residential investment in R&D and private investment in industrial facilities, November
2020
- Bureau of Labor Statistics, employment data
- Bureau of Economic Analysis, fixed asset data
REVENUE ESTIMATES
This bill decreases state revenues by an estimated $5.6 million in the 9 months of impacted collections in Fiscal Year
2022, and by $8 million in Fiscal Year 2023, the first full year of impacted collections. This bill also decreases local
revenues by an estimated $2.5 million in the 9 months of impacted collections in Fiscal Year 2022, and by $3.5 million in
Fiscal Year 2023, the first full year of impacted collections.
TOTAL REVENUE IMPACT:
State Government (cash basis, $000):
FY 2022 - ($ 5,640)
FY 2023 - ($ 7,990)
FY 2024 - ($ 8,640)
FY 2025 - ($ 9,360)
FY 2026 - ($ 10,050)
FY 2027 - ($ 10,650)
Local Government, if applicable (cash basis, $000):
FY 2022 - ($ 2,480)
FY 2023 - ($ 3,510)
FY 2024 - ($ 3,790)
FY 2025 - ($ 4,110)
FY 2026 - ($ 4,410)
FY 2027 - ($ 4,670)
II. C - Expenditures
Briefly describe the agency expenditures necessary to implement this legislation (or savings resulting from this legislation), identifying by section
number the provisions of the legislation that result in the expenditures (or savings). Briefly describe the factual basis of the assumptions and the method
by which the expenditure impact is derived. Explain how workload assumptions translate into cost estimates. Distinguish between one time and
ongoing functions.
ASSUMPTIONS:
This bill affects 30 taxpayers.
FIRST YEAR COSTS:
The Department will incur total costs of $119,500 in Fiscal Year 2022. These costs include:
Labor Costs – Time and effort equates to 0.47 FTEs.
- Create a Special Notice and identify publications that need to be created or updated.
- Respond to email inquiries and more difficult call backs from the telephone information center.
- Amend one administrative rule.
Request # 5029-1-1
Form FN (Rev 1/00) 162,052.00 4 Bill # 5029 SB
FNS062 Department of Revenue Fiscal Note
- Complete non-qualifying audits annually.
- Perform and complete computer system testing.
Object Costs - $70,400.
- Contract computer system programming.
SECOND YEAR COSTS:
The Department will incur total costs of $19,400 in Fiscal Year 2023. These costs include:
Labor Costs – Time and effort equates to 0.2 FTEs.
- Complete non-qualifying audits annually.
ONGOING COSTS:
Ongoing costs for the 2023-2025 Biennium equal $38,800 and include similar activities described in the second year costs.
Time and effort equates to 0.2 FTEs.
Part III: Expenditure Detail
III. A - Expenditures by Object Or Purpose
FY 2022 FY 2023 2021-23 2023-25 2025-27
FTE Staff Years 0.5 0.2 0.3 0.2 0.2
A-Salaries and Wages 29,200 11,900 41,100 23,800 23,800
B-Employee Benefits 10,500 4,300 14,800 8,600 8,600
C-Professional Service Contracts 70,400 70,400
E-Goods and Other Services 5,400 2,300 7,700 4,600 4,600
G-Travel 700 700 1,400 1,400 1,400
J-Capital Outlays 3,300 200 3,500 400 400
Total $ $119,500 $19,400 $138,900 $38,800 $38,800
III. B - Detail: List FTEs by classification and corresponding annual compensation. Totals need to agree with total FTEs in Part I
and Part IIIA
Job Classification Salary FY 2022 FY 2023 2021-23 2023-25 2025-27
EMS BAND 4 119,061 0.0 0.0
IT QA-JOURNEY 85,644 0.1 0.1
MGMT ANALYST4 70,956 0.0 0.0
REVENUE AUDITOR 2 59,688 0.2 0.2 0.2 0.2 0.2
TAX INFO SPEC 4 64,332 0.1 0.1
TAX POLICY SP 2 72,756 0.0 0.0
TAX POLICY SP 3 82,344 0.0 0.0
TAX POLICY SP 4 88,644 0.0 0.0
WMS BAND 3 101,257 0.0 0.0
Total FTEs 0.5 0.2 0.4 0.2 0.2
III. C - Expenditures By Program (optional)
NONE
Part IV: Capital Budget Impact
IV. A - Capital Budget Expenditures
NONE
Request # 5029-1-1
Form FN (Rev 1/00) 162,052.00 5 Bill # 5029 SB
FNS062 Department of Revenue Fiscal Note
IV. B - Expenditures by Object Or Purpose
NONE
IV. C - Capital Budget Breakout
Identify acquisition and construction costs not reflected elsewhere on the fiscal note and dexcribe potential financing methods
NONE
None.
