Senate Bill 6137 — Reinstating Semiconductor Tax Incentives (State of Washington, 2024 Regular Session)

Summary

Senate Bill 6137 of the 68th Legislature, 2024 Regular Session, State of Washington, by Senators including Cleveland, referred to the Committee on Business, Financial Services, Gaming & Trade. The act relates to reinstating semiconductor tax incentives, amending and reenacting sections of the RCW, providing expiration dates and declaring an emergency. Section 1 reenacts and amends RCW 82.32.790 to make listed tax provisions contingent on the siting and commercial operation of a significant semiconductor microchip fabrication facility in Washington, with significant meaning a combined investment of at least $1,000,000,000. Its last section states that the act is necessary for the immediate preservation of the public peace, health, or safety and takes effect immediately.

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Full text

     S-3617.4

                               SENATE BILL 6137


     State of Washington       68th Legislature         2024 Regular Session

     By Senators Cleveland, L. Wilson, and Holy

     Read first time 01/10/24.       Referred   to   Committee   on   Business,
     Financial Services, Gaming & Trade.




1        AN ACT Relating to reinstating semiconductor tax incentives;
2    amending RCW 82.04.2404, 82.08.9651, and 82.12.9651; reenacting and
3    amending RCW 82.32.790, 82.04.426, 82.04.448, 82.08.965, 82.08.970,
4    82.12.965, 82.12.970, and 84.36.645; adding a new section to chapter
5    82.04 RCW; creating new sections; providing a contingent effective
6    date; providing expiration dates; providing contingent expiration
7    dates; and declaring an emergency.


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


 9       Sec. 1. RCW 82.32.790 and 2022 c 56 s 11 are each reenacted and
10   amended to read as follows:
11       (1)(a) ((Sections 510, 512, 514, 516, 518, 520, 522, and 524,
12   chapter 37, Laws of 2017 3rd sp. sess., sections 9, 13, 17, 22, 24,
13   30, 32, and 45, chapter 135, Laws of 2017, sections 104, 110, 117,
14   123, 125, 129, 131, and 150, chapter 114, Laws of 2010, and sections
15   1, 2, 3, and 5 through 10, chapter 149, Laws of 2003)) RCW 82.04.426,
16   82.04.448, 82.08.965, 82.08.970, 82.12.965, 82.12.970, 84.36.645, and
17   section 2 of this act are contingent upon the siting and commercial
18   operation of a significant semiconductor microchip fabrication
19   facility in the state of Washington by January 1, ((2024)) 2034.
20       (b) For the purposes of this section:


                                     p. 1                               SB 6137
 1       (i) "Commercial operation" means the same as "commencement of
 2   commercial production" as used in RCW 82.08.965.
 3       (ii) "Semiconductor microchip fabrication" means "manufacturing
 4   semiconductor microchips" as defined in RCW 82.04.426.
 5       (iii) "Significant" means the combined investment of new
 6   buildings and new machinery and equipment in the buildings, at the
 7   commencement of commercial production, will be at least ((one billion
 8   dollars)) $1,000,000,000.
 9       (2) The sections referenced in subsection (1) of this section
10   take effect the first day of the month in which a contract for the
11   construction of a significant semiconductor fabrication facility is
12   signed, if the contract is signed and received by January 1, ((2024))
13   2034, as determined by the director of the department of revenue.
14       (3)(a) The department of revenue must provide notice of the
15   effective date of the sections referenced in subsection (1) of this
16   section to affected taxpayers, the legislature, the office of the
17   code reviser, and others as deemed appropriate by the department.
18        (b) If, after making a determination that a contract has been
19   signed and the sections referenced in subsection (1) of this section
20   are effective, the department discovers that commencement of
21   commercial production did not take place within three years of the
22   date    the  contract  was  signed,   the  department   must  make   a
23   determination that ((chapter 149, Laws of 2003 is)) are no longer
24   effective, and all taxes that would have been otherwise due are
25   deemed deferred taxes and are immediately assessed and payable from
26   any person reporting tax under ((RCW 82.04.240(2))) section 2 of this
27   act or claiming an exemption or credit under RCW 82.04.426,
28   82.04.448, 82.08.965, 82.12.965, 82.08.970, 82.12.970, or 84.36.645.
29   The department is not authorized to make a second determination
30   regarding the effective date of the sections referenced in subsection
31   (1) of this section.
32        (4)(a) This section expires January 1, ((2024)) 2035, if the
33   contingency in subsection (2) of this section does not occur by
34   January 1, ((2024)) 2034, as determined by the department.
35        (b) The department must provide written notice of the expiration
36   date of this section and the sections referenced in subsection (1) of
37   this section to affected taxpayers, the legislature, the office of
38   the code reviser, and others as deemed appropriate by the department.



