Bill Summary – FastDemocracy

H-1567.2
                           SUBSTITUTE HOUSE BILL 1729
     State of Washington         68th Legislature       2023 Regular Session
     By House Finance (originally sponsored by Representatives Abbarno,
     Klicker, Volz, Orcutt, Schmidt, and Cheney)
     READ FIRST TIME 03/13/23.
     AN ACT Relating to creating and expanding tax incentives for the
 research, development, production, and sale of hydrogen fuel products
 in Washington state; adding new sections to chapter 82.04 RCW;
 creating a new section; and providing expiration dates.
 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
     NEW SECTION.   Sec. 1.   (1) This section is the tax preference
 performance statement for the tax preferences contained in sections
 2, 3, and 4, chapter . . ., Laws of 2023 (sections 2, 3, and 4 of
 this act). This performance statement is only intended to be used for
 subsequent evaluation of the tax preference. It is not intended to
 create a private right of action by any party or be used to determine
 eligibility for preferential tax treatment.
     (2) The legislature categorizes these tax preferences as ones
 intended to induce certain designated behavior by taxpayers, improve
 industry competitiveness, and create or retain jobs, as indicated in
 RCW 82.32.808(2) (a), (b), and (c).
     (3) It is the legislature's specific public policy objective to
 encourage hydrogen fuel product research, development, deployment,
 and manufacture in Washington, and to increase the number and wage
 level of jobs in this industry.
                                       p. 1                         SHB 1729
     (4) The joint legislative audit and review committee must
 evaluate:
     (a) The number of businesses and employees in this state focused
 on hydrogen fuel product research, development, deployment, or
 manufacture, including examination of employee wages and benefits;
     (b) Whether Washington businesses focused on hydrogen fuel
 product research, development, and manufacturing in the state have
 made advancements in hydrogen fuel product technology, which may
 include examination of the number of patents filed with the United
 States patent and trademark office, research and development
 spending, products delivered to market, and any other metrics deemed
 relevant by the committee; and
     (c) Business and employment changes in hydrogen fuel product
 research, development, deployment, and manufacture in Washington
 compared with national changes in the industry.
     (5) In order to obtain the data necessary to perform the review
 in subsection (4) of this section, the joint legislative audit and
 review committee may access and use any relevant data collected by
 the state, including information contained on the annual tax
 performance reports and excise tax data submitted to the department
 of revenue and employment and wage data submitted to the employment
 security department.
     NEW SECTION.   Sec. 2.   A new section is added to chapter 82.04
 RCW to read as follows:
     PREFERENTIAL BUSINESS AND OCCUPATION TAX RATE. (1)(a) Beginning
 January 1, 2024, upon every person engaging within this state in the
 business of research, development, deployment, or manufacturing
 hydrogen fuel products, as to such persons the amount of tax with
 respect to such business is, in the case of persons engaged in the
 research, development, or deployment or manufacturers, equal to the
 value of the product manufactured, or in the case of processors for
 hire, equal to the gross income of the business, multiplied by the
 rate of 0.2904 percent.
     (b) Beginning January 1, 2024, upon every person engaging within
 this state in the business of making sales of, at retail or
 wholesale, or using for research or deployment, hydrogen fuel
 products manufactured by the person, as to such persons the amount of
 tax with respect to such business is equal to the gross proceeds of
 sales, multiplied by the rate of 0.2904 percent.
                                     p. 2                         SHB 1729
     (2) The preferential tax rate authorized under this section
 applies only to persons compensating workers at prevailing wage rates
 determined by local collective bargaining as determined by the
 department of labor and industries. This subsection applies only to
 job classifications where prevailing wage rates are available.
     (3) For purposes of this section, the definitions in this
 subsection apply.
     (a) "Hydrogen" means green electrolytic hydrogen, as defined in
 RCW 82.89.010.
     (b) "Hydrogen electrolyzer" means a technology that uses an
 electrochemical reaction to generate hydrogen in any form by
 combining water and electricity in the presence of a catalyst.
     (c) "Hydrogen fuel cell" means a technology that uses an
 electrochemical reaction to generate electric energy by combining
 atoms of hydrogen and oxygen in the presence of a catalyst.
     (d) "Hydrogen fuel product" means a hydrogen     fuel   cell   or   a
 hydrogen electrolyzer.
     (4) This section expires January 1, 2035.
     NEW SECTION.   Sec. 3.   A new section is added to chapter 82.04
 RCW to read as follows:
     BUSINESS AND OCCUPATION TAX CREDIT FOR HYDROGEN FUEL PRODUCT
 RESEARCH AND DEVELOPMENT. (1) In computing the tax imposed under this
 chapter, a credit is allowed for each person for qualified hydrogen
 fuel product development. For a person who is a researcher,
 developer, or manufacturer or processor for hire of hydrogen fuel
 products, credit may be earned for expenditures occurring after
 January 1, 2024.