Part V: New Rule Making Required
Identify provisions of the measure that require the agency to adopt new administrative rules or repeal/revise existing rules.
Should this legislation become law, the Department will use the expedited process to amend WAC 458-20-24001, titled:
"Sales and use tax deferral-Manufacturing and research/development activities in high unemployment counties-Applications
filed after June 30, 2010".
Persons affected by this rule-making would include taxpayers who may qualify for the deferral.
Request # 5029-1-1
Form FN (Rev 1/00) 162,052.00 6 Bill # 5029 SB
FNS062 Department of Revenue Fiscal Note
LOCAL GOVERNMENT FISCAL NOTE
Department of Commerce
Bill Number: 5029 SB Title: Investment project tax defs.
Part I: Jurisdiction-Location, type or status of political subdivision defines range of fiscal impacts.
Legislation Impacts:
X Cities: decrease in sales tax revenue
X Counties: decrease in sales tax revenue
X Special Districts: decrease in sales tax revenue
Specific jurisdictions only:
Variance occurs due to:
Part II: Estimates
No fiscal impacts.
Expenditures represent one-time costs:
Legislation provides local option:
Key variables cannot be estimated with certainty at this time:
Estimated revenue impacts to:
Jurisdiction FY 2022 FY 2023 2021-23 2023-25 2025-27
City (737,166) (1,043,328) (1,780,494) (2,348,232) (2,698,980)
County (864,514) (1,223,566) (2,088,080) (2,753,894) (3,165,236)
Special District (853,520) (1,208,006) (2,061,526) (2,718,874) (3,124,984)
TOTAL $ (2,455,200) (3,474,900) (5,930,100) (7,821,000) (8,989,200)
GRAND TOTAL $ (22,740,300)
Estimated expenditure impacts to:
None
Part III: Preparation and Approval
Fiscal Note Analyst: Tammi Vellinga Phone: 360-725-5038 Date: 01/15/2021
Leg. Committee Contact: Clinton McCarthy Phone: 360-786-7319 Date: 01/11/2021
Agency Approval: Allan Johnson Phone: 360-725-5033 Date: 01/15/2021
OFM Review: Ramona Nabors Phone: (360) 902-0547 Date: 01/25/2021
Page 1 of 3 Bill Number: 5029 SB
FNS060 Local Government Fiscal Note
Part IV: Analysis
A. SUMMARY OF BILL
Provide a clear, succinct description of the bill with an emphasis on how it impacts local government .
BACKGROUND
Chapter 82.60 provides a sales and use tax deferral for qualified investment projects located in high unemployment counties or community
empowerment zones. Applications for the deferral as well as the Department of Revenue’s authority to issue deferral certificates expired
July 1, 2020. Deferral applications approved prior to July 1, 2020 are valid as long as the requirements stated in Chapter 82 .60 are met.
BILL SUMMARY
The bill adds new sections to Chapter 82.60 to allow the Department to accept new deferral applications and issue deferral certificates ,
both expire July 1, 2031.
The bill adds a new section to 82.60 to include the requirement that recipients of a deferral certificate must begin meaningful construction
on an eligible investment project within two years of receiving a deferral certificate, unless construction was delayed due to circumstances
beyond the recipient’s control. Lack of funding is not considered beyond the recipient’s control. If the recipient does not begin meaningful
construction within two years, the issued deferral certificate is invalid and taxes deferred are due immediately.
This bill also amends the repayment schedule if the investment project is not being utilized for qualifying purposes for the seven years
immediately following the project certified as operationally complete. In addition, if the investment project is not operationally complete
within five calendar years from the issuance of the tax deferral certificate, then the deferred taxes are due immediately. The payment
schedule is amended to the following:
Year in which Percent of deferred
use occurs tax due
1 100%
2 87.5%
3 75%
4 62.5%
5 50%
6 37.5%
7 25%
8 12.5%
This bill would repeal RCW 82.60.060 and RCW 82.60.065.
