2005 Legislation
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HOUSE BILL NO. 261 – Sales tax exmptn, certain property

HOUSE BILL NO. 261

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Bill Status



H0261...............................................by REVENUE AND TAXATION
SALES TAX EXEMPTION - Adds to and amends existing law to exempt from the
sales and use tax property which is used in research and development
activities; to define "research and development"; to revise the definition
of "clean room"; and to remove property used for research and development
as an exclusion from the production exemption.
                                                                        
02/23    House intro - 1st rdg - to printing
02/24    Rpt prt - to Rev/Tax
03/03    Rpt out - rec d/p - to 2nd rdg
03/04    2nd rdg - to 3rd rdg
03/08    3rd rdg - PASSED - 66-3-1
      AYES -- Anderson, Andrus, Barraclough, Barrett, Bastian, Bayer,
      Bedke, Bell, Bilbao, Black, Block, Boe, Bolz, Cannon, Chadderdon,
      Clark, Collins, Crow, Deal, Denney, Edmunson, Ellsworth, Eskridge,
      Field(18), Field(23), Garrett, Hart, Harwood, Henbest, Henderson,
      Jaquet, Jones, Kemp, Lake, Loertscher, Martinez, Mathews, McGeachin,
      McKague, Miller, Moyle, Nielsen, Nonini, Pasley-Stuart, Pence,
      Raybould, Ring, Roberts, Rusche, Rydalch, Sali, Sayler, Schaefer,
      Shepherd(2), Shepherd(8), Shirley, Skippen, Smith(30), Smith(24),
      Smylie, Snodgrass, Stevenson, Trail, Wills, Wood, Mr. Speaker
      NAYS -- LeFavour, Mitchell, Ringo
      Absent and excused -- Bradford
    Floor Sponsor - Moyle
    Title apvd - to Senate
03/09    Senate intro - 1st rdg - to Loc Gov
03/17    Rpt out - rec d/p - to 2nd rdg
03/18    2nd rdg - to 3rd rdg
03/22    3rd rdg - PASSED - 32-2-0, 1 vacancy
      AYES -- Andreason, Brandt, Broadsword, Bunderson, Burkett,
      Burtenshaw, Cameron, Coiner, Compton, Corder, Darrington, Davis,
      Gannon, Geddes, Goedde, Hill, Jorgenson, Kelly, Keough, Langhorst,
      Lodge, Malepeai, Marley, McGee, McKenzie, Pearce, Richardson,
      Schroeder, Stennett, Sweet, Werk, Williams
      NAYS -- Little, Stegner
      Absent and excused -- (District 21 seat vacant)
    Floor Sponsors - Bunderson & Sweet
    Title apvd - to House
03/23    To enrol
03/24    Rpt enrol - Sp signed
03/25    Pres signed
03/28    To Governor
04/01    Governor signed
         Session Law Chapter 242
         Effective: 04/01/05

Bill Text


                                                                        
                                                                        
  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-eighth Legislature                   First Regular Session - 2005
                                                                        
                                                                        
                              IN THE HOUSE OF REPRESENTATIVES
                                                                        
                                     HOUSE BILL NO. 261
                                                                        
                             BY REVENUE AND TAXATION COMMITTEE
                                                                        
  1                                        AN ACT
  2    RELATING TO SALES AND USE TAXATION AND TAXATION OF  RESEARCH  AND  DEVELOPMENT
  3        ACTIVITIES;  AMENDING CHAPTER 36, TITLE 63, IDAHO CODE, BY THE ADDITION OF
  4        A NEW SECTION 63-3622RR, IDAHO CODE, TO EXEMPT FROM THE SALES AND USE  TAX
  5        PROPERTY  WHICH  IS  USED  IN  RESEARCH  AND DEVELOPMENT ACTIVITIES AND TO
  6        DEFINE A TERM; AMENDING SECTION 63-3622NN, IDAHO CODE, TO ADD TO THE DEFI-
  7        NITION OF "CLEAN ROOMS" THOSE ROOMS  IN  WHICH  RESEARCH  AND  DEVELOPMENT
  8        ACTIVITIES  OCCUR;  AMENDING SECTION 63-3622D, IDAHO CODE, TO REMOVE PROP-
  9        ERTY USED FOR RESEARCH AND DEVELOPMENT AS AN EXCLUSION FROM THE PRODUCTION
 10        EXEMPTION; AND DECLARING AN EMERGENCY.
                                                                        