                                     p. 2                          SB 6137
 1       NEW SECTION.   Sec. 2.   A new section is added to chapter 82.04
 2   RCW to read as follows:
 3       (1) Upon every person engaging within this state in the business
 4   of manufacturing semiconductor materials, as to such persons the
 5   amount of tax with respect to such business is, in the case of
 6   manufacturers, equal to the value of the product manufactured, or, in
 7   the case of processors for hire, equal to the gross income of the
 8   business, multiplied by the rate of 0.275 percent. For the purposes
 9   of this subsection "semiconductor materials" means silicon crystals,
10   silicon   ingots,   raw  polished   semiconductor    wafers, compound
11   semiconductors, integrated circuits, and microchips.
12       (2) A person reporting under the tax rate provided in this
13   section must file a complete annual tax performance report with the
14   department under RCW 82.32.534.
15       (3) Pursuant to RCW 82.32.790, this section is contingent on the
16   siting and commercial operation of a significant semiconductor
17   microchip fabrication facility in the state of Washington.
18       (4) This section expires January 1, 2034, unless the contingency
19   in RCW 82.32.790(2) occurs.


20       Sec. 3.   RCW 82.04.426 and 2017 3rd sp.s. c 37 s 524 are each
21   reenacted and amended to read as follows:
22       (1) The tax imposed by ((RCW 82.04.240(2))) section 2 of this act
23   does not apply to any person in respect to the manufacturing of
24   semiconductor microchips.
25       (2) For the purposes of this section:
26       (a) "Manufacturing semiconductor microchips" means taking raw
27   polished semiconductor wafers and embedding integrated circuits on
28   the wafers using processes such as masking, etching, and diffusion;
29   and
30       (b) "Integrated circuit" means a set of microminiaturized,
31   electronic circuits.
32       (3) A person reporting under the tax rate provided in this
33   section must file a complete annual tax performance report with the
34   department under RCW 82.32.534.
35       (4) Pursuant to RCW 82.32.790, this section is contingent on the
36   siting and commercial operation of a significant semiconductor
37   microchip fabrication facility in the state of Washington.
38       (5) This section expires January 1, ((2024)) 2034, unless the
39   contingency in RCW 82.32.790(2) occurs.
                                     p. 3                          SB 6137
 1       Sec. 4.   RCW 82.04.448 and 2017 3rd sp.s. c 37 s 516 are each
 2   reenacted and amended to read as follows:
 3       (1) Subject to the limits and provisions of this section, a
 4   credit is authorized against the tax otherwise due under ((RCW
 5   82.04.240(2))) section 2 of this act for persons engaged in the
 6   business of manufacturing semiconductor materials. For the purposes
 7   of this section "semiconductor materials" has the same meaning as
 8   provided in ((RCW 82.04.240(2))) section 2 of this act.
 9       (2)(a) The credit under this section equals ((three thousand
10   dollars)) $3,000 for each employment position used in manufacturing
11   production that takes place in a new building exempt from sales and
12   use tax under RCW 82.08.965 and 82.12.965. A credit is earned for the
13   calendar year a person fills a position. Additionally a credit is
14   earned for each year the position is maintained over the subsequent
15   consecutive years, up to eight years. Those positions that are not
16   filled for the entire year are eligible for ((fifty)) 50 percent of
17   the credit if filled less than six months, and the entire credit if
18   filled more than six months.
19       (b) To qualify for the credit, the manufacturing activity of the
20   person must be conducted at a new building that qualifies for the
21   exemption from sales and use tax under RCW 82.08.965 and 82.12.965.
22       (c) In those situations where a production building in existence
23   on the effective date of this section will be phased out of
24   operation, during which time employment at the new building at the
25   same site is increased, the person is eligible for credit for
26   employment at the existing building and new building, with the
27   limitation that the combined eligible employment not exceed full
28   employment at the new building. "Full employment" has the same
29   meaning as in RCW 82.08.965. The credit may not be earned until the
30   commencement of commercial production, as that term is used in RCW
31   82.08.965.
32       (3) No application is necessary for the tax credit. The person is
33   subject to all of the requirements of chapter 82.32 RCW. In no case
34   may a credit earned during one calendar year be carried over to be
35   credited against taxes incurred in a subsequent calendar year. No
36   refunds may be granted for credits under this section.
37       (4) If at any time the department finds that a person is not
38   eligible for tax credit under this section, the amount of taxes for
39   which a credit has been claimed is immediately due. The department
40   must assess interest, but not penalties, on the taxes for which the
                                     p. 4                          SB 6137
 1   person is not eligible. The interest must be assessed at the rate
 2   provided for delinquent excise taxes under chapter 82.32 RCW, is
 3   retroactive to the date the tax credit was taken, and accrues until
 4   the taxes for which a credit has been used are repaid.
 5       (5) A person claiming the credit under this section must file a
 6   complete annual tax performance report with the department under RCW
 7   82.32.534.
 8       (6) Credits may be claimed after the expiration date of this
 9   section, for those buildings at which commercial production began
10   before the expiration date of this section, subject to all of the
11   eligibility criteria and limitations of this section.
12       (7) Pursuant to RCW 82.32.790, this section is contingent on the
13   siting and commercial operation of a significant semiconductor
14   microchip fabrication facility in the state of Washington.
15       (8) This section expires January 1, ((2024)) 2034, unless the
16   contingency in RCW 82.32.790(2) occurs.


