TAXATION ‑- SALES TAX ‑- USE TAX ‑- CERTIFICATION FOR INVESTMENT TAX DEFERRAL
(1) The Economic Assistance Authority may not refuse to certify, for an investment tax deferral, an investment project which is otherwise qualified under RCW 43.31A.130 on the ground that the project will not have a sufficient impact on employment within the geographic area involved.
(2) The $30,000,000 cumulative limit on project costs imposed by § 2, chapter 76, Laws of 1981, encompasses all outstanding deferrals granted all sufficiently related business entities.
(3) The $30,000,000 cumulative limit imposed by § 2, chapter 76, Laws of 1981, does not affect the total amount of investment tax deferral which may be taken for a single project pursuant to an application for deferral which was certified as eligible before March 1, 1981; if, however, the same taxpayer applies for an additional project certification on or after that date the costs of the then outstanding project must be coupled with the additional project costs in determining the eligibility of the latter for a tax deferral.
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February 17, 1982
Honorable Richard T. Schrock
Economic Assistance Authority
General Administration Building
Olympia, Washington 98504 Cite as: AGLO 1982 No. 4
Dear Mr. Schrock:
By letter previously acknowledged, you requested our opinion on certain questions relating to the processing of applications for investment tax deferrals by the state Economic Assistance Authority. We paraphrase those questions as follows:
(1) May the Economic Assistance Authority refuse to certify, for an investment tax deferral, an investment project which is otherwise qualified under RCW 43.31A.130 on the ground that the project will not have a sufficient impact on employment within the geographic area involved?
[[Orig. Op. Page 2]]
(2) Does the $30,000,000 cumulative limit on project costs imposed by § 2, chapter 76, Laws of 1981, apply to each separate corporate or other business entity or does it, instead, apply in the aggregate to all of the "related" business entities which may have received previous investment tax deferrals?
(3) What is the legal effect, if any, of the $30,000,000 cumulative limit imposed by § 2, chapter 76, Laws of 1981, upon the total amount of investment tax deferral which may be taken for a single project pursuant to an application for deferral which was certified as eligible before March 1, 1981?
We answer your first question in the negative and respond to your second and third questions in the manner set forth in our analysis.
The Economic Assistance Act of 1972 (chapter 117, Laws of 1972, 1st Ex. Sess.), together with later amendments, is now codified as chapter 43.31A RCW. By this act the legislature created the Economic Assistance Authority (hereinafter "Authority") and gave it certain powers with respect to the designation of eligible investment projects for purposes of sales or use tax deferrals. See, particularly, RCW 43.31A.140 which provides in material part:
"The authority shall certify the eligibility of investment projects, and the department of revenue shall grant investment tax deferrals for eligible investment projects in an amount not to exceed the state and local sales tax payable under chapters 82.08 and 82.14 RCW or the use tax payable under chapters 82.12 and 82.14 RCW on machinery, materials, labor, and services directly utilized in a certified eligible investment project paid for by a firm engaged in or to be engaged in manufacturing: . . ."
[[Orig. Op. Page 3]]
The term "eligible investment project" is expressly defined, in RCW 43.31A.130(1), as follows:
"(1) 'Eligible investment project' shall mean construction of new buildings or major improvements to existing buildings and the machinery installed in such buildings in the course of such construction or major improvements, when said buildings and machinery are used or are to be used for activities defined in RCW 82.04.120 (the definition of the term 'to manufacture'): Provided, That an investment project undertaken by a business as defined in RCW 82.16.010(5) (an electrical utility) shall not be eligible: Provided further, That one or more of the following criteria must be met:
"(a) The investment project is or will be located in an economic assistance area or special impact area;
"(b) A minimum of twenty percent of the employees at the plant complex for which the deferral is requested shall be of a minority race;
"(c) The plant complex shall be within an industry classification which is not currently a major employing industry in the county in which the plant complex is located. The industry classification of the plant complex shall be determined by the standard industrial classification as assigned by the department of employment security. The major employing industries in a county shall be the two manufacturing industries which employed the greatest number of persons on an annual average basis in the most recent calendar year for which such information is available from the department of employment security." (Emphasis supplied.)