 11    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
 12        SECTION 1.  That Chapter 36, Title 63, Idaho Code, be,  and  the  same  is
 13    hereby  amended by the addition thereto of a NEW SECTION, to be known and des-
 14    ignated as Section 63-3622RR, Idaho Code, and to read as follows:
                                                                        
 15        63-3622RR.  RESEARCH AND DEVELOPMENT. (1) There is exempted from the taxes
 16    imposed by this chapter, the lease, rental, purchase, sale at retail, storage,
 17    use or other consumption in this state of tangible personal property which  is
 18    primarily used in research and development activities.
 19        (2)  "Research and development" means an activity which is:
 20        (a)  Designed  to advance existing knowledge or capability in the field of
 21        science  or  technology,  the  development  of  new  products,  materials,
 22        technologies or processes, including  new  uses  for  or  improvements  to
 23        existing products, materials, technologies or processes; and
 24        (b)  Related  to the development, design, manufacture, processing, produc-
 25        tion or fabrication of:
 26             (i)   A product or potential product which is tangible personal prop-
 27             erty; or
 28             (ii)  Machinery, materials or components utilized or potentially uti-
 29             lized in the development, design, manufacture, processing, production
 30             or fabrication of a product or potential product  which  is  tangible
 31             personal property.
                                                                        
 32        SECTION 2.  That Section 63-3622NN, Idaho Code, be, and the same is hereby
 33    amended to read as follows:
                                                                        
 34        63-3622NN.  CLEAN  ROOMS.  (1) There is exempted from the taxes imposed by
 35    this chapter the sale at retail, storage, use or  other  consumption  in  this
 36    state  of  tangible personal property which is exclusively used in or to main-
 37    tain the environment of, or is or becomes a component part of, a  clean  room,
 38    without  regard to whether the property is actually contained within the clean
 39    room or whether such tangible personal property ultimately becomes affixed  to
 40    or incorporated into real property.
 41        (2)  The following definitions apply to this section:
                                                                        
                                           2
                                                                        
  1        (a)  "Clean room" means an environment in a defined space, within a larger
  2        building,  where  humidity, temperature, particulate matter and contamina-
  3        tion are precisely and regularly controlled; and
  4             (i)   Which is a "Class 10,000" clean room or better, and
  5             (ii)  In which the primary activities are:
  6                  1.  Aactivities which qualify for the  production  exemption  in
  7                  section  63-3622D,  Idaho  Code, resulting in the manufacture of
  8                  products which are either semiconductors, products  manufactured
  9                  using  semiconductor  manufacturing processes, or equipment used
 10                  to manufacture semiconductors;
 11                  2.  Activities which qualify for the  research  and  development
 12                  exemption in section 63-3622RR, Idaho Code; or
 13                  3.  A  combination  of the activities described in subparagraphs
 14                  1. and 2. above.
 15        (b)  "Class 10,000 clean room" means a specified area in which the concen-
 16        tration of airborne  particulates  of  five-tenths  (0.5)  micrometers  or
 17        larger  is  regularly maintained at a level of cleanliness no greater than
 18        ten thousand (10,000) particles per cubic foot of air.
 19        (c)  "Semiconductor" means a small piece of semiconductor material includ-
 20        ing silicon:
 21             (i)   On which an integrated circuit is embedded, or
 22             (ii)  Which is altered in  the  manufacturing  process  by  primarily
 23             using semiconductor processes.
 24        (d)  "Integrated  circuit"  means  a complex of multiple active electronic
 25        components and their interconnections  built  upon  a  semiconductor  sub-
 26        strate.
 27        (e)  "Semiconductor  manufacturing processes" means chemical vapor deposi-
 28        tion, plasma vapor deposition,  wet  and  dry  etch,  chemical  mechanical
 29        planarization  or  polishing and such other manufacturing processes gener-
 30        ally recognized by the semiconductor industry as being standard  processes
 31        in the industry.
 32        (f)  Property  is  "exclusively  used"  for a purpose when its use for any
 33        other purpose is insignificant or inconsequential.
                                                                        
