Analysis Complete for Engrossed Second Substitute House Bill 2042

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The Office of Financial Management has identified this bill as requiring a ten-year projection of increased cost to the taxpayers or affected fee payers.

Ten-year projection:

Fiscal Year		Electric vehicle account
2020		$ 1,755,000
2021		2,385,000
2022		2,995,000
2023		3,746,000
2024		4,616,000
2025		4,771,000
2026		6,550,000
2027		7,465,000
2028		8,335,000
2029		9,180,000
Total:		$ 51,798,000

There are many provisions in this bill, which will have an impact on WSDOT’s available revenues. These provisions include increasing the electric vehicle fee; changing the provisions of the clean commercial vehicle tax credit; adding a new sales and use tax exemption for electric vehicle sales; exempting zero emission buses from sales tax; and transfers of funds from the Electric Vehicle and Multimodal Account-State (transportation accounts) to the General Fund-State.

The cash receipts impacts of these changes will be reflected on the fiscal notes from Department of Revenue and Department of Licensing. The fiscal notes from these departments will reflect changes to taxes, fees, and tax credits. The transfer of funds from the EV Account to the General Fund-State to pay for the new sales and use tax exemption for purchases of new electric vehicles and the transfer of funds from the Multimodal account to the General Fund – State to pay for the sales and use tax exemption for zero emission busses are not a change in cash receipts, but a change in distributions by the Office of State Treasurer.

Indeterminate.

This bill redistributes the existing $100 electric vehicle registration renewal fee to electric vehicle account created in RCW 82.44.200 from August 1, 2019 until August 1, 2024. After this period the revenue distribution returns back to 70% to the motor vehicle fund, 15% to transportation improvement account, and 15% to the rural arterial trust fund.

Section 3(4)(a) increases the existing $50 electric vehicle registration renewal fee to $100 until the expiration date of August 1, 2029. Starting August 1, 2029 the additional fee amount is reduced to $50.  

For illustration purposes, the impact related to section 3 is shown in the table above. This portion of the impact does not include an indeterminate revenue increase for Sections 10 and 11, which pertain to use tax exemption on eligible vehicles. It is unknown how many people will take advantage of this incentive for electric vehicles.

No Cash Receipt Impact.

Note:  This fiscal note reflects language in E2SHB 2042, 2019 Legislative Session.

This fiscal note only addresses those sections of the bill that impact the Department of Revenue (Department).

Section 9 and 14

CURRENT LAW:

RCW 82.04.4496 and RCW 82.16.0496 provide business and occupation (B&O) tax and public utility tax (PUT) credits for businesses that purchase or lease new or qualifying used commercial vehicles powered by a clean alternative fuel, or convert vehicles to be powered by a clean alternative fuel. “Qualifying used commercial vehicle” means a vehicle with an odometer reading of less than 450,000 miles; is less than ten years past the original manufacturing date; is modified after the initial purchase with a United States environmental protection agency certified conversion that would allow the propulsion units to be principally powered by a clean alternative fuel; and is being sold for the first time after modification. Only vehicles used for commercial services or to transport commodities, merchandise, produce, refuse, freight, animals, or passengers and display a Washington state plate qualify for the credit. All commercial vehicles that provide transportation to passengers must be operated by an auto transportation company.

The credit is equal to fifty percent of the incremental cost amount, which is the difference in price between the qualified vehicle’s purchase price and a comparable conventionally-fueled vehicle, or the maximum credit amount for that vehicle, whichever is smaller. For leased vehicles, the credit is equal to fifty percent of the incremental cost amount multiplied by a lease reduction factor. For converted vehicles, the credit is $25,000 or 30 percent of the conversion costs, whichever is smaller. The maximum credit amount per vehicle is $25,000, $50,000, or $100,000, depending on the gross weight of the vehicle. The maximum total B&O and PUT credits allowed each year is $6 million dollars, which is $2 million per weight class. The maximum credit a person can receive in a year is $250,000 or 25 vehicles, whichever is smaller.

