On March 20 we filed Initiative to the Legislature #732. Here is the ballot title (which will appear on the ballot in November 2016 unless the legislature passes the measure in early 2016):

Ballot Title: Initiative Measure No. 732 concerns taxes.

This measure would impose a carbon emission tax on certain fossil fuels and fossil-fuel-generated electricity, reduce the sales tax by one percentage point and increase a low-income exemption, and reduce certain manufacturing taxes.

Should this measure be enacted into law? Yes [ ] No [ ]

This ballot title became official as of April 3 and we are now collecting signatures. Sign up here to stay up to date with the latest developments. Or visit our ‘Take Action‘ page to get involved!

Legal language: Downloads

Here is the legal language in PDF.

Legal language: Annotated version

Comment: Annotations are in italics and/or in green and (starting in section 1 below) begin with a green comment number for easy reference.

AN ACT Relating to taxation; amending RCW 82.04.240 [General tax on manufacturers], 82.04.240 [General tax on manufacturers], 82.04.2404 [Specific tax on semiconductor materials], 82.08.020 [Retail sales tax] and 82.08.0206 [Working families’ tax exemption]; reenacting and amending RCW 82.32.790 [Concerning semiconductor materials] and 82.04.260 [Tax on manufacturers]; adding a new chapter to Title 82 RCW [Excise taxes]; and providing an effective date.

BE IT ENACTED BY THE PEOPLE OF THE STATE OF WASHINGTON:

Section 1: Intent

NEW SECTION. Sec. 1. INTENT. (1) The intent of this act is to encourage sustainable economic growth with a phased-in one percentage point reduction of the state sales tax, a reduction of the business and occupation tax on manufacturing, and the implementation and enhancement of the existing working families’ sales tax exemption for qualifying low-income persons, all funded by a phased-in carbon pollution tax on fossil fuels sold or used in this state and on the consumption or generation in this state of electricity generated by the consumption of fossil fuels.

(2) Sections 4 through 8 of this act concern the carbon pollution tax and the overall impact of this act; sections 9 through 13 of this act reduce the business and occupation tax on manufacturers engaged in those activities subject to the “manufacturing tax” categories identified in RCW 82.04.440(5)(c)(i); section 14 of this act reduces the state sales tax; and section 15 of this act modifies and increases the working families’ tax exemption.

(3) The proceeds of the carbon pollution tax are not intended to be used for highway purposes and must be deposited into the state general fund pursuant to RCW 82.32.380. This chapter is not intended to exempt any person from tax liability under any other law.

Comment 1.3: The “not intended to be used for highway purposes” is to ensure that the gas tax portion of the carbon tax isn’t subject to the requirement of the 18th Amendment to the Washington State Constitution, which says that “all excise taxes [on] motor vehicle fuel… [shall be] placed in a special fund to be used exclusively for highway purposes… Provided, that this section shall not be construed to include… taxes or excises not levied primarily for highway purposes.” A unanimous state supreme court decision in 2012 emphasized the importance of the proviso; for details see this Sightline post, this Washington State Wire article, or the actual decision by the state Supreme Court.

Section 2: Findings and declaration of policy

NEW SECTION. Sec. 2. FINDINGS AND DECLARATION OF POLICY. The people find that reduction of Washington state’s high sales tax will increase commerce in this state; reduction of the business and occupation tax on manufacturers will encourage business formation and expansion by reducing the burden of this tax; the implementation and enhancement of the working families’ sales tax exemption will provide the benefits expressed at the inception of that program; and the imposition of a carbon pollution tax to fund these actions will establish Washington state’s national leadership in addressing both climate change and the acidification of the oceans.

Section 3: Definitions

NEW SECTION. Sec. 3. DEFINITIONS. The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

(1) “Aircraft fuel” has the same meaning as in RCW 82.42.010.

Comment 3.1: That definition is: “Aircraft fuel” means gasoline and any other inflammable liquid, by whatever name such liquid is known or sold, the chief use of which is as fuel for the propulsion of aircraft, except gas or liquid, the chief use of which as determined by the director, is for purposes other than the propulsion of aircraft.

(2) “Carbon calculation” means a calculation made by the department for purposes of calculating the tax pursuant to section 4 of this act. Among other resources, the department may consider carbon dioxide content measurements for fossil fuels from the United States energy information administration or the United States environmental protection agency.

Comment 3.2: See for example these EIA figures for the carbon content of various fuels.

(3) “Carbon content inherent in electricity” means the carbon dioxide generated by the production of electricity from fossil fuels.

(4) “Carbon pollution tax” means the tax created in section 4 of this act.

(5) “Coal” means coal of any kind, including anthracite coal, bituminous coal, subbituminous coal, lignite, waste coal, syncoal, and coke of any kind.

(6) “Consumer price index” means, for any calendar year, that year’s annual average consumer price index, for Washington state, for wage earners and clerical workers, all items, compiled by the bureau of labor and statistics, United States department of labor. If the bureau of labor and statistics develops more than one consumer price index for areas within the state, the index covering the greatest number of people, covering areas exclusively within the boundaries of the state, and including all items must be used for the adjustments for inflation in this section.

(7) “Direct service industrial customer” has the same meaning as provided in RCW 82.16.0495.

Comment 3.7: That definition is: “Direct service industrial customer” means a person who is an industrial customer that contracts for the purchase of power from the Bonneville Power Administration for direct consumption as of May 8, 2001. “Direct service industrial customer” includes a person who is a subsidiary that is more than fifty percent owned by a direct service industrial customer and who receives power from the Bonneville Power Administration pursuant to the parent’s contract for power.

(8) “Fossil fuel” means petroleum products, motor vehicle fuel, special fuel, aircraft fuel, natural gas, petroleum, coal, or any form of solid, liquid, or gaseous fuel derived from these products, including without limitation still gas, propane, and petroleum residuals including bunker fuel.

(9) “Motor vehicle fuel” has the same meaning as provided in RCW 82.38.020.

Comment 3.9: That definition is: “Motor vehicle fuel” means gasoline and any other inflammable gas or liquid, by whatsoever name the gasoline, gas, or liquid may be known or sold the chief use of which is as a fuel for the propulsion of motor vehicles or vessels.

(10) “Natural gas” means naturally occurring mixtures of hydrocarbon gases and vapors consisting principally of methane, whether in gaseous or liquid form, including methane clathrate.

Comment 3.10: Other than “including methane clathrate” (about which more here), this definition matches the one in RCW 82.38.020.

(11) “Person” means any individual, division, or instrumentality of a government, business, corporation, partnership, or trust.

(12) “Petroleum product” has the same meaning as in RCW 82.23A.010.

Comment 3.12: That definition is: “Petroleum product” means plant condensate, lubricating oil, gasoline, aviation fuel, kerosene, diesel motor fuel, benzol, fuel oil, residual oil, and every other product derived from the refining of crude oil, but the term does not include crude oil or liquefiable gases.

