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AGLO 1979 No. 36 - October 16, 1979
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Slade Gorton | 1969-1980 | Attorney General of Washington

TAXATION ‑- STATE ‑- SALES AND USE ‑- DEFERRAL OF STATE SALES AND USE TAXES

The imposition of sales and use taxes on the acquisition of equipment may not be deferred by order of the Economic Assistance Authority under the provisions of RCW 43.31A.140 in any case where the buildings in which the equipment is to be installed are not, themselves, eligible investment projects.

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                                                                October 16, 1979

Honorable Robert C. Anderson
Chairman
Economic Assistance Authority
General Administration Building
Olympia, Washington 98504                                                                                                               Cite as:  AGLO 1979 No. 36

Dear Sir:

            By letter previously acknowledged you requested the opinion of this office on a question which we paraphrase as follows:

            May the imposition of state sales and use taxes on the acquisition of equipment be deferred by order of the Economic Assistance Authority under RCW 43.31A.140, notwithstanding the fact that the buildings in which the equipment is to be installed are not, themselves, eligible for such tax deferrals?

            We answer this question in the negative for the reasons set forth in our analysis below.

                                                                     ANALYSIS

            Your question involves an aspect of the State Economic Assistance Act of 1972, chapter 117, Laws of 1972, 1st Ex. Sess., now codified as chapter 43.31A RCW.  By § 2 of that  [[Orig. Op. Page 2]] act, now RCW 43.31A.020, the legislature created an agency denominated the Economic Assistance Authority and then, by § 14 (RCW 43.31A.140) it provided that:

            "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 by a firm engaged in or to be engaged in manufacturing."

            Your question turns on the scope and meaning of the phrase "eligible investment project."  That term is 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') . . ."

            Clearly, in order for a given project to constitute an "eligible investment project" it must include ". . . construction of new buildings or major improvements to existing buildings . . ."  In other words, the mere acquisition and installation of machinery in a preexisting building will not, by itself, qualify.  No suggestion to the contrary appears in your letter and, thus, that is not an issue with which we are here concerned.

            There are, however, possible factual circumstances under which both (1) the construction of a new building and (2) the installation of machinery therein are involved‑-but for some reason the building itself still does not qualify for an order directing the granting of an investment tax deferral.  For  [[Orig. Op. Page 3]] example, it is possible that the building‑-although constructed at the same time as, and in conjunction with, the installation of machinery‑-may have been constructed by someone other than the applicant1/ and then have been leased to the party which is seeking the order of deferral.  In fact, we understand that there are at least two such cases now pending in superior court as a consequence of the authority's denial of an investment tax deferral on the basis of ineligibility of the building, and thus we here express no opinion on that question either.2/

             The precise question with which weare here concerned, as posed by your letter, assumes, in essence, both of the foregoing factors.  First, the project involves both the construction of a building and the installation of machinery therein and not, merely, the installation of machinery in a preexisting building.  But secondly, for one reason or another, the building does not, itself, qualify for an investment tax deferral as an "eligible investment project."  The issue to be resolved is whether, under those circumstances, the machinery or equipment involvedwill qualify so as to enable the authority to order an investment tax deferral with respect to the acquisition and installation thereof.

            In your letter you noted that differing views on that issue have heretofore been expressed by two assistant attorneys general who have, in succession, been assigned as legal counsel for the Economic Assistance Authority.  We have now had an opportunity to review, formally, the reasoning relied upon by both of those attorneys and have concluded that the better reasoned response, in the light of the critical language of RCW 43.31A.130(1), supra, and the applicable rule of statutory construction, is that the question posed must be answered in the negative.  As we read it, the legislature, by its promulgation of the above‑quoted definition of "eligible investment project," has tied the definition of eligible equipment expenses to the definition of eligible building construction costs; in short,  [[Orig. Op. Page 4]] equipment expenses are deferrable only to the extent that the equipment involved is installed in "such" buildings as are, in turn, themselves an "eligible investment project."3/

             Furthermore, in any event, to the extent that the pertinent statutory language might be deemed to be ambiguous or uncertain in its meaning we must, in resolving the question, be guided by what is, perhaps, one of the most basic rules of statutory construction in the area of legislation relating to taxation.  The rule, as most recently enunciated in Evergreen-Washelli Memorial Park Co. v. The Department of Revenue, 89 Wn.2d 660, 574 P.2d 735 (1978), a case involving the interpretation of an excise tax exemption provision, was expressed by the Court as follows:

            ". . . [w]e cannot construe statutory exemptions from taxing laws broadly.  It has been the strong policy of this court to construe such exemptions narrowly. . . ."  89 Wn.2d at 663.

            Giving due regard to this rule of narrow construction of tax exemption statutes, it is, therefore, the considered judgment of this office, in direct answer to the question here posed, that sales and use taxes on the acquisition of equipment maynot be deferred by order of the Economic Assistance Authority under the provisions of RCW 43.31A.140, supra, in any case where the buildings in which the equipment is to be installed are not, themselves, eligible investment projects.

             [[Orig. Op. Page 5]]

            We trust that the foregoing will be of some assistance to you.

Very truly yours,

SLADE GORTON
Attorney General


PHILIP H. AUSTIN
Deputy Attorney General

                                                         ***   FOOTNOTES   ***

1/I.e., the manufacturing firm (for example) which then installed the machinery and will be operating the plant.

2/Accord, the longstanding policy of this office of refraining from preparing and issuing an official attorney general's opinion on any legal questions currently pending before the courts.

3/Once again, here repeated for ease of reference, the pertinent language of RCW 43.31A.130(1), supra, reads as follows:

            "(1) 'Eligible investment project' shall mean construction of new buildings or major improvements to existing buildings and the machinery installedin 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') . . ."  (Emphasis supplied)

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