On the 25th of February, May, August, and November of each year, the Department must notify the State Treasurer of the amount of the B&O and PUT credits as reported on returns filed during the preceding calendar quarter ending on the last day of December, March, June, and September, respectively. The State Treasurer then transfers a sum equal to the credit amount provided by the Department from the multimodal account to the general fund. 

This credit must be earned by January 1, 2021, and used by January 1, 2022, when the credit expires.  

PROPOSAL:

This bill amends RCW 82.04.4496 and RCW 82.16.0496 by increasing the B&O and PUT credits to 75 percent of the incremental cost amount. For converted commercial vehicles, the percentage of the cost to calculate the credit is raised to 50 percent. 

A credit is allowed of up to 50 percent of the cost to purchase alternative fuel vehicle infrastructure which includes tangible personal property that will become a component and installation and construction of alternative fuel vehicle infrastructure.  The credit for infrastructure is limited to $2 million dollars annually. On September 1 of each year, any unused credits from any category, must be made available to applicants applying for credits under any other category, subject to the maximum annual credit of $6 million dollars. The maximum total credit taken since July 15, 2015, cannot exceed $32.5 million. 

The auto transportation definition is amended to include private, nonprofit transportation provider, charter party carrier, and paratransit service providers who primarily provide special needs transportation to individuals with disabilities and the elderly.

The bill states the Department must conduct an outreach to interested parties to obtain input on how best to streamline the application process for these sections.

Section 10 and 11

CURRENT LAW:

Sales and use tax is due on sales of new and used vehicles fueled by clean alternative fuel.

PROPOSAL:

This bill provides a sales and use tax exemption for sales of new and used passenger cars, light duty trucks, and medium duty passenger vehicles which (a) are exclusively powered by a clean alternative fuel or (b) use at least one method of propulsion that is capable of being recharged from an external source of electricity and are capable of traveling at least thirty miles using only battery power. 

New vehicles with a selling price less than $45,000, which includes the trade-in value, qualify for this exemption. Through July 31, 2021, the exemption is a maximum of $32,000 of a vehicle’s selling price or the total lease payments made plus the selling price of the leased vehicle, if the original lessee purchases the leased vehicle. Beginning August 1, 2021, the exemption is a maximum of $24,000 and decreases to $16,000 on August 1, 2023.  The qualification period end date is August 1, 2025. 

Used vehicles with a selling price less than $30,000, which includes the trade-in value, qualify for this exemption. The first $16,000 of the selling price or total lease payments made plus the selling price of the leased vehicle, if purchased by the original lessee, is exempt from sales and use tax.  

On the last day of January, April, July, and October of each year, the State Treasurer, based on information provided by the Department, must transfer from the electric vehicle account to the general fund a sum equal to the dollar amount that would have been deposited in the general fund had the exemption not been granted. 

Every six months, beginning the last day of October 2019 through qualification period end date, the Department must report to the transportation committees of the Legislature the cumulative number of qualifying vehicles titled in the state and the corresponding dollar amount of exempted state retail sales tax and estimated future costs of leased vehicles. 

All leased vehicles signed by the qualification period end date continue to be exempt from retail sales tax until August 1, 2028, when these sections expire.

Section 12 and 13

CURRENT LAW

Per RCW 82.08.816 and 82.12.816, sales of electric vehicle batteries and infrastructure are exempt from retail sales and use tax.  The exemption is available on the sale of or charge made for:

-  Batteries for electric vehicles.

-  Labor and services rendered in respect to installing, repairing, altering, or improving electric vehicle batteries. 

-  Labor and services rendered in respect to installing, constructing, repairing, or improving electric vehicle infrastructure.

-  Tangible personal property that will become a component of electric vehicle infrastructure during the course of installing, constructing, repairing, or improving electric vehicle infrastructure.     

This exemption expires January 1, 2020. 