(13) “Qualified sequestration” means sequestration qualified for credit pursuant to RCW 80.70.020 or in accordance with a method established by the department with reference to methods approved by the United States environmental protection agency or its successor.

(14) “Qualifying utility” means any electric utility that is:

(a) An “electrical company” as defined in RCW 80.04.010;

(b) Operating under authority of chapter 35.92 or 87.03 RCW or Title 54 RCW; or

(c) A profit, nonprofit, cooperative, or mutual corporation operating within this state for the sale or distribution of electricity to others.

Comment 3.14: The definition for “electrical company” is: “Electrical company” includes any corporation, company, association, joint stock association, partnership and person, their lessees, trustees or receivers appointed by any court whatsoever (other than a railroad or street railroad company generating electricity solely for railroad or street railroad purposes or for the use of its tenants and not for sale to others), and every city or town owning, operating or managing any electric plant for hire within this state. “Electrical company” does not include a company or person employing a cogeneration facility solely for the generation of electricity for its own use or the use of its tenants or for sale to an electrical company, state or local public agency, municipal corporation, or quasi municipal corporation engaged in the sale or distribution of electrical energy, but not for sale to others, unless such company or person is otherwise an electrical company.

(15) “Special fuel” has the same meaning as in RCW 82.38.020 and includes fuel that is sold or used to propel vessels.

Comment 3.15: “Special fuel” mostly means “diesel fuel”, but the formal definition is: “Special fuel” means diesel fuel, propane, natural gas, kerosene, biodiesel, and any other combustible liquid or gas by whatever name the liquid or gas may be known or sold for the generation of power to propel a motor vehicle on the highways, except it does not include motor vehicle fuel.

(16) “Year” means the twelve-month period commencing January 1st and ending December 31st unless otherwise specified.

Comment 3.16: Note that the tax itself follows the state’s fiscal year, which runs July 1 – June 30.

Section 4: Carbon pollution tax

NEW SECTION. Sec. 4. CARBON POLLUTION TAX. (1) There is levied and the department must collect a tax upon (a) the carbon content of fossil fuels sold or used within this state including, but not limited to, fossil fuels sold or used for aviation or marine purposes, and (b) the carbon content inherent in electricity consumed within this state, including electricity that is generated within Washington; imported (by way of wheeling or otherwise) into Washington; or acquired from the Bonneville power administration.

Comment 4.1: The phrase “the department” refers to the state Department of Revenue. As noted in section 20, the carbon pollution tax constitutes a new chapter in Title 82 RCW, and that title already defines “the department” to be the Department of Revenue.

Comment 4.1.2: The phrase “fossil fuels sold or used for aviation or marine purposes” is intended to specifically include fuel loaded onto planes and boats in Washington State. According to the state’s latest emissions inventory, these total about 1/4 of all transportation emissions and about 1/8 of the state’s total emissions.

Comment 4.1.3: The phrase “carbon content inherent in electricity” is defined in section 3 as “the carbon dioxide generated by the production of electricity from fossil fuels.” This captures carbon-by-wire.

(2) The tax rate is equal to fifteen dollars per metric ton of carbon dioxide as of July 1, 2017, increasing to twenty-five dollars per metric ton as of July 1, 2018, with automatic increases thereafter by three and one-half percent plus inflation, as measured using the consumer price index for the most recent year for which data are available, each year beginning July 1st, but not to exceed a rate of one hundred dollars per metric ton when converted into 2016 dollars by adjusting for inflation using the consumer price index.

Comment 4.2: For an analysis of revenue neutrality see here.

(3) The department must determine the tax in each case by applying a carbon calculation as follows:

(a) For electricity consumed within the state, the department must adopt by rule criteria for making the carbon calculation and must consider, among other information, the reports filed pursuant to section 7 of this act;

(b) For fossil fuels used to refine fossil fuels, the department must adopt by rule criteria for making the carbon calculation and must consider, among other information, the reports filed pursuant to section 7 of this act; and

(c) For all other fossil fuels sold or used in Washington by any person, the department must adopt by rule criteria for making the carbon calculation.

Comment 4.3: Determining the tax in most cases is straightforward using the definition of “carbon calculation” in section 3; motor gasoline, for example, produces 8.91kg CO2 per gallon. But there are two more difficult cases: electricity consumption and refinery consumption, discussed in more detail below. The basic idea, however, is that the tax is going to be applied along three paths: emissions associated with the consumption of electricity, emissions associated with refinery operations, and all other emissions. (Section 5(4) addresses double-counting.)

(4) The department must adopt rules and provide forms with respect to the reporting of consumption of fossil fuels as follows:

(a) Motor vehicle fuel, in accordance with and at the intervals provided in chapter 82.36 RCW [Motor Vehicle Fuel Tax];

(b) Special fuel, in accordance with and at the intervals provided in chapter 82.36 RCW [Motor Vehicle Fuel Tax], and to the extent not covered therein, then in accordance with chapter 82.38 RCW [Special Fuel Tax Act];

(c) Aircraft fuel, in accordance with and at the intervals provided in chapter 82.42 RCW [Aircraft Fuel Tax];

Comment 4.4: The idea here is to “piggy-back” the carbon tax on top of existing taxes on motor gasoline, diesel, and jet fuel. Note, however, that RCW 82.42.030 exempts commercial airlines from the aircraft fuel tax. (That RCW nonetheless establishes the appropriate procedure.)

(d) Every other product derived from the refining of crude oil as defined in chapter 82.23A RCW [Petroleum Products], in accordance with and at the intervals provided in chapter 82.23A RCW [Petroleum Products];

(e) Fossil fuels not listed elsewhere in this subsection, in accordance with chapters 82.08 [Retail Sales Tax] and 82.12 RCW [Use Tax] unless expressly provided otherwise in this section; and

Comment 4.4e: This covers consumption of natural gas and coal because those are not covered elsewhere in this section.

(f) Carbon dioxide emanating into the atmosphere as a result of the consumption of fossil fuels in refineries must be reported by each refinery operator as provided in section 7 of this act, and the tax on the carbon reported thereon must be paid to the department within fifteen days thereafter in accordance with regulations adopted by the department.

Comment 4.4f: For petroleum, the carbon tax applies to the finished products that leave the refinery (motor gasoline, diesel, etc.) and then also applies to the petroleum consumed in the refineries themselves during the refining process. Both refinery emissions and electricity emissions (see immediately below in subsection (5)) are discussed in Section 7.

(5) The department must adopt rules and provide forms with respect to the reporting of electricity generated by the consumption of fossil fuels as required in section 7 of this act. The department and the department of commerce may cooperate to adopt a consolidated form to be submitted to both departments.

(6) The carbon pollution tax must be reduced or refunded for uses of fossil fuels that can be demonstrated not to contribute to increasing the atmospheric carbon dioxide concentration, for example by reason of qualified sequestration. The tax reduction in such cases must be proportional to the fraction of emissions that can be demonstrated not to contribute to increasing the atmospheric carbon dioxide concentration. The right to carbon pollution tax reduction under this subsection may not be transferred, traded, or banked.