     (2) The credit is equal to the amount of qualified hydrogen fuel
 product development expenditures of a person, multiplied by the rate
 of 1.75 percent.
     (3) The credit under this section must be claimed against taxes
 due for the same calendar year in which the qualified hydrogen fuel
 product development expenditures are incurred. The credit for each
 calendar year may not exceed the amount of tax otherwise due under
 this chapter for the calendar year. Refunds may not be granted in the
 place of a credit.
     (4) Any person claiming the credit must file an electronic form
 prescribed by the department that includes the amount of the credit
 claimed, an estimate of the anticipated hydrogen fuel product
                                     p. 3                          SHB 1729
 development expenditures during the calendar year for which the
 credit is claimed, an estimate of the taxable amount during the
 calendar year for which the credit is claimed, and such additional
 information as the department may prescribe. A person whose reporting
 period is less than annual must make an adjustment to the total
 credit claimed for the calendar year using the person's actual
 hydrogen fuel product development expenditures for the calendar year
 when the person files its last return for the calendar year for which
 the credit is claimed.
     (5) The credit authorized under this section may only be claimed
 by persons compensating each employee engaged in qualified hydrogen
 fuel product development at an annualized amount equal to or greater
 than 125 percent of the per capita personal income of the county from
 which the employee performs a majority of the employee's employment
 activity.
     (6) Credits are available on a first-in-time basis. The
 department must disallow any credits, or portion thereof, that would
 cause the total amount of credits claimed under this section during
 any calendar year to exceed $3,000,000. If this limitation is
 reached, the department must notify all persons claiming the credit
 that the annual statewide limit has been met. In addition, the
 department must provide written notice to any person who has claimed
 tax credits in excess of the limitation in this subsection. The
 notice must indicate the amount of tax due and provide that the tax
 be paid within 30 days from the date of the notice. The department
 may not assess penalties and interest as provided in chapter 82.32
 RCW on the amount due in the initial notice if the amount due is paid
 by the due date specified in the notice, or any extension thereof.
     (7) The definitions in this subsection apply throughout this
 section.
     (a) "Hydrogen" and "hydrogen fuel product" have the same meanings
 as provided in section 2 of this act.
     (b)(i) "Hydrogen fuel product development" means:
     (A) Research, design, and engineering activities performed in
 relation to the development, operation, or deployment of hydrogen
 fuel products, hydrogen fuel product technology, or of a product line
 of hydrogen fuel products, including prototype development, testing,
 and certification;
     (B) The discovery of technological information, the translating
 of   technological  information   into  new   or  improved   products,
                                     p. 4                         SHB 1729
 processes, techniques, formulas, or inventions, and the adaptation of
 existing products into new products; and
     (C) Tool design and engineering design for the manufacturing
 process.
     (ii) "Hydrogen fuel product development" does not include:
     (A) Surveys and studies, social science and humanities research,
 market research or testing, quality control, sale promotion and
 service, computer software developed for internal use, and research
 in peripheral areas;
     (B)   Manufacturing   activities  or   other   production-oriented
 activities; and
     (C) Activities conducted by less than full-time employees of the
 person claiming the credit under this section.
     (c) "Qualified hydrogen fuel product development" means hydrogen
 fuel product development performed within this state.
     (d)(i) "Qualified hydrogen fuel product development expenditures"
 means operating expenses, including wages, compensation of a
 proprietor or a partner in a partnership as determined by the
 department, benefits, supplies, and computer expenses, directly
 incurred in qualified hydrogen fuel product development by a person
 claiming the credit provided in this section.
     (ii) "Qualified hydrogen fuel product development expenditures"
 does not include amounts paid to a person or to the state and any of
 its departments and institutions to conduct qualified hydrogen fuel
 product development; or capital costs and overhead, such as expenses
 for land, structures, or depreciable property.
     (e) "Taxable amount" means the taxable amount subject to the tax
 imposed in this chapter required to be reported on the person's tax
 returns during the year in which the credit is claimed, less any
 taxable amount for which a credit is allowed under RCW 82.04.440.
     (8) In addition to all other requirements under this title, a
 person claiming the credit under this section must file a complete
 annual tax performance report with the department under RCW
 82.32.534.
     (9) Credit may not be claimed for expenditures under this section
 for which a credit is claimed for the same expenditures under any
 other section of this chapter.
     (10) Credits may be earned for tax reporting periods beginning on
 or after January 1, 2024, and before December 31, 2033. Unused credit
 may be carried over and claimed against the person's tax liability
                                     p. 5                         SHB 1729
 for the next succeeding calendar year, but may not be carried over
 for any calendar year thereafter. No credit may be claimed on tax
 returns filed for reporting periods beginning on or after January 1,
 2035.