Also to be noted is RCW 43.31A.150 which relates to the application for certification of an investment project and reads as follows:
"Application for certification of an investment project shall be made to the authority in such a form and manner as the authority may prescribe, but in no case shall an application be accepted after initiation of the construction of the investment project. The application shall contain information regarding the location of the investment project, the firm's average employment in the [[Orig. Op. Page 4]] state for the prior year, estimated or actual new employment related to the project, estimated or actual costs, time schedules for completion and operation, and such other information as the authority may require. The authority shall rule on the application within sixty days, and the department of revenue shall issue an investment tax deferral certificate when the authority certifies that the criteria for an eligible investment project have been satisfied." (Emphasis supplied.)
It is this last statutory provision which, presumably, gives rise to your first question. By its terms, RCW 43.31A.150 requires that the application for certification of an investment project contain information regarding the "estimated or actual new employment related to the project." The question is whether this provision also, by implication, empowers the Authority to refuse to certify an otherwise eligible project because the "estimated or actual new employment" is below some level which the Authority might establish.
We answer in the negative for two reasons.
First, as the final sentence which we have last emphasized in RCW 43.31A.150, supra, indicates, the function of the Authority in acting on an application is to determine whether or not ". . . the criteria for an eligible investment project have been satisfied." Those criteria, in turn, are themselves set forth in RCW 43.31A.130(1), the definition of "eligible investment project," which we have also quoted above. But nothing in that definition, including the three "criteria" expressly set forth therein, spells out any specific employment level‑-or authorizes the Authority to establish any such level‑-as an additional criterion for certification.
In short, the definition of "eligible investment project" which is contained in RCW 43.31A.140(1) reflects the only criteria which the Authority is to take into account in determining whether a project should be certified or not; and RCW 43.31A.150 neither establishes additional criteria nor empowers the Authority to do so.
[[Orig. Op. Page 5]]
Secondly, any other conclusion would give rise to a substantial constitutional question. It is well established that a legislative delegation of power to an administrative agency must be accompanied by legislatively established standards of performance. See, e.g., Rody v. Hollis, 81 Wn.2d 88, 500 P.2d 97 (1972). Those standards may be very general, and indeed may be implied, rather than explicit. Rody, supra, at 91, 92. RCW 43.31A.150, however, is completely silent as to how‑-or to what extent‑-the data therein referred to (relating to "estimated or actual new employment") are to be utilized by the Authority in determining whether a project should be certified.1/ And it is precisely this statutory silence which raises the constitutional problem. If possible, a statute should, however, be construed so as to avoid such a constitutional problem. Soundview Pulp Co. v. Taylor, 21 Wn.2d 261, 150 P.2d 839 (1944).
Thus, the plain language of RCW 43.31A.140(1) and 43.31A.150, as well as this rule of statutory construction, leads to the same conclusion, and requires that your first question be answered in the negative.2/
By chapter 76, Laws of 1981, the legislature enacted several significant amendments to the Economic Assistance Act of 1972. Of particular importance is the following amendment (in bill form) to [[Orig. Op. Page 6]] RCW 43.31A.140, supra, as set forth in § 2, chapter 76, supra:
"The authority shall certify the eligibility of investment projects, and the department of revenue shall grant investment tax deferrals for eligible investment projects in an amount not to exceed the state and local sales tax payable under chapters 82.08 and 82.14 RCW or the use tax payable under chapters 82.12 and 82.14 RCW on machinery, materials, labor, and services directly utilized in a certified eligible investment project ((undertaken)) paid for by a firm engaged in or to be engaged in manufacturing: PROVIDED, That after March 1, 1981, no taxpayer may be certified by the authority as eligible for tax deferral for any investment project costs over thirty million dollars, cumulative on all outstanding and subsequent projects: PROVIDED FURTHER, That taxpayer applications certified by the authority as eligible for tax deferral after March 1, 1981 and before the effective date of this 1981 act shall be null and void and of no force and effect."
With this amendatory language in mind we repeat, for ease of reference, your second question:
Does the $30,000,000 cumulative limit on project costs imposed by § 2, chapter 76, Laws of 1981, apply to each separate corporate or other business entity, or does it, instead, apply in the aggregate to all of the "related" business entities which may have received previous investment tax deferrals?