 34        SECTION 3.  That Section 63-3622D, Idaho Code, be, and the same is  hereby
 35    amended to read as follows:
                                                                        
 36        63-3622D.  PRODUCTION EXEMPTION. There are exempted from the taxes imposed
 37    by this chapter:
 38        (a)  The  sale  at retail, storage, use or other consumption in this state
 39    of:
 40        (1)  Tangible personal property which will enter into and become an ingre-
 41        dient or component part of tangible personal property manufactured,  proc-
 42        essed, mined, produced or fabricated for sale.
 43        (2)  Tangible personal property primarily and directly used or consumed in
 44        or  during  a  manufacturing,  processing, mining, farming, or fabricating
 45        operation, including,  but  not  limited  to,  repair  parts,  lubricants,
 46        hydraulic  oil, and coolants, which become a component part of such tangi-
 47        ble personal property; provided that the use or consumption of such tangi-
 48        ble personal property is necessary or essential to the performance of such
 49        operation.
 50        (3)  Chemicals, catalysts, and other materials which are used for the pur-
 51        pose of producing or inducing a chemical or physical change in the product
 52        or for removing impurities from the product or otherwise placing the prod-
 53        uct in a more marketable condition as part of an  operation  described  in
                                                                        
                                           3
                                                                        
  1        subsection  (a)(2)  of  this  section, and chemicals and equipment used in
  2        clean-in-place systems in  the  food  processing  and  food  manufacturing
  3        industries.
  4        (4)  Safety equipment and supplies required to meet a safety standard of a
  5        state  or  federal agency when such safety equipment and supplies are used
  6        as part of an operation described in subsection (a)(2) of this section.
  7        (5)  Plants to be used as part of a farming operation.
  8        (b)  Other than as provided in subsection (c) of this section, the  exemp-
  9    tions  allowed  in  subsections  (a)(1),  (2), (3) and (4) of this section are
 10    available only to a business or separately  operated  segment  of  a  business
 11    which  is primarily devoted to producing tangible personal property which that
 12    business will sell and which is intended for ultimate sale at retail within or
 13    without this state. A contractor providing services to a business entitled  to
 14    an  exemption  under  this  section  is  not  exempt as to any property owned,
 15    leased, rented or used by it unless, as a result of the terms of the contract,
 16    the use of the property is exempt under section 63-3615(b), Idaho Code.
 17        (c)  The exemptions allowed in  subsections  (a)(1),  (a)(2),  (a)(3)  and
 18    (a)(4)  of  this  section shall also be available to a business, or separately
 19    operated segment of a business, engaged in farming or  mining,  whether  as  a
 20    subcontractor,  contractor, contractee or subcontractee, when such business or
 21    segment of a business is primarily  devoted  to  producing  tangible  personal
 22    property  which is intended for ultimate sale at retail within or without this
 23    state, without regard to the ownership of the product being produced.
 24        (d)  As used in this section, the term "directly used or  consumed  in  or
 25    during"  a  farming  operation  means the performance of a function reasonably
 26    necessary to the operation of  the  total  farming  business,  including,  the
 27    planting,  growing, harvesting and initial storage of crops and other agricul-
 28    tural products and movement of crops and produce from the place of harvest  to
 29    the  place  of  initial  storage.  It includes disinfectants used in the dairy
 30    industry to clean cow udders or to clean pipes, vats or other  milking  equip-
 31    ment.
 32        (e)  The  exemptions  allowed  in  this  section do not include machinery,
 33    equipment, materials and supplies used in a manner that is incidental  to  the
 34    manufacturing,  processing,  mining, farming or fabricating operations such as
 35    maintenance and janitorial equipment and supplies.
 36        (f)  Without regard to the use of such property,  this  section  does  not
 37    exempt:
 38        (1)  Hand  tools  with  a unit purchase price not in excess of one hundred
 39        dollars ($100). A hand tool is an instrument used or worked by hand.
 40        (2)  Tangible personal property used in  any  activities  other  than  the
 41        actual  manufacturing,  processing,  mining, farming or fabricating opera-
 42        tions such as office equipment and supplies, and  equipment  and  supplies
 43        used in selling or distributing activities.
 44        (3)  Property used in research or development.
 45        (4)  Property used in transportation activities.
 46        (54)  Machinery,  equipment, tools or other property used to make repairs.
 47        This subsection does not include repair parts that become a component part
 48        of tangible property exempt from tax under  this  section  or  lubricants,
 49        hydraulic  oil,  or  coolants  used  in the operation of tangible personal
 50        property exempt under this section.
 51        (65)  Machinery, equipment, tools or other property used  to  manufacture,
 52        fabricate, assemble or install tangible personal property which is:
 53             (i)  Not held for resale in the regular course of business; and
 54             (ii) Owned  by the manufacturer, processor, miner, farmer or fabrica-
 55             tor;
                                                                        