Comment 4.6: “Qualified sequestration” is defined above in Section 3.

(7) The department must adopt rules as necessary to implement the carbon pollution tax provided for in this section. The department must develop and make available worksheets and guidance documents necessary to calculate the carbon pollution tax for various fossil fuels.

(8) In relation to the tax on the consumption of electricity, the tax imposed in this chapter is on the consumer of the electricity, but if the seller is located within the state, that seller must collect from the consumer the full amount of the tax. If any seller fails to collect the tax imposed in this chapter or, having collected the tax, fails to pay it to the department as required, the seller is nevertheless liable to the state for the amount of the tax.

Comment 4.8: See RCW 82.08.050, which says that “if any seller fails to collect the [retail sales] tax imposed in this chapter or, having collected the tax, fails to pay it to the department in the manner prescribed by this chapter, whether such failure is the result of the seller’s own acts or the result of acts or conditions beyond the seller’s control, the seller is, nevertheless, personally liable to the state for the amount of the tax.”

Section 5: Exemptions, phase-ins, and credits

NEW SECTION. Sec. 5. EXEMPTIONS, PHASE-INS, AND CREDITS. (1) The tax levied under section 4 of this act does not apply to:

(a) Fossil fuels brought into this state by means of the fuel supply tank of a motor vehicle, vessel, locomotive, or aircraft;

(b) Fuel that the state is prohibited from taxing under the Constitution of this state or the Constitution or laws of the United States; or

(c) Fuel intended for export outside this state. Export to a federally recognized Indian tribal reservation located within this state is not considered export outside this state.

Comment 5.1: “Fuel intended for export outside this state” cannot be taxed because of the Dormant Commerce Clause of the U.S. Constitution.

(2) (a) The tax levied under section 4 of this act is phased-in as described in this subsection for:

(i) Diesel fuel, biodiesel fuel, or aircraft fuel used solely for agricultural purposes, as those terms are defined in RCW 82.08.865. This phase-in is available only if the buyer provides the seller with a certificate in a form and manner prescribed by the department;

Comment 5.2ai: The main definition is: “Agricultural purposes” means the performance of activities directly related to the growing, raising, or producing of agricultural products.

(ii) Fuel that is purchased for the purpose of public transportation and for which the purchaser is entitled to a refund or an exemption under RCW 82.38.080(1) (f) and (g) or 82.38.180(3)(b);

Comment 5.2aii: These 3 RCW references provide Special Fuel Tax exemptions for (1) “privately owned urban passenger transportation systems” and (2) “publicly owned and operated urban passenger transportation systems” and (3) refunds for any taxes paid on “motor vehicle fuel used by an urban passenger transportation system.”

(iii) Fuel that is purchased by a private, nonprofit transportation provider certified under chapter 81.66 RCW [Transportation for Persons with Special Needs] and for which the purchaser is entitled to a refund or an exemption under RCW 82.38.080(1)(d) or 82.38.180(3)(a);

(iv) Fuel purchased by the Washington state ferry system for use in a state-owned ferry; and

(v) Fuel purchased for school buses defined in RCW 46.04.521 and used for the purposes therein set forth.

Comment 5.2av: That definition is: School bus means every motor vehicle used regularly to transport children to and from school or in connection with school activities, which is subject to the requirements set forth in the most recent edition of “Specifications for School Buses” published by the state superintendent of public instruction, but does not include buses operated by common carriers in urban transportation of school children or private carrier buses operated as school buses in the transportation of children to and from private schools or school activities.

(b) The tax rate for these fuels will be five percent of the rate described in section 4 of this act effective July 1, 2017, ten percent of the rate described in section 4 of this act effective July 1, 2019, and continuing to increase thereafter at five percentage points per biennium until it reaches one hundred percent of the rate described in section 4 of this act effective July 1, 2055.

Comment 5.2: We estimate that these phase-ins for fuel used by farmers and public transportation systems (see Table 17) total about 2 percent of fossil fuel consumption.

(3) Nothing in this chapter may be construed to exempt the state or any political subdivision thereof from the payment of the tax.

(4) The tax is imposed only once and at the time and place of the first taxable event and upon the first taxable person within this state. If a person pays the tax imposed under this chapter on fuel that is consumed in the generation of electricity, the electricity so generated or used will not be subject to the tax imposed under this chapter provided that the department receives evidence, pursuant to rules adopted by the department, that the tax has been paid by the person using the fuel to generate electricity.

Comment 5.4: This addresses double-counting, which is a special concern with regards to electricity because we’re taxing both the consumption of fossil fuels in the state and the consumption of electricity in the state. Electricity that is generated in-state falls under both of these categories, so this subsection prevents double-counting.

(5) Persons taxable under this chapter with respect to electricity consumed in this state but generated in another state are allowed a credit against those taxes for any similar carbon pollution taxes paid to that other state on the fossil fuels consumed in the generation of that electricity. The amount of the credit may not exceed the tax liability arising under this chapter with respect to the consumption of that electricity in this state. Persons claiming this credit must provide the department with evidence, pursuant to rules adopted by the department, that the tax has been paid to another state.

Comment 5.5: This addresses Commerce Clause issues concerning potential “undue burden” on businesses outside of the state. See the similar language concerning B&O taxes in RCW 82.04.440.

Section 6: Procedure

NEW SECTION. Sec. 6. PROCEDURE.The provisions of chapter 82.32 RCW [General administrative provisions] apply to this chapter. If there is a conflict between a provision in this chapter and a provision of chapter 82.32 RCW, the provision in this chapter controls.

Section 7: Reports by utilities, electricity users, and refineries

NEW SECTION. Sec. 7. REPORTS BY UTILITIES, ELECTRICITY USERS, AND REFINERIES.(1) Each utility and each user of electricity not generated in-state and not acquired from a qualifying utility must file with the department by the tenth day of each month a fuel mix report containing the information contained in RCW 19.29A.060 [Fuel mix disclosure] and such other information as the department may require for purposes of this chapter for the previous calendar month together with the tax calculated thereon based on tax tables adopted by the department. If a utility or an electricity user reports electricity products comprised of no declared resources as described in RCW 19.29A.060(1)(b) or otherwise fails to provide the source of the resources that provide the electricity, the department must assume the carbon content inherent in that electricity to be one metric ton of carbon dioxide per megawatt-hour.

Comment 7.1: The “each user of electricity not generated in-state and not acquired from a qualifying utility” refers to DSIs and others who might directly import electricity.

Comment 7.1b: Regarding “one metric ton of carbon dioxide per megawatt-hour”, see EPA: “The average emission rates in the United States from coal-fired generation are: 2,249 lbs/MWh of carbon dioxide”. Conveniently, 2249 lbs/MWh is almost exactly 1 metric ton. (See also EIA.)