In our opinion the $30,000,000 lid provided for by § 2, chapter 76, supra, encompasses all outstanding deferrals granted all sufficiently related business entities. The 1981 amendments, we should note, also supply a definition of what businesses are sufficiently related. See, § 1(6), chapter 76, supra, which reads:
"(6) 'Taxpayer' shall mean the taxpaying entity certified by name pursuant to RCW 43.31A.140, its subsidiaries, and its principal owners. Ownership interest for the purpose of determining whether a corporation or a natural person is a principal owner or a subsidiary of an eligible taxpayer shall be fifty-one percent or a controlling interest as determined by the authority."
[[Orig. Op. Page 7]]
As noted above, the $30,000,000 limit is expressly imposed upon any taxpayer applicant. The closer the relationship to any application and another business entity, the more likely the business entity's outstanding tax deferrals need to be included in the calculation of the applicant's eligibility, pursuant to the above definition of "taxpayer."
One further point should be noted with regard to this definition, i.e., that it turns upon the existence of an "ownership interest." And it sets out two distinct tests for determining the existence of that interest. The first is purely quantitative, i.e., a "fifty-one percent [ownership] . . . interest." But then, in recognition that less than a fifty-one percent ownership interest may be in fact a controlling interest, the definition sets out a second test; namely, "a controlling [ownership] interest as determined by the authority." This second test is to be applied, we believe, on a case‑by-case basis‑-but guidance in so applying the test is available from the practices of other agencies in applying a similar test in other areas of the law, such as securities law. See, e.g., the definition of "control" contained in 17 C.F.R. § 230.405(f):
"The term 'control' (including the terms 'controlling,' 'controlled by' and 'under common control with') means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise."3/
Your final question also relates to the same 1981 amendment and asks:
What is the legal effect, if any, of the $30,000,000 cumulative limit imposed by § 2, chapter 76, Laws of 1981, upon the total amount of investment tax deferral which may be taken for a single project pursuant to an [[Orig. Op. Page 8]] application for deferral which was certified as eligible before March 1, 1981?
To answer this question, we must again examine the language of the first proviso which was added to RCW 43.31A.140 by § 2, chapter 75, supra. Repeated for ease of reference it reads:
". . . PROVIDED, That after March 1, 1981, no taxpayer may be certified by the authority as eligible for tax deferral for any investment project costs over thirty million dollars, cumulative on all outstanding and subsequent projects: . . ."
Before the enactment of this proviso, there was no limit upon the amount of project costs which could qualify for tax deferral. This, in turn, was reflected in the actual administrative practice of the Authority. More specifically, projects were certified for tax deferrals without any mention of a maximum allowable amount of either investment costs or deferrable taxes.4/
This administrative practice made complete sense, and was entirely consistent with the statutory scheme, so long as there was no limit on the amount of the cost for which the tax deferral could be obtained. In the absence of such a limit, any requirement of an additional or amended certification, to cover the additional project costs, would have served no useful purpose. The original certification itself, in short, was open-ended with respect to the amount of taxes which could be deferred.5/
[[Orig. Op. Page 9]]
Your third question asks, in essence, whether certifications made by the Authority prior to March 1, 1981, will continue to be open-ended, as before. Or, on the other hand, does the $30,000,000 now contained in the first proviso to RCW 43.31A.140, supra, apply even where the particular taxpayer6/ does nothing more, after March 1, 1981, than proceed with completion of his previously certified investment project‑-with a resulting incurrence of costs in excess of $30,000,000?
In our opinion, the limit does not apply in such a case and the pre‑March 1, 1981, certification continues to be open-ended, as before.
By its express terms, the proviso containing the $30,000,000 limit governs only the effect of certifications made by the Authority after the specified date. It does not address, or purport to change, the effect of a pre‑March 1, 1981, certification as related to the project so certified.