     (11) To claim a credit under this section a person must
 electronically file with the department all returns, forms, and any
 other information required by the department, in an electronic format
 as provided or approved by the department.
     (12) This section expires January 1, 2035.
     NEW SECTION.   Sec. 4.  A new section is added to chapter 82.04
 RCW to read as follows:
     BUSINESS AND OCCUPATION TAX CREDIT FOR PROPERTY TAXES. (1) In
 computing the tax imposed under this chapter, a credit is allowed for
 state and local property taxes and leasehold excise taxes paid during
 the calendar year.
     (2) The credit is equal to:
     (a)(i)(A) Property taxes paid on buildings, and land upon which
 the buildings are located, constructed after July 1, 2023, and used
 primarily in manufacturing hydrogen fuel products; and
     (B) Leasehold excise taxes paid with respect to buildings
 constructed after July 1, 2023, the land upon which the buildings are
 located,   or  both,   if  the   buildings  are   used  primarily  in
 manufacturing hydrogen fuel products; or
     (ii) Property taxes attributable to an increase in assessed value
 due to the renovation or expansion of a building after July 1, 2023,
 used primarily in manufacturing hydrogen fuel products; and
     (b)(i) An amount equal to property taxes paid, by persons taxable
 under section 2 of this act, on machinery and equipment exempt under
 RCW 82.08.02565 or 82.12.02565 and acquired after July 1, 2023;
     (ii) For purposes of determining the amount eligible for credit
 under (b)(i) of this subsection (2), the amount of property taxes
 paid is multiplied by a fraction to be calculated as follows:
     (A) The numerator of the fraction is the total taxable amount
 subject to the tax imposed under section 2 of this act on the
 applicable business activities of researching, developing, deploying,
 or manufacturing hydrogen fuel products.
     (B) The denominator of the fraction is the total taxable amount
 subject to the tax imposed under all manufacturing classifications in
 this chapter.
                                     p. 6                         SHB 1729
     (C) For purposes of both the numerator and denominator of the
 fraction, the total taxable amount refers to the total taxable amount
 required to be reported on the person's returns for the calendar year
 before the calendar year in which the credit under this section is
 earned. The department may provide for an alternative method for
 calculating the numerator in cases where the tax rate provided in
 section 2 of this act for manufacturing was not in effect during the
 full calendar year before the calendar year in which the credit under
 this section is earned.
     (D) No credit is available under this subsection (2)(b) if either
 the numerator or the denominator of the fraction is zero. If the
 fraction is greater than or equal to 0.9, then the fraction is
 rounded to one.
     (3) The credit authorized under this section may only be claimed
 by persons compensating workers at prevailing wage rates determined
 by local collective bargaining as determined by the department of
 labor   and  industries.   This  subsection   applies   only to   job
 classifications where prevailing wage rates are available.
     (4) Credits are available on a first-in-time basis. The
 department must disallow any credits, or portion thereof, that would
 cause the total amount of credits claimed under this section during
 any calendar year to exceed $3,000,000. If this limitation is
 reached, the department must notify all persons claiming the credit
 that the annual statewide limit has been met. In addition, the
 department must provide written notice to any person who has claimed
 tax credits in excess of the limitation in this subsection. The
 notice must indicate the amount of tax due and provide that the tax
 be paid within 30 days from the date of the notice. The department
 may not assess penalties and interest as provided in chapter 82.32
 RCW on the amount due in the initial notice if the amount due is paid
 by the due date specified in the notice, or any extension thereof.
     (5) The definitions in this subsection apply throughout this
 section unless the context clearly indicates otherwise.
     (a) "Hydrogen" and "hydrogen fuel product" have the same meanings
 as provided in section 2 of this act.
     (b) "Returns" means the tax returns for which the tax imposed
 under this chapter is reported to the department.
     (6) A credit earned during one calendar year may be carried over
 to be credited against taxes incurred in subsequent calendar years.
 No refunds may be granted for credits under this section.
                                     p. 7                         SHB 1729
     (7) In addition to all other requirements under this title, a
 person claiming the credit under this section must file a complete
 annual tax performance report with the department under RCW
 82.32.534.
     (8) Credits may be earned for tax reporting periods beginning on
 or after January 1, 2024, and before December 31, 2033. Unused credit
 may be carried over and claimed against the person's tax liability
 for the next succeeding calendar year, but may not be carried over
 for any calendar year thereafter. No credit may be claimed on tax
 returns filed for reporting periods beginning on or after January 1,
 2035.
     (9) To claim a credit under this section a person must
 electronically file with the department all returns, forms, and any
 other information requir