PROPOSAL:

This bill exempts the retail sale and use tax for batteries or fuel cells for electric vehicles and electric buses if sold as a component of the bus at the time of sale.  The exemption extends to sales of zero emission buses as well as hydrogen fueling stations and renewable hydrogen production facilities. Zero emission bus means a bus that emits no exhaust gas from the onboard source of power. Renewable hydrogen means hydrogen produced using renewable resources both as the source for hydrogen and the source for the energy input into the production process.  The expiration date is extended to August 1, 2029.

On the last day of January, April, July, and October of each year, the State Treasurer, based on information provided by the Department, must transfer from the multimodal account to the general fund a sum equal to the dollar amount that would have been deposited in the general fund had the exemption not been granted. 

Section 15

CURRENT LAW

Per RCW 82.29A.125, leasehold interests in public lands are exempt from state and local leasehold excise taxes, if the purpose of the leasehold interest is to install, maintain, and operate electric vehicle infrastructure.  

This exemption expires January 1, 2020.

PROPOSAL:

This bill extends the expiration date to August 1, 2029, and expands the exemption to include hydrogen fueling stations and renewable hydrogen production facilities. 

Section 22 and 23

CURRENT LAW

Sales and use tax is due on sales of new electric vessels and marine propulsion systems.

PROPOSAL

This bill provides a sales and use tax exemption for new battery-powered electric marine propulsion systems with a continuous power greater than 15 kilowatts and new vessels equipped with these propulsion systems. The propulsion system is a fully electric outboard or inboard motor used by vessels with battery packs being the only source of the power. The exemption includes required accessories, such as throttles/displays and battery packs. The term vessel includes every watercraft other than a seaplane, used or capable of being used as a means of transportation on the water. This exemption expires August 1, 2029.

On the last day of January, April, July, and October of each year, the State Treasurer, based on information provided by the Department, must transfer from the multimodal account to the general fund a sum equal to the dollar amount that would have been deposited in the general fund had the exemption not been granted. 

EFFECTIVE DATE:

Sections 9 and 14 take effect on January 1, 2020. 

Sections 10 through 13, 15, 22, and 23, take effect on August 1, 2019.

ASSUMPTIONS

- Effective August 1, 2019, with 10 months of impact in Fiscal Year 2020.

- Sales of qualifying vehicles will grow by an average of 20 percent per year. 

- Lease payments for agreements signed prior to the expiration date will continue to be exempt through the remainder of the lease.

- Average lease term is 36 months. To adjust for leases signed over the course of a fiscal year, sales tax is allocated over four fiscal years with six months of payments reflected in the first and fourth year and 12 months of payments reflected in the second and third year.

- Average residual value of the leased vehicle is 55 percent.

- The alternative fuel commercial vehicle tax credit program will continue to grow by 15 percent, which is reflected starting in Fiscal Year 2022 with five months of impact.  

- Per King County website, Metro transit will be acquiring 120 all-electric buses by 2020. The acquisition of the buses is split between Fiscal Years 2020 and 2021.  Recharging infrastructure will be installed to accommodate the additional electric buses and is included in the calculation.  

- "Zero emission bus" includes large transit buses as well as shuttle buses, such as airport parking lot shuttles.  These bus purchases and the recharging infrastructure also qualify for the alternative fuel commercial vehicle tax credit program. 

- The sales growth for smaller recharging infrastructure is 10 percent. 

- The revenue impact for the leasehold exemption is indeterminate.  The number of charging and hydrogen refueling stations located on public property is unknown but the impact to the leasehold excise tax is thought to be minimal. 

- National growth for boat sales is 5 percent, electric boats are about 0.1 percent of the sales.

- Electric boats are forecasted to grow 11 percent annually. 

- Per Geekwire article dated November 1, 2018, Seco Development plans to build and operate three electric water taxis from Lake Union to Renton by 2020. It is assumed the taxis will be purchased in Fiscal Year 2020. 

- Article posted on Oregon Public Broadcasting, dated April 15, 2019, states the Douglas County public utility district plans on purchasing a 2-3 megawatt electrolyzer to split water molecules to make hydrogen. The PUD estimates the cost of the electrolyzer at $3 million and the purchase to occur in 2-3 years. 