(2) Persons using fossil fuels to refine fossil fuels must file with the department by the tenth day of each month a fuel use report similar to the United States environmental protection agency facility level information on greenhouse gases tool report containing their fossil fuel carbon dioxide emissions and such other information as the department may require for purposes of this chapter for the previous calendar month together with the tax calculated thereon based on tax tables adopted by the department.

Comment 7.2: The reference is to EPA FLIGHT data.

(3) If the information required in subsection (1) or (2) of this section is not available, the utility, electricity user, or refinery may file an interim report based on estimates together with an estimated payment based thereon and then file a final report at a later date. Interest and penalties on underpayments are to be imposed in accordance with chapter 82.32 RCW [General administrative provisions].

Section 8: Report by department

NEW SECTION. Sec. 8. REPORT BY DEPARTMENT.On or before December 31st of each year from 2017 through 2027 and biennially thereafter, the department must submit a report to the governor and the legislature containing the following with respect to the annual or biennial period ending July 1st immediately preceding the reporting date, annualized if in a biennial report:

(1) The total carbon pollution tax collected during the reporting period;

(2) The total revenue foregone by the state resulting from disbursements made under the working families tax exemption and resulting from reductions in sales taxes, use taxes, and business and occupation taxes enacted under this chapter, with the business and occupation tax reductions measured both relative to the rates applicable on January 1, 2017, and to the rates applicable during the annual or biennial period ending the July 1st immediately preceding the reporting date;

Comment 8.2: Some of the special B&O tax reductions have expiration dates, e.g., the semiconductor rate in Section 12 is set to expire at the end of 2018. In the absence of our legislation it’s unclear if those special rates would be extended or not, so we ask Department of Revenue to calculate the value of the tax reductions under both the rates applicable on January 1, 2017 (i.e., with the special rates) and the rates applicable at the time of the report.

(3) The revenue foregone by the state resulting from the phase-ins described in section 5 of this act, with a separate amount given for each subsection in section 5(2) (a) of this act;

(4) Costs directly associated with administration of the carbon pollution tax shown both in dollar amounts and as a percentage of the state general fund; and

(5) The overall net revenue gain or loss calculated by comparison of subsections (1) and (2) of this section in dollar amounts and as a percentage of the state general fund.

Section 9: Amending the B&O tax for manufacturing

Comment 9.0: Sections 9 through 13 of this act reduce the business and occupation (B&O) tax on manufacturers engaged in those activities subject to the “manufacturing tax” categories identified in RCW 82.04.440(5)(c)(i), namely:

• RCW 82.04.240 [general manufacturing, covered in Sections 9–10 below];
• RCW 82.04.2404 [semiconductors, covered in Section 10–12 below]; and
  
• RCW 82.04.260 (1), (2), (4), (11), and (12) [food products, timber and wood products, and airplanes, covered in Section 13 below, but note that we only cover (12)(b) and not 12(a), (c), or (d) because (b) is the only subsection that deals with manufacturing]; and
  
• Note that RCW 82.04.2909(1) [aluminum smelting] and RCW 82.04.294(1) [solar energy systems] are covered in RCW 82.04.440(5)(c)(i) but are not included below because they expire before our act takes effect on July 1, 2017.

Some general notes:

1. Changes to existing RCWs are made using underlining to add language and ((parentheses and strike-outs)) to delete language. For ease of viewing these changes are also highlighted in red.
   
2. As you can see from the changes below, all we are really doing is reducing the B&O tax rate for manufacturers to 0.001 percent. There are also minor editorial changes (e.g., changing “shall” to “must”) that were suggested by the Code Reviser to update the language in the code. The remainder of the existing code for each section is left intact, but we have to re-print the entire code because you’re not allowed to “amend by reference.”
   
3. In earlier drafts we attempted to simply repeal the B&O tax on manufacturers, but this turned out to be unwise for three reasons. The first reason is that there are interconnections inside the RCWs—e.g., RCW 82.04.261 says that “a surcharge is imposed on those persons who are subject to any of the taxes imposed under RCW 82.04.260(11)“—so repealing entire sections can have unintended consequences elsewhere. The second reason is that there’s a “catch-all” clause in RCW 82.04.290(2)(a) that reads: Upon every person engaging within this state in any business activity other than or in addition to an activity taxed explicitly under another section in this chapter… the amount of tax on account of such activities is equal to the gross income of the business multiplied by the rate of 1.5 percent. So it’s not enough to repeal the sections about manufacturers because then they would just be captured under the (higher) rate of this catch-all clause. The third reason is that maintaining a rate of 0.001 percent allows us to estimate the value of these tax reductions, which is what we do in Section 8(2).
   
4. “Manufacturer” is defined in RCW 82.04.110: Except as otherwise provided in this section, “manufacturer” means every person who, either directly or by contracting with others for the necessary labor or mechanical services, manufactures for sale or for commercial or industrial use from his or her own materials or ingredients any articles, substances, or commodities.
5. “To manufacture” is defined in RCW 82.04.120: “To manufacture” embraces 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… [See RCW 82.04.120 for a long list of specific examples of things that are and are not included.]
6. Section 9 below addresses the general tax rate for manufacturing. Sections 10-13 address the special rates that currently exist for various kinds of manufacturing: semiconductor manufacturing, aluminum smelters, etc.
   

Sec. 9. RCW 82.04.240 and 2004 c 24 s 4 are each amended to read as follows:

(1) Upon every person engaging within this state in business as a manufacturer, except persons taxable as manufacturers under other provisions of this chapter; as to such persons the amount of the tax with respect to such business ((shall be)) is equal to the value of the products, including byproducts, manufactured, multiplied by the rate of ((0.484)) 0.001 percent.

(2) The measure of the tax is the value of the products, including byproducts, so manufactured regardless of the place of sale or the fact that deliveries may be made to points outside the state.

Section 10: Amending the B&O tax for manufacturing, cont.

Comment 10.0: This section repeats some of the language for RCW 82.04.240, which was also covered in the previous section, but with reference to the legal code in “2010 c 114 s 104” rather than “2004 c 24 s 4”. This language was recommended by the Code Reviser. General comments on Sections 9-13 appear at the beginning of Section 9 above.

Sec. 10. RCW 82.04.240 and 2010 c 114 s 104 are each amended to read as follows:

(1) Upon every person engaging within this state in business as a manufacturer, except persons taxable as manufacturers under other provisions of this chapter; as to such persons the amount of the tax with respect to such business is equal to the value of the products, including byproducts, manufactured, multiplied by the rate of ((0.484)) 0.001 percent.

(2)(a) Upon every person engaging within this state in the business of manufacturing semiconductor materials, as to such persons the amount of tax with respect to such business is, in the case of 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 ((0.275)) 0.001 percent. For the purposes of this subsection “semiconductor materials” means silicon crystals, silicon ingots, raw polished semiconductor wafers, compound semiconductors, integrated circuits, and microchips.