17       Sec. 5.   RCW 82.08.965 and 2017 3rd sp.s. c 37 s 510 are each
18   reenacted and amended to read as follows:
19       (1) The tax levied by RCW 82.08.020 does not apply to charges
20   made for labor and services rendered in respect to the constructing
21   of new buildings used for the manufacturing of semiconductor
22   materials, to sales of tangible personal property that will be
23   incorporated as an ingredient or component of such buildings during
24   the course of the constructing, or to labor and services rendered in
25   respect to installing, during the course of constructing, building
26   fixtures not otherwise eligible for the exemption under RCW
27   82.08.02565(2)(b). The exemption is available only when the buyer
28   provides the seller with an exemption certificate in a form and
29   manner prescribed by the department. The seller must retain a copy of
30   the certificate for the seller's files.
31       (2) To be eligible under this section the manufacturer or
32   processor for hire must meet the following requirements for an eight-
33   year period, such period beginning the day the new building commences
34   commercial production, or a portion of tax otherwise due will be
35   immediately due and payable pursuant to subsection (3) of this
36   section:
37       (a) The manufacturer or processor for hire must maintain at least
38   ((seventy-five)) 75 percent of full employment at the new building
39   for which the exemption under this section is claimed.
                                     p. 5                          SB 6137
 1       (b) Before commencing commercial production at a new facility the
 2   manufacturer or processor for hire must meet with the department to
 3   review projected employment levels in the new buildings. The
 4   department, using information provided by the taxpayer, must make a
 5   determination of the number of positions that would be filled at full
 6   employment. This number must be used throughout the eight-year period
 7   to determine whether any tax is to be repaid. This information is not
 8   subject to the confidentiality provisions of RCW 82.32.330 and may be
 9   disclosed to the public upon request.
10       (c) In those situations where a production building in existence
11   on the effective date of this section will be phased out of operation
12   during which time employment at the new building at the same site is
13   increased, the manufacturer or processor for hire must maintain
14   seventy-five percent of full employment at the manufacturing site
15   overall.
16       (d) No application is necessary for the tax exemption. The person
17   is subject to all the requirements of chapter 82.32 RCW. A person
18   claiming the exemption under this section must file a complete annual
19   tax performance report with the department under RCW 82.32.534.
20       (3) If the employment requirement is not met for any one calendar
21   year, one-eighth of the exempt sales and use taxes will be due and
22   payable by April 1st of the following year. The department must
23   assess interest to the date the tax was imposed, but not penalties,
24   on the taxes for which the person is not eligible.
25       (4) The exemption applies to new buildings, or parts of
26   buildings, that are used exclusively in the manufacturing of
27   semiconductor materials, including the storage of raw materials and
28   finished product.
29       (5) For the purposes of this section:
30       (a) "Commencement of commercial production" is deemed to have
31   occurred when the equipment and process qualifications in the new
32   building are completed and production for sale has begun.
33       (b) "Full employment" is the number of positions required for
34   full capacity production at the new building, for positions such as
35   line workers, engineers, and technicians.
36       (c) "Semiconductor materials" has the same meaning as provided in
37   ((RCW 82.04.240(2))) section 2 of this act.
38       (6) No exemption may be taken after the expiration date of this
39   section, however all of the eligibility criteria and limitations are
40   applicable to any exemptions claimed before that date.
                                     p. 6                          SB 6137
1        (7) Pursuant to RCW 82.32.790, this section is contingent on the
2    siting and commercial operation of a significant semiconductor
3    microchip fabrication facility in the state of Washington.
4        (8) This section expires January 1, ((2024)) 2034, unless the
5    contingency in RCW 82.32.790(2) occurs.


