Washington Administrative Code › Title 458 - Revenue, Department of › Chapter 458-20 - Excise tax rules › Section 458-20-242B - Pollution control exemption and/or credits for dual purpose facilities which are constructed to meet pollution control requirements and which achieve pollution control in the process of production of the plant's products

Current through Register Vol. 24-14, July 15, 2024
Rule 242 deals with pollution control facilities and is
				published in two parts:
Part A.
Single purpose facilities added to existing
							 production plants as separately identifiable equipment principally for
							 pollution control and which are not designed for production of products other
							 than recovered products which but for the facility would be released as
							 pollutants.
Part B.
Dual purpose facilities which consist of new plant
							 equipment which achieves pollution control in the process of production of the
							 plant's products rather than through the add on of a pollution device to
							 existing plant equipment at some point in processing or upon completion of
							 processing.
This rule sets out instructions for determining pollution
				control tax exemption and/or credit for a dual purpose pollution control
				facility.
A dual purpose pollution control facility is defined as a
				single, integrated facility which is installed to meet standards for air or
				water pollution, or both, and which is also necessary to the manufacture of
				products. It refers to a facility in which the portion of the total facility to
				be identified as for the purpose of pollution control is so integrated into the
				total facility that physical separation into identifiable component parts --
				that is, that which is for manufacturing and that which is for pollution
				control -- is not possible. If these criteria are met, the following net cost
				approach shall be used to determine tax exemption and/or credit.
The application for certification shall be filed with the
				department of revenue in accordance with chapter 82.34 RCW and WAC
				458-20-242A. Upon approval by the
				appropriate control agency, subject to the qualification that the facility
				described in the application is a dual purpose facility and that all
				requirements outlined in chapter 82.34 RCW are met, an exemption/credit
				certificate shall be issued. To determine the net cost attributable to the
				pollution control element of the dual function facility, the computations
				described in the following steps are required.
(1) Obtain cost estimates (for facilities
			 under construction) and final cost figures (for completed facilities) directly
			 related to the new dual function facility. (Actual allowable credits will be
			 based on final costs of completed facilities.) Add to this final cost the
			 amount of unrecovered depreciation on existing equipment replaced, if any.
			 Subtract from this the salvage value of the replaced equipment, if and. Sales
			 and use tax paid shall not be included as part of the facility cost.
(2) Determine the percentage that actual
			 production capacity per unit of time of the existing plant equipment (before
			 installation of the control facility) is of the actual capacity per unit of
			 time of the new dual purpose facility. If the percentage so obtained is equal
			 to or greater than 100 percent, use the figure obtained in step (1) for
			 calculations commencing at step (3).
If the percentage so obtained is less than 100 percent,
				multiply that percentage times the figure derived in step (1) above. This
				figure represents the gross cost of constructing the new facility which meets
				pollution control requirements and obtains productive capacity of the existing
				plant. Productive capacity shall include all production of commercial or
				industrial value other than recovered or captured materials deductible from
				credits under provisions of
				RCW
				82.34.060.
(3) All computations used to adjust the gross
			 cost (as determined in step (2) above) shall be expressed in terms of current
			 dollars at the start up date as defined in this step (3). To this end, a
			 discount rate suitable for determining the present value of future income or
			 expenditures is required. The basis of the discount rate will be the average
			 cost of borrowed capital based on Aa Industrial Bonds as reported in Moody's
			 Bond Record and the cost of equity capital as established by the price earnings
			 ratio for the particular industry class as reported in the value line. This
			 will be the average of amounts so reported for the 12 months preceding and 12
			 months succeeding the start up date. This date is the first date the new dual
			 purpose facility is both in operation and in compliance with the requirements
			 of the appropriate pollution control agency.
The discount rate to be applied will be a combination of these
				rates. The two rates shall be weighted 50/50. The same discount rate shall be
				used for all adjustments to the gross cost.
(4) The next step in the procedure is to
			 calculate the present value of future capital that will not be spent at some
			 specific future date due to the expenditure now of the amount determined in (2)
			 above. This "specific future date" is the date determined by the department as
			 the date of projected replacement of the existing plant absent the need to meet
			 pollution control requirements. This will be the amount of expenditure
			 calculated in (2) above multiplied by the discount factor (as determined by use
			 of the discount rate as calculated in (3) above) which will equal the present
			 worth of that amount of money received or expended on the date representing the
			 end of the useful life of the existing plant by the new installation (the date
			 of "projected replacement"). This calculated amount shall be reduced by the
			 present value, if any, of the undepreciated balance that would remain after the
			 end of the depreciation period for the new facility if construction had been
			 delayed to the date used as the end of the useful life of the facility
			 replaced. This net calculation is then subtracted from the amount computed as
			 the "gross cost" in (2).
(5) From
			 the amount determined in (4) deduct the present value, after deduction of a
			 percentage equal to the maximum corporate federal income tax rate as of the
			 start up date, of operating savings expected to accrue to the date of projected
			 replacement used in (4) applying the discount factor for annual savings based
			 on the discount rate calculated in (3). Operating savings shall not include the
			 net commercial value of materials captured or recovered by virtue of the new
			 installation deductible under
			 RCW
			 82.34.060(2)(b).
(6) The next step is to deduct from the
			 balance as computed in (5) the present net value of federal income tax savings
			 to be derived from depreciation of the gross cost of the dual purpose facility
			 due to its construction sooner than at the date of projected replacement using
			 straight line depreciation over the useful life of the facility. The
			 determination of net present value of federal income tax reductions due to
			 depreciation allowances will consist of three steps.
(a) Calculate the present value of
			 depreciation allowances from date of completion of the new facility using
			 straight line depreciation to the projected replacement date.
(b) Deduct from (a) the present value of
			 depreciation that would have been allowable after the date of full depreciation
			 of the new dual purpose facility if construction of the new facility had been
			 delayed until the projected replacement date of the existing
			 facility.
(c) Multiply the result
			 of (a) minus (b) by the maximum corporate federal income tax rate as of the
			 start up date.
The net amount of federal tax benefits arrived at in (c) shall
				then be deducted from the balance determined in step (5).