                                           4
                                                                        
  1        provided, however, this subsection does not prevent exemption  of  machin-
  2        ery, equipment, tools or other property exempted from tax under subsection
  3        (a)(2) or (a)(3) of this section.
  4        (76)  Any  improvement to real property or fixture thereto or any tangible
  5        personal property which becomes or is intended to become  a  component  of
  6        any real property or any improvement or fixture thereto.
  7        (87)  Motor vehicles and aircraft.
  8        (98)  Tangible personal property used or consumed in processing, producing
  9        or  fabricating  tangible  personal  property exempted from tax under this
 10        chapter in sections 63-3622F, 63-3622G and 63-3622I, Idaho Code.
 11        (109)  Tangible personal property described in  section  63-3622HH,  Idaho
 12        Code.
 13        (g)  Any tangible personal property exempt under this section which ceases
 14    to qualify for this exemption, and does not qualify for any other exemption or
 15    exclusion  of  the  taxes imposed by this chapter, shall be subject to use tax
 16    based upon its value at the time it ceases to qualify for exemption. Any  tan-
 17    gible  personal  property  taxed  under this chapter which later qualifies for
 18    this exemption shall not entitle the owner of it to any claim for refund.
                                                                        
 19        SECTION 4.  An emergency existing  therefor,  which  emergency  is  hereby
 20    declared to exist, this act shall be in full force and effect on and after its
 21    passage and approval.

Statement of Purpose / Fiscal Impact




   Reprint   Reprint   Reprint   Reprint   Reprint   Reprint

                      STATEMENT OF PURPOSE

                             RS15055

This bill provides a new exemption from sales and use taxes
for property that is used in research and development activities. 
It also amends the sales and use tax exemption for clean rooms to
include those clean rooms used for research and development. 
Lastly, it amends the production exemption to remove property
used for research and development as an exclusion from the
production exemption. 

Exempting research and development property from the sales
and use tax is intended to serve as an incentive for new jobs and
investment from existing Idaho businesses, along with attracting
new research and development investment from businesses looking
to locate such activities in the state.

The act shall be in full force and effect on and after its
passage and approval.


                           FISCAL NOTE

This bill reduces sales and use taxes by $6.8 to 7 million
based on past use and projected new investment in research and
development activities.



Contact
Name:  Bruce Newcomb
Phone: 332-1000
Name:  Mike Moyle
Phone: 332-1000
Name:  Mike Reynoldson, Micron
Phone: 599-0510

STATEMENT OF PURPOSE/FISCAL NOTE                       H 261