We emphasize the words "as related to the project so certified," however, because the total amount of project costs with respect to that project will now have a bearing on the amount of project costs eligible for tax deferral for a different project certified after March 1, 1981. For, in the words of the amendment, the limit is "cumulative on all outstanding and subsequent projects." And those "outstanding" projects may well include one or more projects which were certified prior to March 1, 1981. Let us illustrate this point with the following example.
[[Orig. Op. Page 10]]
Assume that Project A was covered by a pre‑March 1, 1981, certification and that, as of that date, the total project costs were exactly $30,000,000. Assume also that after March 1, the same taxpayer applied for a certification for a different project‑-which we will call Project B. In accordance with our answer to your question, the costs eligible for tax deferral for Project A are not limited to $30,000,000. Since, however, the costs of Project A must be coupled with, and added to, the estimated cost for Project B in determining the applicability of the limit to Project B, the effect is that none of the costs of Project B would be eligible for a tax deferral. For, in this hypothetical case, Project A will have utilized the whole limit‑-and no portion thereof will be left for Project B.7/
One final point. It may not always be a simple matter to distinguish between a cost overrun for Project A and the initiation of a new and different project, i.e., a Project B. Yet our conclusion makes this distinction of critical importance. As we have already seen, however, the Authority has dealt with this problem in the past.8/ And the Authority may wish to review‑-and possibly revise‑-its procedures (including the application form and instructions therefore) in order to facilitate its task in making this distinction in any given case in the future.
[[Orig. Op. Page 11]]
This completes our consideration of your questions. We trust that the foregoing will be of assistance to you.
Very truly yours,
KENNETH O. EIKENBERRY
TIMOTHY R. MALONE
Assistant Attorney General
*** FOOTNOTES ***
1/We are not suggesting that the legislature performed a useless act in requiring this employment data in the application. For that data may be of great assistance to the Authority‑-and to the legislature itself‑-in any review of the entire tax deferral program. Indeed, just such a legislative review has already occurred, as we shall shortly see in our discussion of the 1981 amendments to chapter 43.31A RCW.
2/RCW 43.31A.150, in addition to requiring the employment data, also empowers the Authority to add to the list of required information virtually anything it chooses. To construe this statute as empowering the Authority to establish, as well, whatever additional criteria it might choose would compound the constitutional problem. But if the requirement of employment information impliedly authorizes the Authority to establish criteria based upon that information, presumably the requirement of other information would have the same effect.
3/Accordingly, the Authority may find it necessary to revise its application form to assure that future applicants will provide the information necessary to determine whether the "fifty-one percent interest" test is applicable or alternatively whether the "control" test is applicable or likely to be applicable upon further inquiry into the facts.
4/Under RCW 43.31A.150, supra, applications for tax deferrals were required to include ". . . estimated or actual costs, . . ." Under the same statute, however, no application could be accepted ". . . after initiation of the construction of the investment project." Accordingly, actual costs would be available only for those items which had already been purchased or for which firm bids had been received; estimates, in short, would not be at all unusual. In 1979 the Authority began requiring taxpayers to advise the Authority if construction costs were to exceed 25 percent of the original estimates. Our understanding, however, is that even in those cases, the Authority never gave any further certification for such costs but, instead, simply acknowledged the adjustment. In turn, if the Authority was satisfied that the additional costs were attributable to the project as approved, they were routinely recognized for tax deferral purposes.
5/At the same time, however, the further administrative practice referred to in footnote 4 above‑-whereby the Authority called upon taxpayers to advise it if their construction costs were going to exceed 25 percent of the original estimates‑-also served an important function. It allowed the Authority to check, in effect, for the purpose of determining whether the project being built was, in all material respects, the same as the project originally certified. For reasons we will discuss shortly, that function has become critical under the 1981 amendment we are considering here.
6/See, again, § 1(6), chapter 76, supra, for the applicable definition of "taxpayer."
7/Further, it matters not when Project A utilizes the whole limit or any portion thereof. At the time of the application for Project B, the costs for Project A may, for example, only be up to $25,000,000. Any increase in those costs, however, would reduce the otherwise eligible (for tax deferral) costs for Project B. Thus, in essence, any certification for Project B must make the costs for that project only conditionally eligible for deferral‑-the condition being the final amount of costs for Project A.
8/See, again, footnote 4 above.