(b) A person reporting under the tax rate provided in this subsection (2) must file a complete annual report with the department under RCW 82.32.534.

(c) This subsection (2) expires twelve years after the effective date of this act.

(3) The measure of the tax is the value of the products, including byproducts, so manufactured regardless of the place of sale or the fact that deliveries may be made to points outside the state.

Section 11: Amending the B&O tax for manufacturing, cont.

Comment 11.0: This language was recommended by the Code Reviser. General comments on Sections 9-13 appear at the beginning of Section 9 above.

Sec. 11. RCW 82.32.790 and 2010 c 114 s 201 are each reenacted and amended to read as follows:

(1)(a) Section 10, chapter …, Laws of 2015 (section 10 of this act), section 206, chapter 106, Laws of 2010, sections 104, 110, 117, 123, 125, 129, 131, and 150, chapter 114, Laws of 2010, section 3, chapter 461, Laws of 2009, section 7, chapter 300, Laws of 2006, and section 4, chapter 149, Laws of 2003 are contingent upon the siting and commercial operation of a significant semiconductor microchip fabrication facility in the state of Washington.

(b) For the purposes of this section:

(i) “Commercial operation” means the same as “commencement of commercial production” as used in RCW 82.08.965.

(ii) “Semiconductor microchip fabrication” means “manufacturing semiconductor microchips” as defined in RCW 82.04.426.

(iii) “Significant” means the combined investment of new buildings and new machinery and equipment in the buildings, at the commencement of commercial production, will be at least one billion dollars.

(2) Chapter 149, Laws of 2003 takes effect the first day of the month in which a contract for the construction of a significant semiconductor fabrication facility is signed, as determined by the director of the department of revenue.

(3)(a) The department of revenue must provide notice of the effective date of section 10, chapter …, Laws of 2015 (section 10 of this act), section 206, chapter 106, Laws of 2010, sections 104, 110, 117, 123, 125, 129, 131, and 150, chapter 114, Laws of 2010(([,])), section 3, chapter 461, Laws of 2009, section 7, chapter 300, Laws of 2006, and section 4, chapter 149, Laws of 2003 to affected taxpayers, the legislature, and others as deemed appropriate by the department.

(b) If, after making a determination that a contract has been signed and chapter 149, Laws of 2003 is effective, the department discovers that commencement of commercial production did not take place within three years of the date the contract was signed, the department must make a determination that chapter 149, Laws of 2003 is no longer effective, and all taxes that would have been otherwise due are deemed deferred taxes and are immediately assessed and payable from any person reporting tax under RCW 82.04.240(2) or claiming an exemption or credit under section 2 or 5 through 10, chapter 149, Laws of 2003. The department is not authorized to make a second determination regarding the effective date of chapter 149, Laws of 2003.

Section 12: Amending the B&O tax for manufacturing, cont.

Comment 12.0: This section concerns semiconductor manufacturing. General comments on Sections 9-13 appear at the beginning of Section 9 above.

Sec. 12. RCW 82.04.2404 and 2010 c 114 s 105 are each amended to read as follows:

(1) Upon every person engaging within this state in the business of manufacturing or processing for hire semiconductor materials, as to such persons the amount of tax with respect to such business is, in the case of 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 ((0.275)) 0.001 percent.

(2) For the purposes of this section “semiconductor materials” means silicon crystals, silicon ingots, raw polished semiconductor wafers, and compound semiconductor wafers.

(3) A person reporting under the tax rate provided in this section must file a complete annual report with the department under RCW 82.32.534.

(4) This section expires December 1, 2018.

Section 13: Amending the B&O tax for manufacturing, cont.

Comment 13.0: This section concerns a variety of manufacturing activities: subsection (1) concerns food processing and wood biomass fuel, subsections (2) and (4) also concern food processing, subsection (11) concerns airplane manufacturing, and subsection (12) concerns timber and wood products; the remaining subsections concern non-manufacturing activities and so are left unchanged. General comments on Sections 9-13 appear at the beginning of Section 9 above.

Sec. 13. RCW 82.04.260 and 2014 c 140 s 6 and 2014 c 140 s 4 are each reenacted and amended to read as follows:

(1) Upon every person engaging within this state in the business of manufacturing:

(a) Wheat into flour, barley into pearl barley, soybeans into soybean oil, canola into canola oil, canola meal, or canola by-products, or sunflower seeds into sunflower oil; as to such persons the amount of tax with respect to such business is equal to the value of the flour, pearl barley, oil, canola meal, or canola by-product manufactured, multiplied by the rate of ((0.138)) 0.001 percent;

(b) Beginning July 1, 2015, seafood products that remain in a raw, raw frozen, or raw salted state at the completion of the manufacturing by that person; or selling manufactured seafood products that remain in a raw, raw frozen, or raw salted state at the completion of the manufacturing, to purchasers who transport in the ordinary course of business the goods out of this state; as to such persons the amount of tax with respect to such business is equal to the value of the products manufactured or the gross proceeds derived from such sales, multiplied by the rate of ((0.138)) 0.001 percent. Sellers must keep and preserve records for the period required by RCW 82.32.070 establishing that the goods were transported by the purchaser in the ordinary course of business out of this state;

(c)(i) Beginning July 1, 2015, dairy products; or selling dairy products that the person has manufactured to purchasers who either transport in the ordinary course of business the goods out of state or purchasers who use such dairy products as an ingredient or component in the manufacturing of a dairy product; as to such persons the tax imposed is equal to the value of the products manufactured or the gross proceeds derived from such sales multiplied by the rate of ((0.138)) 0.001 percent. Sellers must keep and preserve records for the period required by RCW 82.32.070 establishing that the goods were transported by the purchaser in the ordinary course of business out of this state or sold to a manufacturer for use as an ingredient or component in the manufacturing of a dairy product.

(ii) For the purposes of this subsection (1)(c), “dairy products” means:

(A) Products, not including any marijuana-infused product, that as of September 20, 2001, are identified in 21 C.F.R., chapter 1, parts 131, 133, and 135, including by-products from the manufacturing of the dairy products, such as whey and casein; and

(B) Products comprised of not less than seventy percent dairy products that qualify under (c)(ii)(A) of this subsection, measured by weight or volume.

(iii) The preferential tax rate provided to taxpayers under this subsection (1)(c) does not apply to sales of dairy products on or after July 1, 2023, where a dairy product is used by the purchaser as an ingredient or component in the manufacturing in Washington of a dairy product;

(d)(i) Beginning July 1, 2015, fruits or vegetables by canning, preserving, freezing, processing, or dehydrating fresh fruits or vegetables, or selling at wholesale fruits or vegetables manufactured by the seller by canning, preserving, freezing, processing, or dehydrating fresh fruits or vegetables and sold to purchasers who transport in the ordinary course of business the goods out of this state; as to such persons the amount of tax with respect to such business is equal to the value of the products manufactured or the gross proceeds derived from such sales multiplied by the rate of ((0.138)) 0.001 percent. Sellers must keep and preserve records for the period required by RCW 82.32.070 establishing that the goods were transported by the purchaser in the ordinary course of business out of this state.