 6       Sec. 6.   RCW 82.08.970 and 2017 3rd sp.s. c 37 s 520 are each
 7   reenacted and amended to read as follows:
 8       (1) The tax levied by RCW 82.08.020 does not apply to sales of
 9   gases and chemicals used by a manufacturer or processor for hire in
10   the manufacturing of semiconductor materials. This exemption is
11   limited to gases and chemicals used in the manufacturing process to
12   grow the product, deposit or grow permanent or sacrificial layers on
13   the product, to etch or remove material from the product, to anneal
14   the product, to immerse the product, to clean the product, and other
15   such uses whereby the gases and chemicals come into direct contact
16   with the product during the manufacturing process, or uses of gases
17   and chemicals to clean the chambers and other like equipment in which
18   such processing takes place. For the purposes of this section,
19   "semiconductor materials" has the same meaning as provided in ((RCW
20   82.04.240(2))) section 2 of this act.
21       (2) A person claiming the exemption under this section must file
22   a complete annual tax performance report with the department under
23   RCW 82.32.534. No application is necessary for the tax exemption. The
24   person is subject to all of the requirements of chapter 82.32 RCW.
25       (3) Pursuant to RCW 82.32.790, this section is contingent on the
26   siting and commercial operation of a significant semiconductor
27   microchip fabrication facility in the state of Washington.
28       (4) This section expires January 1, ((2024)) 2034, unless the
29   contingency in RCW 82.32.790(2) occurs.


30       Sec. 7.   RCW 82.12.965 and 2017 3rd sp.s. c 37 s 512 are each
31   reenacted and amended to read as follows:
32       (1) The provisions of this chapter do not apply with respect to
33   the use of tangible personal property that will be incorporated as an
34   ingredient or component of new buildings used for the manufacturing
35   of semiconductor materials during the course of constructing such
36   buildings or to labor and services rendered in respect to installing,
37   during the course of constructing, building fixtures not otherwise
38   eligible for the exemption under RCW 82.08.02565(2)(b).
                                     p. 7                          SB 6137
 1       (2) The eligibility requirements, conditions, and definitions in
 2   RCW 82.08.965 apply to this section, including the filing of a
 3   complete annual tax performance report with the department under RCW
 4   82.32.534.
 5       (3) No exemption may be taken after the expiration date of this
 6   section, however all of the eligibility criteria and limitations are
 7   applicable to any exemptions claimed before that date.
 8       (4) Pursuant to RCW 82.32.790, this section is contingent on the
 9   siting and commercial operation of a significant semiconductor
10   microchip fabrication facility in the state of Washington.
11       (5) This section expires January 1, ((2024)) 2034, unless the
12   contingency in RCW 82.32.790(2) occurs.

