Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. Chapter 82.62 RCW provides business and occupation
(B&O) tax credits to certain persons engaged in manufacturing and research
and development activities. These credits are intended to stimulate the economy
by creating employment opportunities in specific rural counties and community
empowerment zones of this state. The credits are as much as $4,000 per
qualified employment position. This rule explains the eligibility requirements
and application procedures for this program. It is important to note that an
application for the tax credits must be submitted to the department of revenue
before the actual hiring of qualified employment positions. See subsection (6)
of this rule for additional information regarding this application requirement.
This tax credit program is a companion to the tax deferral program under
chapter 82.60 RCW; however, the eligible geographic areas in the two programs
are not identical.
The department of employment security and the department of
commerce administer programs for rural counties and job training. These
agencies should be contacted directly for information concerning those
programs.
(2)
Who is
eligible for these tax credits? Subject to certain qualifications, an
applicant (person applying for a tax credit under chapter 82.62 RCW) who is
engaged in an eligible business project is entitled to the tax credits provided
by chapter 82.62 RCW.
(a)
What is an
eligible business project? An "eligible business project" means
manufacturing, commercial testing, or research and development activities
conducted by an applicant in an eligible area at a specific facility, subject
to the restriction noted in the following paragraph. An "eligible business
project" does not include any portion of a business project undertaken by a
light and power business or any portion of a business project creating
employment positions outside an eligible area.
To be considered an "eligible business project," the
applicant's number of average full-time qualified employment positions at the
specific facility must be at least 15 percent greater in the calendar year for
which credit is being sought than the number of positions at the same facility
in the immediately preceding calendar year. Subsection (4) of this rule
explains how to determine whether this threshold is satisfied.
(b)
What is an eligible
area? As noted above, the facility must be located in an eligible area
to be considered an eligible business project. An "eligible area" is:
(i) A rural county, which is a county with
fewer than 100 persons per square mile or, on and after April 1, 2004, a county
smaller than 225 square miles, as determined annually by the office of
financial management and published by the department of revenue effective for
the period of July 1st through June 30th (see
RCW
82.62.010(3)) ; or
(ii) A community empowerment zone (CEZ). CEZ
means an area meeting the requirements of
RCW
43.31C.020 and officially designated by the
director of the department of commerce.
(iii)
How to determine whether an area
is an eligible area. Rural county designation information can be
obtained from the office of financial management internet website at
www.ofm.wa.gov/popden/rural.htm. The department has instituted a geographic
information system (GIS) to assist taxpayers in determining taxing jurisdiction
boundaries, local tax rates, and a mapping and address lookup system to
determine whether a specific address is within a CEZ. The system is available
on the department's internet website at
www.dor.wa.gov.
(c)
What are manufacturing and research
and development activities? Manufacturing or research and development
activities must be conducted at the facility to be considered an eligible
business project.
(i)
Manufacturing. "Manufacturing" has the meaning given in
RCW
82.04.120. In addition, for the purposes of
chapter 82.62 RCW "manufacturing" also includes computer programming, the
production of computer software, other computer-related services, but only when
the computer-related services are performed by a manufacturer as defined under
RCW
82.04.110 and contribute to the production of
a new, different, or useful substance or article of tangible personal property
for sale; and the activities performed by research and development laboratories
and commercial testing laboratories. (Chapter 16, Laws of 2010.)
(ii)
Research and development.
"Research and development" means the development, refinement, testing,
marketing, and commercialization of a product, service, or process before
commercial sales have begun. "Commercial sales" does not include sales of
prototypes or sales for market testing if the total gross receipts from such
sales of the product, service, or process do not exceed $1,000,000.
(iii)
Computer-related services.
