Washington’s governor, Gary Locke, introduced legislation on January 24, 2001 which seeks to promote electrical generation through the use of tax incentives. Locke introduced several bills proposing amendments to Washington’s current tax laws which will either add or extend certain exemptions pertaining to renewable electric generating sources.
Senate Bill 5541 amends existing state law that exempts machinery and equipment from state sales and use taxes if the equipment is used directly in generating electricity from either wind, solar energy or landfill gas. The amended bill lowers the minimum generating capacity required for tax exemption from 200 kilowatts to 200 watts. The proposed bill also expands the type of property eligible for the exemption to include machinery and equipment used for electrical storage in addition to that used for transmitting electricity into an electric transmission and distribution system. The bill also contains sales and use tax exemptions for machinery and equipment operated in parallel with electric systems. The bill extends the expiration period of the exemptions an additional four years, from June 30, 2005 to 2009.
A second bill, SB 5542, addresses tax exemptions for pollution control facilities. This bill provides a sales and use tax exemption for the cost of air pollution control facilities installed or acquired for natural gas-fired thermal electric peaking plants.
A third bill, SB 5646, provides a broader income tax deduction to public utilities for the cost of generation from cogeneration facilities. Current law provides a tax deduction to utilities for the cost of energy produced or generated from cogeneration or renewable energy plants whose construction commenced between June 12, 1980 and January 1, 1990. Under the proposed bill, the deduction would also apply to the cost of energy purchased from cogeneration facilities whose construction or expansion commenced between July 1, 2001 and January 1, 2011.
Another bill introduced by Governor Locke, SB 5539, provides tax credits and deferrals on taxes for new facilities that provide electricity for direct service industrial customers ("DSIs"). DSIs are defined as large, industrial, electrical consumers that historically purchased their power directly from the federal Bonneville Power Administration. DSIs also purchase power from the wholesale market and from out-of-state sources. SB 5539 adds three new sections to Washington’s current excise tax law. The first section creates a business and occupation tax credit for DSIs for the purchase of gas for use in their own new generation facilities from gas distribution companies subject to the public utility tax. The second section creates a public utility tax credit for sales of power to DSIs from new electrical generation facilities under certain conditions. The generating facility is eligible for this credit if it did not exist as of the effective date of law, and if the term of the contract between the generating facility and the DSI is at least ten years. Credit eligibility also requires that the price of the electricity sold to the DSIs must be reduced by the amount of the credit. (Furthermore, the DSIs must not reduce their average level of employment for five years). If any of these conditions fail, then the DSI must repay the credit.
The third section proposed in SB 5539 provides for a deferral of the use tax levied on DSIs’s purchase of natural gas for use in their own new generating facilities. The use tax is deferred for five years, after which is repaid, interest free, on an amortized schedule. If the DSIs average annual employment over the five year period does not decrease, it is not required to pay the deferred taxes.
Two additional bills, similar to Governor Locke’s, were recently introduced in both the House and the Senate and propose further sales and use tax exemptions. HB 1191 provides a sales and use tax exemption for site preparation, construction, expansion, or renovation of an electrical generating facility of at least 200 watts, and for acquisition and installation of equipment necessary for the operation of such a facility. Similarly, the second bill, SB 5731 provides a sales and use tax exemption for tangible personal property sold to or used in the construction or improvement of either a new or existing generating facility including charges for labor and services performed in the construction or renovation process. Senate bills have been referred to the Committee on Environment, Energy and Water and the House bill to the Committee on Technology, Telecommunications and Energy.