13       Sec. 8.   RCW 82.12.970 and 2017 3rd sp.s. c 37 s 522 are each
14   reenacted and amended to read as follows:
15       (1) The provisions of this chapter do not apply with respect to
16   the use of gases and chemicals used by a manufacturer or processor
17   for hire in the manufacturing of semiconductor materials. This
18   exemption is limited to gases and chemicals used in the manufacturing
19   process to grow the product, deposit or grow permanent or sacrificial
20   layers on the product, to etch or remove material from the product,
21   to anneal the product, to immerse the product, to clean the product,
22   and other such uses whereby the gases and chemicals come into direct
23   contact with the product during the manufacturing process, or uses of
24   gases and chemicals to clean the chambers and other like equipment in
25   which such processing takes place. For purposes of this section,
26   "semiconductor materials" has the same meaning as provided in ((RCW
27   82.04.240(2))) section 2 of this act.
28       (2) A person claiming the exemption under this section must file
29   a complete annual tax performance report with the department under
30   RCW 82.32.534. No application is necessary for the tax exemption. The
31   person is subject to all of the requirements of chapter 82.32 RCW.
32       (3) Pursuant to RCW 82.32.790, this section is contingent on the
33   siting and commercial operation of a significant semiconductor
34   microchip fabrication facility in the state of Washington.
35       (4) This section expires January 1, ((2024)) 2034, unless the
36   contingency in RCW 82.32.790(2) occurs.


37       Sec. 9.   RCW 84.36.645 and 2017 3rd sp.s. c 37 s 514 are each
38   reenacted and amended to read as follows:
                                     p. 8                          SB 6137
 1       (1) Machinery and equipment exempt under RCW 82.08.02565 or
 2   82.12.02565 used in manufacturing semiconductor materials at a
 3   building exempt from sales and use tax and in compliance with the
 4   employment requirement under RCW 82.08.965 and 82.12.965 are exempt
 5   from property taxation. "Semiconductor materials" has the same
 6   meaning as provided in ((RCW 82.04.240(2))) section 2 of this act.
 7       (2) A person seeking this exemption must make application to the
 8   county assessor, on forms prescribed by the department.
 9       (3) A person claiming an exemption under this section must file a
10   complete annual tax performance report with the department under RCW
11   82.32.534.
12       (4) This section ((is effective for)) applies to taxes levied for
13   collection ((one year after the effective date of section 150,
14   chapter 114, Laws of 2010)) in the calendar year subsequent to the
15   effective date of this section and thereafter.
16       (5) Pursuant to RCW 82.32.790, this section is contingent on the
17   siting and commercial operation of a significant semiconductor
18   microchip fabrication facility in the state of Washington.
19       (6) This section expires January 1, ((2024)) 2034, unless the
20   contingency in RCW 82.32.790(2) occurs.


21       Sec. 10. RCW 82.04.2404 and 2021 c 145 s 6 are each amended to
22   read as follows:
23       (1) Upon every person engaging within this state in the business
24   of manufacturing or processing for hire semiconductor materials, as
25   to such persons the amount of tax with respect to such business is,
26   in the case of manufacturers, equal to the value of the product
27   manufactured, or, in the case of processors for hire, equal to the
28   gross income of the business, multiplied by the rate of 0.275
29   percent.
30       (2) For the purposes of this section "semiconductor materials"
31   means silicon crystals, silicon ingots, raw polished semiconductor
32   wafers, and compound semiconductor wafers.
33       (3) A person reporting under the tax rate provided in this
34   section must file a complete annual tax performance report with the
35   department under RCW 82.32.534.
36       (4) Any person who has claimed the preferential tax rate under
37   this section must reimburse the department for ((fifty)) 50 percent
38   of the amount of the tax preference under this section, if the number
39   of persons employed by the person claiming the tax preference is less
                                     p. 9                          SB 6137
 1   than ((ninety)) 90 percent of the person's three-year employment
 2   average for the three years immediately preceding the year in which
 3   the preferential tax rate is claimed.
 4       (5) This section expires ((December)) January 1, ((2028)) 2034.


