WAC 458-20-24002
Sales and use tax deferral -- New
manufacturing and research/development facilities. (1)
Introduction. Chapter 82.61 RCW, as amended, establishes a sales
and use tax deferral program for certain manufacturing or
research and development investment projects. The deferral will
be granted only to persons not currently engaged in manufacturing
or research and development activities in the state of Washington
on June 14, 1985, the effective date of the deferral program. Applications for the tax deferral may be accepted up through June
30, 1994; a holder of a tax deferral certificate must initiate
construction of the investment project within one hundred eighty
days of receiving approval from the department and issuance of
the tax deferral certificate. In general, the deferral applies
to the construction of new buildings and the acquisition of
related machinery and equipment.
(2) In addition to the tax deferral benefits of this
program, the department of employment security administers
economic incentives and funding programs which encourage "first
source contract" hiring of unemployed persons and state public
assistance recipients. The employment security department should
be contacted directly for information concerning such
nontax-related programs.
(3) Definition of terms. Unless the context clearly
requires otherwise, the definitions in this section apply
throughout this rule.
(4) "Applicant" means a person applying for a tax deferral
under this section.
(5) "Person" has the meaning given in RCW 82.04.030. It
means any individual, receiver, administrator, executor,
assignee, trustee in bankruptcy, trust, estate, firm,
copartnership, joint venture, club, company, joint stock company,
business trust, municipal corporation, political subdivision of
the state of Washington, corporation, association, society, or
any group of individuals acting as a unit, whether mutual,
cooperative, fraternal, nonprofit, or otherwise and the United
States or any instrumentality thereof. For purposes of this
section the relationship of landlord and tenant between separate
persons, at arms length, shall not be considered as any of the
types of relationships which are identified above as "persons".
(6) "Eligible investment project" means construction of new
buildings and the acquisition of new related machinery and
equipment when the buildings, machinery, and equipment are to be
used for either manufacturing or research and development
activities, which construction is commenced prior to December 31,
1994. (See subsection (37) of this section for special
provisions relating to aluminum plants.)
(7) "Manufacturing" means all activities of a commercial or
industrial nature wherein labor or skill is applied, by hand or
machinery, to materials so that as a result thereof a new,
different, or useful substance or article of tangible personal
property is produced for sale or commercial or industrial use and
includes the production or fabrication of specially made or
custom-made articles.
(8) "Research and development" means the development,
refinement, testing, marketing, and commercialization of a
product, service, or process before commercial sales have begun.
(9) "Buildings" means only those new structures used for
either manufacturing or research and development activities,
including plant offices and warehouses or other facilities for
the storage of raw materials or finished goods if such facilities
are an essential or integral part of a factory, mill, plant, or
laboratory used for manufacturing or research and development
purposes. If a building is used partly for manufacturing or
research and development purposes and partly for other purposes,
the applicable tax deferral shall be determined by apportionment
of the costs of construction under this section.
(10) "Machinery and equipment" means all new industrial and
research fixtures, equipment, and support facilities that are an
integral and necessary part of a manufacturing or research and
development operation.
(11) "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 or operate the machinery. For
purposes of this definition, new machinery and equipment means
either new to the taxing jurisdiction of the state or new to the
certificate holder. Used machinery and equipment are eligible
for deferral if the certificate holder either brings the
machinery and equipment into Washington for the first time or
makes a retail purchase of the machinery and equipment in
Washington.
(12) "Acquisition of equipment and machinery" shall have the
meaning given to the term "sale" in RCW 82.04.040. It means any
transfer of the ownership of, title to, or possession of,
tangible personal property for a valuable consideration. A sale
takes place when the goods sold are actually or constructively
delivered to the buyer in this state.
(13) "Recipient" means a person receiving a tax deferral
under this section.
(14) "Certificate holder" means an applicant to whom a tax
deferral certificate has been issued.
(15) "Operationally complete" means that the eligible
investment project is constructed or improved to the point of
being fully and functionally useable for the intended purpose as
described in the application.
(16) "Initiation of construction" means that date upon which
on-site construction commences.
(17) "Plant complex" shall mean land, machinery, and
buildings adapted to commercial, industrial, or research and
development use as a single functional or operational unit for
the designing, assembling, processing or manufacturing of
finished or partially finished products from raw materials or
fabricated parts.