"Computer-related services" for the purposes of chapter 82.62 RCW, the
definition of "manufacturing" means services that are connected with or
interact directly in the manufacture of computer hardware or software or the
programming of the manufactured hardware. "Computer-related services" includes
the manufacture of hardware such as chips, keyboards, monitors, and any other
hardware, and the components of these items. "Computer-related services" also
includes creating operating systems and software that will be copied and sold
as canned software. The activities performed by the manufacturer to test,
correct, revise, or upgrade software or hardware before they are approved for
sale to the consumer are considered computer-related services.
"Computer-related services" does not include services such as information
services.
(3)
What are the hiring requirements? The average full-time qualified
employment positions at the specific facility during the calendar year for
which credits are claimed must be at least 15 percent greater than the average
full-time qualified employment positions at the same facility for the preceding
calendar year.
(a)
What is a qualified
employment position? A "qualified employment position" means a position
filled by a permanent full-time employee employed at an eligible business
project for 12 consecutive months. Once a full-time position is established and
filled it will continue to qualify for 12 consecutive periods so long as any
person fills the position. The position is considered "filled" even during
periods of vacancy, provided these periods do not exceed 30 consecutive days
and the employer is training or actively recruiting a replacement
employee.
(b)
What is a
"permanent full-time employee"? A "permanent fulltime employee" is a
position that is filled by an employee who satisfies any one of the following
minimum thresholds:
(i) Works 35 hours per
week for 52 consecutive weeks;
(ii)
Works 455 hours, excluding overtime, each quarter for four consecutive
quarters; or
(iii) Works 1,820
hours, excluding overtime, during a period of 12 consecutive months.
(c)
"Permanent full-time
employee" - Seasonal operations. For applicants that regularly operate
on a seasonal basis only and that employ more than 50 percent of their
employees for less than a full 12 month continuous period, a "permanent
full-time employee" is a permanent full-time employee as described above or an
equivalent in full-time equivalent (FTE) work hours.
(4)
How to determine if the 15 percent
employment increase requirement is met. Qualification for tax credits
depends upon whether the applicant hires enough new positions to meet the 15
percent average increase requirement.
(a)
Determining the 15 percent increase. To determine the projected
number of permanent full-time qualified employment positions necessary to
satisfy the 15 percent employment increase requirement:
(i) Determine the average number of permanent
full-time qualified employment positions that existed at the facility during
the calendar year prior to the year in which tax credit is being
claimed.
(ii) Multiply the average
number of full-time positions from subsection (i) by.15 or 15 percent. The
resulting number equals the number of positions that must be filled to meet the
15 percent increase. Numbers are rounded up to the nearest whole number at
point five (.5).
(b)
When does hiring have to occur? All hiring increases must occur
during the calendar year for which credits are being sought for purposes of
meeting the 15 percent threshold test. Positions hired in a calendar year prior
to making an application are not eligible for a credit but the positions are
used to calculate whether the 15 percent threshold has been met.
(c)
The department will assist
applicants to determine their hiring requirements. Accompanying the tax
credit application is a worksheet to assist the applicant in determining if the
15 percent qualified employment threshold is satisfied. Based upon the
information provided in the application, the department will advise applicants
of their minimum number of hiring needs for which credits are being
sought.
(d)
Examples.
The following examples identify a number of facts and then state a conclusion.
These examples should be used only as a general guide. The tax status of each
situation must be determined after a review of all of the facts and
circumstances.
(i) ABC Company anticipates
increasing employment during the 2001 calendar year at a manufacturing facility
by an average of 15 fulltime qualified employment positions for a total of 113
positions. The average number of full-time qualified employment positions
during the 2000 calendar year was 98. To qualify for the tax credit program the
minimum average number of full-time qualified employment positions required for
the 2001 calendar year is 98 x.15 = 14.7 (rounding up to 15 positions).
Therefore, ABC Company's plan to hire 15 full-time qualified employment
positions for 2001 meets the 15% employment increase requirement.