(ii) For purposes of this subsection (1)(d), “fruits” and “vegetables” do not include marijuana, useable marijuana, or marijuana-infused products;

(e) Until July 1, 2009, alcohol fuel, biodiesel fuel, or biodiesel feedstock, as those terms are defined in RCW 82.29A.135; as to such persons the amount of tax with respect to the business is equal to the value of alcohol fuel, biodiesel fuel, or biodiesel feedstock manufactured, multiplied by the rate of ((0.138)) 0.001 percent; and

(f) Wood biomass fuel as defined in RCW 82.29A.135; as to such persons the amount of tax with respect to the business is equal to the value of wood biomass fuel manufactured, multiplied by the rate of ((0.138)) 0.001 percent.

(2) Upon every person engaging within this state in the business of splitting or processing dried peas; as to such persons the amount of tax with respect to such business is equal to the value of the peas split or processed, multiplied by the rate of ((0.138)) 0.001 percent.

(3) Upon every nonprofit corporation and nonprofit association engaging within this state in research and development, as to such corporations and associations, the amount of tax with respect to such activities is equal to the gross income derived from such activities multiplied by the rate of 0.484 percent.

(4) Upon every person engaging within this state in the business of slaughtering, breaking and/or processing perishable meat products and/or selling the same at wholesale only and not at retail; as to such persons the tax imposed is equal to the gross proceeds derived from such sales multiplied by the rate of ((0.138)) 0.001 percent.

(5) Upon every person engaging within this state in the business of acting as a travel agent or tour operator; as to such persons the amount of the tax with respect to such activities is equal to the gross income derived from such activities multiplied by the rate of 0.275 percent.

(6) Upon every person engaging within this state in business as an international steamship agent, international customs house broker, international freight forwarder, vessel and/or cargo charter broker in foreign commerce, and/or international air cargo agent; as to such persons the amount of the tax with respect to only international activities is equal to the gross income derived from such activities multiplied by the rate of 0.275 percent.

(7) Upon every person engaging within this state in the business of stevedoring and associated activities pertinent to the movement of goods and commodities in waterborne interstate or foreign commerce; as to such persons the amount of tax with respect to such business is equal to the gross proceeds derived from such activities multiplied by the rate of 0.275 percent. Persons subject to taxation under this subsection are exempt from payment of taxes imposed by chapter 82.16 RCW for that portion of their business subject to taxation under this subsection. Stevedoring and associated activities pertinent to the conduct of goods and commodities in waterborne interstate or foreign commerce are defined as all activities of a labor, service or transportation nature whereby cargo may be loaded or unloaded to or from vessels or barges, passing over, onto or under a wharf, pier, or similar structure; cargo may be moved to a warehouse or similar holding or storage yard or area to await further movement in import or export or may move to a consolidation freight station and be stuffed, unstuffed, containerized, separated or otherwise segregated or aggregated for delivery or loaded on any mode of transportation for delivery to its consignee. Specific activities included in this definition are: Wharfage, handling, loading, unloading, moving of cargo to a convenient place of delivery to the consignee or a convenient place for further movement to export mode; documentation services in connection with the receipt, delivery, checking, care, custody and control of cargo required in the transfer of cargo; imported automobile handling prior to delivery to consignee; terminal stevedoring and incidental vessel services, including but not limited to plugging and unplugging refrigerator service to containers, trailers, and other refrigerated cargo receptacles, and securing ship hatch covers.

(8)(a) Upon every person engaging within this state in the business of disposing of low-level waste, as defined in RCW 43.145.010; as to such persons the amount of the tax with respect to such business is equal to the gross income of the business, excluding any fees imposed under chapter 43.200 RCW, multiplied by the rate of 3.3 percent.

(b) If the gross income of the taxpayer is attributable to activities both within and without this state, the gross income attributable to this state must be determined in accordance with the methods of apportionment required under RCW 82.04.460.

(9) Upon every person engaging within this state as an insurance producer or title insurance agent licensed under chapter 48.17 RCW or a surplus line broker licensed under chapter 48.15 RCW; as to such persons, the amount of the tax with respect to such licensed activities is equal to the gross income of such business multiplied by the rate of 0.484 percent.

(10) Upon every person engaging within this state in business as a hospital, as defined in chapter 70.41 RCW, that is operated as a nonprofit corporation or by the state or any of its political subdivisions, as to such persons, the amount of tax with respect to such activities is equal to the gross income of the business multiplied by the rate of 0.75 percent through June 30, 1995, and 1.5 percent thereafter.

(11)(a) Beginning October 1, 2005, upon every person engaging within this state in the business of manufacturing commercial airplanes, or components of such airplanes, or making sales, at retail or wholesale, of commercial airplanes or components of such airplanes, manufactured by the seller, as to such persons the amount of tax with respect to such business is, in the case of manufacturers, equal to the value of the product manufactured and the gross proceeds of sales 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:

(i) 0.4235 percent from October 1, 2005, through June 30, 2007; and

(ii) ((0.2904)) 0.001 percent beginning July 1, 2007.

(b) Beginning July 1, 2008, upon every person who is not eligible to report under the provisions of (a) of this subsection (11) and is engaging within this state in the business of manufacturing tooling specifically designed for use in manufacturing commercial airplanes or components of such airplanes, or making sales, at retail or wholesale, of such tooling manufactured by the seller, as to such persons the amount of tax with respect to such business is, in the case of manufacturers, equal to the value of the product manufactured and the gross proceeds of sales of the product manufactured, or in the case of processors for hire, be equal to the gross income of the business, multiplied by the rate of ((0.2904)) 0.001 percent.

(c) For the purposes of this subsection (11), “commercial airplane” and “component” have the same meanings as provided in RCW 82.32.550.

(d) In addition to all other requirements under this title, a person reporting under the tax rate provided in this subsection (11) must file a complete annual report with the department under RCW 82.32.534.

(e)(i) Except as provided in (e)(ii) of this subsection (11), this subsection (11) does not apply on and after July 1, 2040.

(ii) With respect to the manufacturing of commercial airplanes or making sales, at retail or wholesale, of commercial airplanes, this subsection (11) does not apply on and after July 1st of the year in which the department makes a determination that any final assembly or wing assembly of any version or variant of a commercial airplane that is the basis of a siting of a significant commercial airplane manufacturing program in the state under RCW 82.32.850 has been sited outside the state of Washington. This subsection (11)(e)(ii) only applies to the manufacturing or sale of commercial airplanes that are the basis of a siting of a significant commercial airplane manufacturing program in the state under RCW 82.32.850.