(18) "Investment project" means an investment in qualified
buildings and qualified machinery and equipment, including labor
and services rendered in the planning, installation, and
construction of the project. A person who does not build its own
building, but leases from a third party, is eligible for sales
and use tax deferral provided that an investment in qualified
machinery and equipment is made by such person and a new
structure used to house the manufacturing activities is
constructed. The lessor/owner of the structure is not eligible
for deferral unless the underlying ownership of the buildings,
machinery, and equipment vests in the same persons. An eligible
investment project does not include any project which or person
who have previously been the recipient of a tax deferral under
Washington law.
(19) Application procedures. An application for sales and
use tax deferral under this program must be made prior to either
the initiation of construction or the acquisition of equipment or
machinery, as defined above, whichever occurs first. Application
forms will be supplied to the applicant by the department upon
request. The completed application is to be sent in duplicate to
the following address:
State of Washington
Department of Revenue
Audit Procedures & Review
Olympia, WA 98504
Mail Stop AX-02
(20) The application shall contain information regarding the
location of the investment project, estimated or actual costs,
time schedules for completion and operation, and other
information required by the department, including information
relating to employment at the investment project.
(21) The department will examine and verify the information
contained in the application and either approve or disapprove the
application within sixty days. If approved, a tax deferral
certificate will be issued effective as of the date the
application was received by the department. If disapproved, the
department shall notify the applicant as to the reason(s) for
disapproval. The applicant may seek administrative review of the
department's refusal to issue a certificate pursuant to the
provisions of WAC 458-20-100 within twenty days from the date of
notice of the department's refusal, or within any extension of
such time granted by the department. A certificate holder shall
initiate construction of the investment project within one
hundred eighty days of receiving approval from the department and
issuance of the tax deferral certificate.
(22) A tax deferral certificate shall only be issued to
persons who, on June 14, 1985, are not engaged in manufacturing
or research and development activities within this state. For
purposes of this section, a person shall not be considered to be
engaged in manufacturing or research and development activities
where the only activities performed by such person in this state
are sales, installation, repair, or promotional activities in
respect to products manufactured outside this state. Any person
who has succeeded by merger, consolidation, incorporation, or any
other form or change of identity to the business of a person
engaged in manufacturing or research and development activities
in this state on June 14, 1985 and any person who is a subsidiary
of a person engaged in manufacturing or research and development
activities in this state on June 14, 1985 shall also be
ineligible to receive a tax deferral certificate.
(23) No application for deferral of taxes shall be accepted
after June 30, 1994. For purposes of this regulation, the time
of receipt of an application shall be determined by the date
shown by the post office cancellation mark stamped upon the
envelope containing the application if transmitted by the United
States Postal Service, the date stamped on the envelope if
transmitted by another carrier, or the date of receipt if hand
delivered to an office of the department.
(24) Use of the certificate. A tax deferral certificate
issued under this program shall be for the use of the recipient
thereof for deferral of sales and use taxes due on each eligible
investment project. Deferral is limited only to investment in
qualified buildings, machinery, and equipment as defined in this
section. Thus, sales and use taxes cannot be deferred on items
which do not become part of the qualified buildings, machinery,
and equipment.
(25) The tax deferral certificate shall be used in a manner
similar to that of a resale certificate as set forth in WAC 458-20-102. The certificate holder shall provide its vendors
with a copy of the tax deferral certificate at the time goods or
services are purchased. The seller or vendor shall be relieved
of the responsibility for collection of the sales or use tax upon
presentation of the certificate. The seller or vendor shall
retain a copy of the certificate as part of its permanent
records. A blanket certificate may be provided by the
certificate holder and accepted by the seller covering all such
purchases relative to the eligible project. The seller or vendor
is liable for reporting business and occupation tax on all
deferral sales.
(26) Audit procedures. The certificate holder shall notify
the department in writing when the construction project is
operationally complete. Upon receipt of such notification or
other information, the department shall conduct a final audit of
the investment project. The certificate holder shall open its
books and records to the department and make available the final
cost figures for the investment project. The department may
request reasonable supporting documentation and other proof to
justify the final cost of the project.
(27) Upon completion of the audit the department shall
certify the amount of sales and use taxes subject to deferral and
the date on which the project was operationally complete. The
recipient shall be notified in writing of the total amount of
deferred taxes, the date(s) upon which the deferred taxes shall
be paid, and any reports required to be submitted in the
subsequent years. If the department disallows all or any portion
of the amount of sale and use taxes requested for deferral, the
recipient may seek administrative review of the department's
action pursuant to the provisions of WAC 458-20-100, within
twenty days from the date of the notice of disallowance.