- National Renewable Energy Laboratory published the Hydrogen Station Cost Estimate report in 2013. Based on the report, the average cost for hydrogen fueling station is approximately $3 million.

- California Air Resources Board published the 2018 Annual Evaluation of Fuel Cell Electric Vehicle Deployment & Hydrogen Fuel Station Network Development. As of 3/26/19, California has 39 fueling stations with an addition 25 more in development. In 2015, 5 fueling stations were opened. This number jumped to 19 additional stations built in 2016. There are no hydrogen fuel stations in Washington, but with California's quick implementation, Washington would most likely install at least one fuel station a year beginning in Fiscal Year 2021.

- At this time, the Department is unaware of any plans for a renewable hydrogen production facility besides Douglas PUD's project. The impact could increase significantly if a facility is built. 

DATA SOURCES

- Department of Revenue excise tax returns

- Office of Financial Management, November 2018 Transportation Revenue Forecast

- Washington State Department of Licensing

- Qualifying Vehicles List https://www.dol.wa.gov/vehicleregistration/docs/current-list-of-qualifying-vehicles.pdf

- Department of Ecology, https://ecology.wa.gov/About-us/Get-to-know-us/News/2018/$22-million-from-VW-settlement-goes-toward-electri

- King County, https://www.kingcounty.gov/elected/executive/constantine/news/release/2017/January/10-battery-buses.aspx

- Geekwire article, https://www.geekwire.com/2018/developer-plans-launch-water-taxis-connect-seattle-regions-tech-hubs-2020/

- PR Newswire article, https://www.prnewswire.com/news-releases/electric-boats-market-to-represent-a-significant-expansion-at-110-cagr-during-2018---2028---future-market-insights-684173351.html

- Businesswire article, https://www.businesswire.com/news/home/20180109005475/en/U.S.-Boat-Sales-Strong-Heading-2018-Poised

- Oregon Public Broadcasting article, https://www.opb.org/news/article/hydrogen-h2-fuel-renewable-dams-hydropower-washington/

- California Fuel Cell Partnership, https://cafcp.org/sites/default/files/h2_station_list.pdf

REVENUE ESTIMATES 

This bill decreases state revenues by an estimated $29.1 million in the 2019-21 Biennium. This bill also decreases local revenues by an estimated $11.3 million in the 2019-21 Biennium.

TOTAL REVENUE IMPACT: 

      State Government (cash basis, $000): 

           FY 2020 -     ($ 12,819)       

           FY 2021 -     ($ 16,234)       

           FY 2022 -     ($ 13,896)       

           FY 2023 -     ($ 17,094)       

           FY 2024 -     ($ 15,817)       

           FY 2025 -     ($ 18,656)       

      Local Government, if applicable (cash basis, $000):            

           FY 2020 -     ($ 4,920)        

           FY 2021 -     ($ 6,429)        

           FY 2022 -     ($ 5,451)        

           FY 2023 -     ($ 6,600)        

           FY 2024 -     ($ 5,901)        

           FY 2025 -     ($ 7,102)

This engrossed bill is proposed by the House of Representatives.

The second substitute bill was proposed by:

House Committee on Finance
(360) 786-7063



The original bill sponsors and contact information are:

Representative Jake Fey, Prime Sponsor
Democrat
(360) 786-7974
Jake.Fey@leg.wa.gov

Representative Ed Orcutt
Republican
(360) 786-7990
Ed.Orcutt@leg.wa.gov

Representative Vandana Slatter
Democrat
(360) 786-7936
Vandana.Slatter@leg.wa.gov

Representative Beth Doglio
Democrat
(360) 786-7992
Beth.Doglio@leg.wa.gov

Representative Steve Tharinger
Democrat
(360) 786-7904
Steve.Tharinger@leg.wa.gov

Representative Bill Ramos
Democrat
(360) 786-7852
RAMOS_BI@leg.wa.gov




Legislative Bill Information Website: http://apps.leg.wa.gov/billinfo/

Initiative 960 Website: http://www.ofm.wa.gov/tax/default.asp