(12)(a) Until July 1, 2024, upon every person engaging within this state in the business of extracting timber or extracting for hire timber; as to such persons the amount of tax with respect to the business is, in the case of extractors, equal to the value of products, including by-products, extracted, or in the case of extractors for hire, equal to the gross income of the business, multiplied by the rate of 0.4235 percent from July 1, 2006, through June 30, 2007, and 0.2904 percent from July 1, 2007, through June 30, 2024.

(b) Until July 1, 2024, upon every person engaging within this state in the business of manufacturing or processing for hire: (i) Timber into timber products or wood products; or (ii) timber products into other timber products or wood products; as to such persons the amount of the tax with respect to the business is, in the case of manufacturers, equal to the value of products, including by-products, manufactured, or in the case of processors for hire, equal to the gross income of the business, multiplied by the rate of 0.4235 percent from July 1, 2006, through June 30, 2007, and ((0.2904)) 0.001 percent from July 1, 2007, through June 30, 2024.

(c) Until July 1, 2024, upon every person engaging within this state in the business of selling at wholesale: (i) Timber extracted by that person; (ii) timber products manufactured by that person from timber or other timber products; or (iii) wood products manufactured by that person from timber or timber products; as to such persons the amount of the tax with respect to the business is equal to the gross proceeds of sales of the timber, timber products, or wood products multiplied by the rate of 0.4235 percent from July 1, 2006, through June 30, 2007, and 0.2904 percent from July 1, 2007, through June 30, 2024.

(d) Until July 1, 2024, upon every person engaging within this state in the business of selling standing timber; as to such persons the amount of the tax with respect to the business is equal to the gross income of the business multiplied by the rate of 0.2904 percent. For purposes of this subsection (12)(d), “selling standing timber” means the sale of timber apart from the land, where the buyer is required to sever the timber within thirty months from the date of the original contract, regardless of the method of payment for the timber and whether title to the timber transfers before, upon, or after severance.

(e) For purposes of this subsection, the following definitions apply:

(i) “Biocomposite surface products” means surface material products containing, by weight or volume, more than fifty percent recycled paper and that also use nonpetroleum‑based phenolic resin as a bonding agent.

(ii) “Paper and paper products” means products made of interwoven cellulosic fibers held together largely by hydrogen bonding. “Paper and paper products” includes newsprint; office, printing, fine, and pressure-sensitive papers; paper napkins, towels, and toilet tissue; kraft bag, construction, and other kraft industrial papers; paperboard, liquid packaging containers, containerboard, corrugated, and solid-fiber containers including linerboard and corrugated medium; and related types of cellulosic products containing primarily, by weight or volume, cellulosic materials. “Paper and paper products” does not include books, newspapers, magazines, periodicals, and other printed publications, advertising materials, calendars, and similar types of printed materials.

(iii) “Recycled paper” means paper and paper products having fifty percent or more of their fiber content that comes from postconsumer waste. For purposes of this subsection (12)(e)(iii), “postconsumer waste” means a finished material that would normally be disposed of as solid waste, having completed its life cycle as a consumer item.

(iv) “Timber” means forest trees, standing or down, on privately or publicly owned land. “Timber” does not include Christmas trees that are cultivated by agricultural methods or short-rotation hardwoods as defined in RCW 84.33.035.

(v) “Timber products” means:

(A) Logs, wood chips, sawdust, wood waste, and similar products obtained wholly from the processing of timber, short-rotation hardwoods as defined in RCW 84.33.035, or both;

(B) Pulp, including market pulp and pulp derived from recovered paper or paper products; and

(C) Recycled paper, but only when used in the manufacture of biocomposite surface products.

(vi) “Wood products” means paper and paper products; dimensional lumber; engineered wood products such as particleboard, oriented strand board, medium density fiberboard, and plywood; wood doors; wood windows; and biocomposite surface products.

(f) Except for small harvesters as defined in RCW 84.33.035, a person reporting under the tax rate provided in this subsection (12) must file a complete annual survey with the department under RCW 82.32.585.

(13) Upon every person engaging within this state in inspecting, testing, labeling, and storing canned salmon owned by another person, as to such persons, the amount of tax with respect to such activities is equal to the gross income derived from such activities multiplied by the rate of 0.484 percent.

(14)(a) Upon every person engaging within this state in the business of printing a newspaper, publishing a newspaper, or both, the amount of tax on such business is equal to the gross income of the business multiplied by the rate of 0.2904 percent.

(b) A person reporting under the tax rate provided in this subsection (14) must file a complete annual report with the department under RCW 82.32.534.

Section 14: Amending the state sales tax

Comment 14.0: This section reduces the state sales tax by one-half point in year 1 (from 6.5% to 6.0%) and an additional half-point (to 5.5%) in year 2. As noted above, changes to existing RCWs are made using underlining to add language and ((parentheses and strike-outs)) to delete language; these changes are also highlighted in red. Also as noted above, we have to re-print the entire existing language for this section because you’re not allowed to “amend by reference.”

Sec. 14. RCW 82.08.020 and 2014 c 140 s 12 are each amended to read as follows:

(1) There is levied and collected a tax equal to six and five-tenths percent, decreasing to six percent beginning July 1, 2017, and to five and five-tenths percent beginning July 1, 2018, of the selling price on each retail sale in this state of:

(a) Tangible personal property, unless the sale is specifically excluded from the RCW 82.04.050 definition of retail sale;

(b) Digital goods, digital codes, and digital automated services, if the sale is included within the RCW 82.04.050 definition of retail sale;

(c) Services, other than digital automated services, included within the RCW 82.04.050 definition of retail sale;

(d) Extended warranties to consumers; and

(e) Anything else, the sale of which is included within the RCW 82.04.050 definition of retail sale.

(2) There is levied and collected an additional tax on each retail car rental, regardless of whether the vehicle is licensed in this state, equal to five and nine-tenths percent of the selling price. The revenue collected under this subsection must be deposited in the multimodal transportation account created in RCW 47.66.070.

(3) Beginning July 1, 2003, there is levied and collected an additional tax of three-tenths of one percent of the selling price on each retail sale of a motor vehicle in this state, other than retail car rentals taxed under subsection (2) of this section. The revenue collected under this subsection must be deposited in the multimodal transportation account created in RCW 47.66.070.

(4) For purposes of subsection (3) of this section, “motor vehicle” has the meaning provided in RCW 46.04.320, but does not include:

(a) Farm tractors or farm vehicles as defined in RCW 46.04.180 and 46.04.181, unless the farm tractor or farm vehicle is for use in the production of marijuana;

(b) Off-road vehicles as defined in RCW 46.04.365;

(c) Nonhighway vehicles as defined in RCW 46.09.310; and

(d) Snowmobiles as defined in RCW 46.04.546.

(5) Beginning on December 8, 2005, 0.16 percent of the taxes collected under subsection (1) of this section must be dedicated to funding comprehensive performance audits required under RCW 43.09.470. The revenue identified in this subsection must be deposited in the performance audits of government account created in RCW 43.09.475.