(ii) ABC anticipates increasing employment at
this same manufacturing facility by an average of 15 additional full-time
qualified employment positions during the 2002 calendar year to a total of 128
positions. To qualify for the tax credit program the minimum average number of
full-time qualified employment positions required for the 2002 calendar year is
17 (113 x.15 = 16.95, rounding up to 17). Therefore, ABC Company's plan to hire
15 full-time qualified employment positions for 2002 does not meet the 15%
employment increase requirement.
(5)
Restriction against displacing
existing jobs within Washington. The law provides that no recipient may
use tax credits approved under this program to decertify a union or to displace
existing jobs in any community of the state. Thus, the average expected
increase of employment positions at the specific facility for which application
is made must reflect a gross increase in the applicant's employment of persons
at all locations in this state. Transfers of personnel from existing positions
outside of an eligible area to new positions at the specific facility within an
eligible area will not be allowed for purposes of approving tax credits. Also,
layoffs or terminations of employment by the recipient at other locations in
Washington but outside an eligible area for the purpose of hiring new positions
within an eligible area will result in the withdrawal of any credits taken or
approved.
(6)
Application
procedures. A taxpayer must file an application with and obtain approval
from the department of revenue to receive tax credits under this program. A
separate application must be submitted for each calendar year for which credits
are claimed.
RCW
82.62.020 requires that application for the
tax credits be made prior to the actual hiring of qualified employment
positions. Applications failing to satisfy this statutory requirement will be
disapproved.
(a)
How to obtain and file
applications. Rural Area Application for New Employee B&O Tax Credit
form is available at the department's internet website, dor.wa.gov. The
completed application may be sent by fax or mail to the address provided in the
application.
The U.S. Post Office postmark or fax date will be used as the
date of application. For questions and assistance with the application, call
360-705-6214.
(b)
Confidentiality. Applications, reports, or any other information
received by the department in connection with this tax credit program, except
applications not approved by the department, are not confidential and are
subject to disclosure. All other taxpayer information is subject to the
confidentiality provisions in
RCW
82.32.330.
(c)
Department to act upon application
within 60 days. The department will determine if the applicant qualifies
for tax credits on the basis of the information provided in the application and
will approve or disapprove the application within 60 days. If approved, the
department will issue a credit approval notice containing the dollar amount of
tax credits available for use and the procedures for taking the credit. If
disapproved, the department will notify the applicant in writing of the
specific reasons for disapproval. The applicant may seek administrative review
of the department's disapproval of an application by filing a petition for
review with the department. The petition must be filed within 30 days from the
date of notice of the disallowance pursuant to the provisions of WAC
458-20-100, Appeals, small claims
and settlements.
(d)
No
adjustment of credit after approval. After an application is approved
and tax credits are granted, no upward adjustment or amendments of the
application will be made for that calendar year.
(7)
How much is the tax credit?
The amount of tax credit is based on the number of and the wages and benefits
paid to qualified employment positions created.
(a)
How much tax credit may I claim for
each qualified employment position? The amount of tax credit that may be
claimed for each position created is as follows:
(i) Two thousand dollars for each qualified
employment position that pays $40,000 or less in wages and benefits annually
and is employed in an eligible business project; and
(ii) Four thousand dollars for each qualified
employment position that pays more than $40,000 in wages and benefits annually
and is employed in an eligible business project.
(b)
What qualifies as wages and
benefits? For the purposes of chapter 82.62 RCW, "wages" means
compensation paid to an individual for personal services, whether denominated
as wages, salary, commission, bonus, or otherwise. "Benefits" means
compensation not paid as wages and includes Social Security, retirement, health
care, life insurance, industrial insurance, unemployment compensation,
vacation, holiday, sick leave, military leave, and jury duty. "Benefits" does
not include any amount reported as wages.
(8)
How to claim approved
credits. The recipients must take the tax credits approved under this
program on their regular combined excise tax return for their regular assigned
tax reporting period. These tax credits may not exceed the B&O tax
liability. The amount of credit taken should be entered into the "credit"
section of the return form, with a copy of the credit approval notice issued to
the recipient attached to the return.