(28) The deferral is allowable only in respect to investment
in the construction of a new plant complex used in manufacturing
or research and development activities, as defined above. Where
a plant complex is used partly for manufacturing or research and
development purposes and partly for purposes which do not qualify
for deferral under this section and it is not possible to
identify the nonqualifying items through separate accounting, the
applicable tax deferral shall be determined by apportionment
according to the ratio which the construction cost per square
foot of that portion of the plant complex directly used for
manufacturing purposes bears to the construction cost per square
foot of the total plant complex.
(29) The amount of tax deferral allowable for leased
equipment shall be calculated upon that amount of the
consideration paid by the lessee/recipient to the lessor:
(a) Over the initial term of the lease, excluding any period
of extension or option to renew, where the lease term ends on or
before the last date for repayment of the deferred taxes; or
(b) Over that portion of the lease term to the last date for
repayment of deferred taxes as provided hereinafter, where the
lease term, excluding any period of extension or option to renew
extends beyond such repayment date.
(30) After that date the lessee/recipient shall pay the
appropriate sales tax to the lessor for the remaining term of the
lease.
(31) No taxes may be deferred under this section prior to
June 14, 1985. No applications for deferral of taxes will be
accepted after June 30, 1994, nor will sales or use tax deferral
certificates be issued after August 29, 1994. A certificate
holder must commence construction of the investment project
within one hundred eighty days of receiving approval from the
department and issuance of the tax deferral certificate but no
later than December 31, 1994.
(32) Reporting and monitoring procedure. An applicant must
provide the department with the estimated cost of the investment
project at the time the application is made. The applicant shall
also provide information relative to the number of jobs
contemplated to be created by the project.
(33) The department and the department of trade and economic
development shall jointly make two reports to the legislature
about the effect of this deferral law on new manufacturing and
research and development activities and projects in Washington. The report shall contain information concerning the number of
deferral certificates granted, the amount of state and local
sales and use taxes deferred, the number of jobs created, and
other information useful in measuring such effects. The
departments shall submit their joint reports to the legislature
by January 1, 1986 and by January 1 of each year through 1995.
(34) Any recipient of a sales and use tax deferral may be
asked to submit reports to the department or department of trade
and economic development during any period of time the recipient
is receiving benefits under this deferral law. The report shall
be made to the department in a form and manner prescribed by the
department. The recipient may be asked to report information
regarding the actual average employment related to the project,
the actual wages of the employees related to the project, and any
other information required by the department. If the recipient
fails to submit a report, the department may not impose any
penalties or sanctions against the recipient.
(35) Payment procedures. The recipient of sales and use tax
deferral under this program shall begin paying the deferred taxes
in the third year after the date certified by the department as
the date on which the construction project was operationally
complete. The first payment will be due on December 31st of the
third calendar year after such certified date, with subsequent
annual payments due on December 31st of the following four years,
with amounts of payment scheduled as follows:
Repayment
Year
Percentage of
Deferred Tax Repaid
1
10%
2
15%
3
20%
4
25%
5
30%
(36) The department may authorize an accelerated repayment
schedule upon request of the recipient. Interest shall not be
charged on any taxes deferred under this program during the
period of deferral, although other penalties and interest
applicable to delinquent excise taxes may be assessed and imposed
for any delinquent payments during the repayment period pursuant
to chapter 82.32 RCW. The debt for deferred taxes shall not be
extinguished by insolvency or other failure of the recipient nor
shall the debt for the deferred taxes be extinguished by the
sale, exchange, or other disposition of the recipient's business.
Any person who becomes a successor (see WAC 458-20-216) to such
investment project shall be liable for the full amount of any
unpaid, deferred taxes under the same terms and conditions as the
original recipient.
(37) Special provisions affecting aluminum production
facilities. Effective May 19, 1987, the law makes special
provisions for sales and use tax deferrals for new or used
equipment, machinery and operating property, and labor and
services in connection with the startup or continued operation of
aluminum smelter facilities which were in operation before 1975,
but which have ceased operations (or are in imminent danger of
ceasing operations). Also, such special provisions may apply to
modernization projects involving the construction, acquisition,
or upgrading of new or used equipment and machinery to increase
the operating efficiency of aluminum smelters or aluminum rolling
mills and facilities. Such special provisions entail
consultation with collective bargaining units for existing
employees as well as the concurrence by such bargaining units
with the deferral requested. Persons who operate such facilities
should contact the department of revenue to determine if the
sales and use tax deferrals are available in any specific case.
(38) Disclosure of information. The law provides that
information contained in applications, reports, and other
information received by the department in connection with this
tax deferral program shall not be confidential and shall be
subject to disclosure.