(6) The taxes imposed under this chapter apply to successive retail sales of the same property.

(7) The rates provided in this section apply to taxes imposed under chapter 82.12 RCW as provided in RCW 82.12.020.

Comment 14.7: Chapter 82.12 RCW is the Use Tax, and RCW 82.12.020 says that the applicable tax rate is the rate specified for the sales tax in RCW 82.08.020, so by changing the sales tax rate we are automatically changing the use tax rate as well.

Section 15: Amending the Working Families’ Tax Exemption

Comment 15.0: This section modifies and increases the working families’ tax exemption, which was passed into law in 2008 but has never been funded. As noted above, changes to existing RCWs are made using underlining to add language and ((parentheses and strike-outs)) to delete language; these changes are also highlighted in red. Also as noted above, we have to re-print the entire existing language for this section because you’re not allowed to “amend by reference.”

Sec. 15. RCW 82.08.0206 and 2008 c 325 s 2 are each amended to read as follows:

(1) A working families’ tax exemption, in the form of a remittance tax due under this chapter and chapter 82.12 RCW, is provided to eligible low-income persons for sales taxes paid under this chapter after January 1, 2008.

(2) For purposes of the exemption in this section, an eligible low-income person is:

(a) An individual((, or an individual and that individual’s spouse if they file a federal joint income tax return)) who is alive at the time of filing of a complete application for remittance under subsection (3) of this section;

(b) (([An individual who])) An individual who is eligible for, and ((is granted)) has claimed, the credit provided in Title 26 U.S.C. Sec. 32; and

(c) (([An individual who])) An individual who properly files a federal income tax return as a Washington resident, and has been a resident of the state of Washington more than one hundred eighty days of the year for which the exemption is claimed.

Comment 15.2: The edits here are to address concerns raised by Department of Revenue (see page 7 of this PDF) about verification of federal EITC data and about complications relating to heirs of deceased recipients of the federal EITC.

(3) For remittances made in 2009 and 2010, the working families’ tax exemption for the prior year is a retail sales tax exemption equal to the greater of five percent of the credit ((granted as a result of)) claimed and claimable under Title 26 U.S.C. Sec. 32 of the federal internal revenue code in the most recent year for which data is available or twenty-five dollars. For ((2011 and thereafter)) 2017, the working families’ tax exemption for the prior year is equal to the greater of ((ten)) fifteen percent of the credit ((granted as a result of)) claimed and claimable under Title 26 U.S.C. Sec. 32 of the federal internal revenue code in the most recent year for which ((data is available or fifty)) the applicant has filed a federal income tax return with the internal revenue service or one hundred dollars. For 2018 and thereafter, the working families’ tax exemption for the prior year is equal to the greater of twenty-five percent of the credit claimed and claimable under 26 U.S.C. Sec. 32 of the federal internal revenue code in the most recent year for which the applicant has filed a federal income tax return with the internal revenue service or one hundred dollars.

Comment 15.3: The edits here raise the amount of the WFTE to the greater of $100 or 15% of the federal EITC in 2017 and to the greater of $100 or 25% of the federal EITC in 2018 and beyond. They also address concerns raised by Department of Revenue (see page 7 of this PDF) about verification of federal EITC data.

(4) ((For any fiscal period, the working families’ tax exemption authorized under this section shall must be approved by the legislature in the state omnibus appropriations act before persons may claim the exemption during the fiscal period.

Comment 15.4: Deleting this subsection means that funding for the WFTE does not need legislative approval.

(5))) The working families’ tax exemption ((shall)) must be administered as provided in this subsection.

(a) An eligible low-income person claiming an exemption under this section must pay the tax imposed under chapters 82.08, 82.12, and 82.14 RCW in the year for which the exemption is claimed. The eligible low-income person may then apply to the department for the remittance as calculated under subsection (3) of this section.

(b) Application ((shall)) must be made to the department under penalty of perjury and must include a true and complete copy of the applicant’s federal income tax return to which the application pertains including the applicant’s claim under 26 U.S.C. Sec. 32 of the federal internal revenue code, all in a form and manner determined by the department, but the department must provide alternative filing methods for applicants who do not have access to electronic filing. Application for the exemption remittance under this section must include authorizing the department to make such inquiries and obtain such information from the internal revenue service as the department may deem necessary or appropriate to verify the information set forth in the application for the exemption remittance.

(c) Application for the exemption remittance under this section must be made in the year following the year for which the federal return was filed, but in no case may any remittance be provided for any period before January 1, 2008. The department may use the best available data to process the exemption remittance. The department ((shall)) must begin accepting applications October 1, 2009.

(d) The department ((shall)) must review the application and determine eligibility for the working families’ tax exemption based on information provided by the applicant and through audit and other administrative records, including, when it deems it necessary, verification through internal revenue service data.

(e) The department ((shall)) must remit the exempted amounts to eligible low-income persons who submitted applications. Remittances may be made by electronic funds transfer or other means.

(f) The department may, in conjunction with other agencies or organizations, design and implement a public information campaign to inform potentially eligible persons of the existence of and requirements for this exemption.

(g) The department may contact persons who appear to be eligible low-income persons as a result of information received from the internal revenue service under such conditions and requirements as the internal revenue service may by law require.

Comment 15.5: These edits are minor language changes, plus edits to address concerns raised by Department of Revenue (see page 7 of this PDF) about verification of federal EITC data.

(((6))) (5) The provisions of chapter 82.32 RCW apply to the exemption in this section.

(((7))) (6) The department may adopt rules necessary to implement this section.

(((8) The department shall limit its costs for the exemption program to the initial start-up costs to implement the program. The state omnibus appropriations act shall specify funding to be used for the ongoing administrative costs of the program. These ongoing administrative costs include, but are not limited to, costs for: The processing of internet and mail applications, verification of application claims, compliance and collections, additional full-time employees at the department’s call center, processing warrants, updating printed materials and web information, media advertising, and support and maintenance of computer systems.))

Comment 15.8: Deleting this subsection means that funding for the WFTE does not need legislative approval.

Section 16: Rulemaking

NEW SECTION. Sec. 16. RULE MAKING.(1) The directors of the department and of the department of licensing must adopt such rules and regulations as necessary for the implementation and proper administration of this chapter and may coordinate concerning the process, timelines, and documentation related to such rule making, as necessary.

(2) The department and the department of licensing may commence administrative work, including rule making, necessary to implement this act beginning July 1, 2016, as deemed necessary.

Section 17

NEW SECTION. Sec. 17. This chapter may be known and cited as the carbon pollution tax act.

Section 18

NEW SECTION. Sec. 18. Sections 1 through 8, 16, and 17 of this act constitute a new chapter in Title 82 RCW [Excise taxes].

Section 19

NEW SECTION. Sec. 19. This act takes effect July 1, 2017.

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