(a)
When can credits be used? The credits may be used as soon as
hiring of the projected qualified employment positions begins or may accrue
until they are most beneficial for the recipient's use. For example, if a
recipient has been approved for $12,000 of tax credits based upon projections
to hire five new positions, that recipient may use $2,000 or $4,000 of tax
credit at the time it hires each new employee, depending on the wage/benefit
level of the position filled.
(b)
No refunds for unused credits. No tax refunds will be made for any
tax credits which exceed tax liability during the life of this program. If tax
credits derived from qualified hiring exceed the recipients' business and
occupation tax liability in any one calendar year under this program, they may
be carried forward to the next calendar year(s), until used.
(9)
Annual report to be
filed by recipient. A recipient of tax credits under this program must
complete and submit an annual report of employment activities to substantiate
that he or she has complied with the hiring and retention requirements for
approved credits.
RCW
82.62.050. This report must be filed with the
department by January 31st of the year following the calendar year for which
credit was approved by the department. Based upon this report the department
will verify that the recipient is entitled to the tax credits approved by the
department when the application was reviewed. Rural Area Annual Report for New
Employee B&O Tax Credit form is provided by the department at the
department's website, dor.wa.gov. The completed annual report may be sent by
fax or mail to the address provided in the report form.
The U.S. Post Office postmark or fax date will be used as the
date of filing. For questions or assistance with filing the annual report, call
360-705-6214.
(a)
Verification
of annual report. The department will use the same report the recipient
provides to the department of employment security, which is known as the
quarterly employment security report, to verify the recipient's eligibility for
tax credits. The recipient must maintain copies of the quarterly employment
report for the year prior to the year for which credits are claimed, the year
credits are claimed, and for the four quarters following the hiring of persons
to fill the qualified employment positions. (The recipient does not have to
forward copies of the quarterly employment report to the department each
quarter.) The department may use other wage information provided to the
department by the department of employment security. The taxpayer must provide
additional information to the department, as the department finds necessary to
calculate and verify wage eligibility.
(b)
Failure to file report. The
law provides that if any recipient fails to submit a report or submits an
inadequate report, the department may declare the amount of taxes for which
credit has been used to be immediately due and payable. An inadequate report is
one which fails to provide information necessary to confirm that the requisite
number of employment positions has been created and maintained for 12
consecutive months.
(10)
What if the required number of positions is not created? The law
provides that if the department finds that a recipient is not eligible for tax
credits for any reason, other than failure to create the required number of
qualified employment positions, the amount of taxes for which any credit has
been used will be immediately due. No interest or penalty will be assessed in
such cases. However, if the department finds that a recipient has failed to
create the specified number of qualified employment positions, the department
will assess interest, but not penalties, on the taxes against which the credit
has been used. This interest on the assessment is mandatory and will be
assessed at the statutory rate under
RCW
82.32.050, retroactively to the date the tax
credit was used. The interest will accrue until the taxes for which the credit
was used are fully repaid.
RCW
82.32.050. The interest rates under
RCW
82.32.050 can be obtained from the
department's internet website at www.dor.wa.gov or by calling the department's
information center at 360-705-6705.
(11)
Program thresholds. The
department cannot approve any credits that will cause the total credits
approved to exceed $7,500,000 in any fiscal year.
RCW
82.62.030. A "fiscal year" is the 12-month
period of July 1st through June 30th. If all or part of an application for
credit is disallowed due to cap limitations, the disallowed portion will be
carried over for approval the next fiscal year. However, the applicant's
carryover into the next fiscal year is only permitted if the total credits
approved for the next fiscal year does not exceed the cap for that fiscal year
as of the date on which the department has disallowed the
application.
Statutory Authority:
RCW
82.32.300,
82.01.060(2),
82.08.0293, and
82.12.0293. 10-23-035, §
458-20-240A, filed 11/9/10, effective
12/10/10.