This bill would take effect July 1, 2021.
B. SUMMARY OF EXPENDITURE IMPACTS
Briefly describe and quantify the expenditure impacts of the legislation on local governments , identifying the expenditure provisions by
section number, and when appropriate, the detail of expenditures. Delineate between city, county and special district impacts.
This bill would not impact local government expenditures.
C. SUMMARY OF REVENUE IMPACTS
Briefly describe and quantify the revenue impacts of the legislation on local governments , identifying the revenue provisions by section
number, and when appropriate, the detail of revenue sources. Delineate between city, county and special district impacts.
According to the Department of Revenue, this bill would decrease local government revenues by an estimated $2 ,480,000 in the 9 months
of impacted collections in Fiscal Year 2022, and by $3.5 million in Fiscal Year 2023, the first full year of impacted collections.
ASSUMPTIONS
- Nine month impact for Fiscal Year 2022, applications accepted beginning July 1, 2021 and the Department has 60 days to review.
- This estimate uses a national level investment in fixed assets data that has been adjusted to reflect Washington State investment levels .
- Large investments in new structures, machinery, and equipment expenditures that would qualify for the deferral/exemption are difficult
to predict; therefore, this estimate assumes no large new structures will be built in Washington. Large projects may significantly change
the fiscal impact.
Page 2 of 3 Bill Number: 5029 SB
FNS060 Local Government Fiscal Note
- The statewide average local tax rate is 2.88533 percent.
- Annual growth is equal to the growth in non-residential investment in R&D and private investment in industrial facilities for the United -
States as reflected in the November 2020 IHS Markit forecast.
- 25 of the 39 counties qualify for the high unemployment deferral based on Employment Security Department's 2019 "Distressed areas
list" as of May 12, 2020.
- The qualifying counties are as follows:
Adams Douglas Grays Harbor Mason Skamania
Benton Ferry Jefferson Okanogan Spokane
Clallam Franklin Kittitas Pacific Stevens
Columbia Garfield Klickitat Pend Oreille Wahkiakum
Cowlitz Grant Lewis Skagit Yakima
- It is assumed the qualifying counties remain high unemployment counties until the deferral expires .
- The Department of Revenue may not accept deferral applications after June 30 , 2031.
DATA SOURCES
- Employment Security Department, 2019 list of distressed areas
- Department of Revenue, Excise tax returns and high unemployment county deferral data
- IHS Market forecast for non-residential investment in R&D and private investment in industrial facilities , November 2020
- Bureau of Labor Statistics, employment data
- Bureau of Economic Analysis, fixed asset data
LOCAL GOVERNMENT REVENUE IMPACT:
Counties:
FY 2022 -864,513
FY 2023 -1,223,565
FY 2024 -1,321,172
FY 2025 -1,432,722
FY 2026 -1,537,300
FY 2027 -1,627,935
Cities:
FY 2022 -737,166
FY 2023 -1,043,328
FY 2024 -1,126,556
FY 2025 -1,221,674
FY 2026 -1,310,848
FY 2027 -1,388,131
Special Districts:
FY 2022 -853,520
FY 2023 -1,208,006
FY 2024 -1,304,371
FY 2025 -1,414,502
FY 2026 -1,517,751
FY 2027 -1,607,233
METHODOLOGY:
The distributions in this note for cities, counties, and special districts are based on DOR data for local sales and use tax distributions from
Calendar Year 2019. Mitigation payments and distributions to hospital benefit zones are not factored into this distribution . This results in a
distribution of 35.21 percent to counties, 30.02 percent to cities, and 34.76 percent to special districts. The one percent DOR
administrative fee has also been deducted.
SOURCES:
Department of Revenue Fiscal Note, SB 5029, 2021
Department of Revenue Local Tax Distributions (2019)
Local Government Fiscal Note program, Local Sales Tax model 2021
Local Government Fiscal Note program, Sales and Use Tax Distribution model 2021
Page 3 of 3 Bill Number: 5029 SB
FNS060 Local Government Fiscal Note
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