 5       Sec. 11. RCW 82.08.9651 and 2021 c 145 s 12 are each amended to
 6   read as follows:
 7       (1) The tax levied by RCW 82.08.020 does not apply to sales of
 8   gases and chemicals used by a manufacturer or processor for hire in
 9   the production of semiconductor materials. This exemption is limited
10   to gases and chemicals used in the production process to grow the
11   product, deposit or grow permanent or sacrificial layers on the
12   product, to etch or remove material from the product, to anneal the
13   product, to immerse the product, to clean the product, and other such
14   uses whereby the gases and chemicals come into direct contact with
15   the product during the production process, or uses of gases and
16   chemicals to clean the chambers and other like equipment in which
17   such processing takes place. For the purposes of this section,
18   "semiconductor materials" has the meaning provided in RCW 82.04.2404
19   and 82.04.294(3).
20       (2) A person claiming the exemption under this section must file
21   a complete annual tax performance report with the department under
22   RCW 82.32.534.
23       (3) No application is necessary for the tax exemption. The person
24   is subject to all of the requirements of chapter 82.32 RCW.
25       (4) Any person who has claimed the exemption under this section
26   must reimburse the department for ((fifty)) 50 percent of the amount
27   of the tax preference under this section, if the number of persons
28   employed by the person claiming the tax preference is less than
29   ((ninety)) 90 percent of the person's three-year employment average
30   for the three years immediately preceding the year in which the
31   exemption is claimed.
32       (5) This section expires ((December)) January 1, ((2028)) 2034.


33       Sec. 12. RCW 82.12.9651 and 2021 c 145 s 15 are each amended to
34   read as follows:
35       (1) The provisions of this chapter do not apply with respect to
36   the use of gases and chemicals used by a manufacturer or processor
37   for hire in the production of semiconductor materials. This exemption
38   is limited to gases and chemicals used in the production process to
                                     p. 10                         SB 6137
 1   grow the product, deposit or grow permanent or sacrificial layers on
 2   the product, to etch or remove material from the product, to anneal
 3   the product, to immerse the product, to clean the product, and other
 4   such uses whereby the gases and chemicals come into direct contact
 5   with the product during the production process, or uses of gases and
 6   chemicals to clean the chambers and other like equipment in which
 7   such processing takes place. For purposes of this section,
 8   "semiconductor materials" has the meaning provided in RCW 82.04.2404
 9   and 82.04.294(3).
10       (2) A person claiming the exemption under this section must file
11   a complete annual tax performance report with the department under
12   RCW 82.32.534.
13       (3) No application is necessary for the tax exemption. The person
14   is subject to all of the requirements of chapter 82.32 RCW.
15       (4) Any person who has claimed the exemption under this section
16   must reimburse the department for ((fifty)) 50 percent of the amount
17   of the tax preference under this section, if the number of persons
18   employed by the person claiming the tax preference is less than
19   ((ninety)) 90 percent of the person's three-year employment average
20   for the three years immediately preceding the year in which the
21   exemption is claimed.
22       (5) This section expires ((December)) January 1, ((2028)) 2034.


23       NEW SECTION. Sec. 13.   RCW 82.32.808 does not apply to sections
24   2 through 9 of this act.


25       NEW SECTION.   Sec. 14.   (1) This section is the tax preference
26   performance statement for section 10, chapter . . ., Laws of 2024
27   (section 10 of this act). This performance statement is only intended
28   to be used for subsequent evaluation of the tax preference. It is not
29   intended to create a private right of action by any party or be used
30   to determine eligibility for preferential tax treatment.
31       (2) The tax preference performance statement in section 1,
32   chapter 139, Laws of 2020 applies to the expansion of the tax
33   preference in section 10 of this act.


34       NEW SECTION.   Sec. 15.  (1) This section is the tax preference
35   performance statement for sections 11 and 12, chapter . . ., Laws of
36   2024 (sections 11 and 12 of this act). This performance statement is
37   only intended to be used for subsequent evaluation of the tax
                                     p. 11                         SB 6137
1    preferences. It is not intended to create a private right of action
2    by any party or be used to determine eligibility for the preferential
3    tax treatment.
4        (2) The tax preference performance statement in section 2,
5    chapter 139, Laws of 2020 applies to the expansion of the tax
6    preferences in sections 11 and 12 of this act.

 7       NEW SECTION. Sec. 16. This act is necessary for the immediate
 8   preservation of the public peace, health, or safety, or support of
 9   the state government and its existing public institutions, and takes
10   effect immediately.

                                  --- END ---




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