Overview of the Program
The University was eligible to participate in a state tax incentive called the High Technology Tax Deferral (RCW 82.63). This program allows the University to defer sales tax on certain costs associated with the construction of buildings or projects that either "initiate a new operation, or expand or diversify a current operation by expanding, renovating, or equipping an existing facility" and are used for research and development in one of 5 fields:
- Advanced computing
- Advanced materials
- Electronic device technology
- Environmental technology
The tax "deferral" becomes permanent 8 years following operational completion of the project, provided that the project has housed qualifying research on a "continual basis" for the 8 year period. Annually, by March 31st of each year during the 8 year period, the UW is required to file a survey with the state that includes general information about the UW (employment, etc.) as well as specific information on each qualifying project. Failure to file that survey results in 1/8th of the initial deferred tax to be due. Also, change in use of the building to a non-qualifying use results in the unvested tax becoming due. The space can remain empty for only ONE MONTH in between changes from one qualifying use to another. Otherwise, the remaining unvested tax deferral is due.
Roles and Responsibilities
- Provides point of contact for capital project personnel or private contractor and DOR
- Initiate and Coordinate post-project audit with Capital Projects Accounting and DOR
- Coordinates involvement of external consultants when necessary (tax related, not lease amendment related)
- Coordinates the completion of the annual surveys due by March 31 of the following calendar year, an electronic version of which is attached for informational purposes only
Project Managers(Real Estate Office for non-UW owned property projects)
- Coordinates with contractors to track costs in certain manner if necessary
- Calculates % square feet of building that are used for qualifying research
- Ensures that the economic benefit of the deferral flows through the lease to UW
Capital Projects Accounting (Real Estate Office for Non-UW owned property improvements)
- Maintains audit file of each project (i.e. permits, invoices, summary spreadsheet, blue-print support for % of qualifying research)
- Serves as post-Project Audit Contact
- Coordinate external consultants related to lease amendments (REO)
Schools/Occupant (Client) (typically the administrator of the department)
- Identifies potentially qualifying project, including potential secondary uses
- Provides information for annual survey purposes (# employees in the new building/project, new products/projects created as a result of the specific deferral, etc.)
- Identify potential subsequent qualifying uses of the space
Funding Agent (Schools/Colleges and CASPO)
- Determine and identify level of reinvestment and identify, along with potential subsequent qualifying uses, in project agreement
Step by Step Process Discussion
- Tax Office distributes updated high tech deferral project listing to Capital Projects and CASPO for review
- CPO and PM coordinate revision to project agreement for review and approval by CASPO and School/College regarding reinvestment of tax deferral.
Note: Sales tax must be included in the project budget until CASPO concurs with use of sales tax deferral savings. External consultant costs required to secure the high tech deferral will be the responsibility of the client.
- Capital Projects/REO coordinates invoices and audit documentation
- Tax Office coordinates post-project audit and final tax deferral is calculated and agreed upon between UW and DOR
- Client is responsible for providing necessary information for annual filing with the state for next 8 years (coordinated by Tax Office)
- Use of facility must continue to be qualifying for next 8 years. Although it is the School's, College's or the Provost's decision, to change the use of a particular building or space, the change from a qualifying use to a non-qualifying use during the 8 year period will trigger use tax liability on at least a portion of the deferral. The use tax liability may be triggered even if the change is unanticipated. In the event of a change from a qualifying use to a non-qualifying use, Tax Office must be notified. If a change between qualifying uses is contemplated, CASPO and Tax Office should be consulted both with respect to the timing and the potential deferred tax that might be due.
Risks Associated with Program
There are three areas of risk with respect to the deferral provisions in the RCW and the WAC:
- The potential that the assumptions the UW uses in its application process are challenged and overruled by the DOR upon post-project audit.
On the deferrals, the UW determines what percentage of the building will qualify for the deferral by calculating a % of the qualifying use areas as a % of the total. Often times the post-project audit will reduce the % significantly.
- The potential that the usage of the space changes from a qualifying to non-qualifying use mid-way through the 8 year vesting period or that the initially anticipated use is abandoned or, otherwise, ceased and more than one month elapses between the qualifying uses.
If we change the use of the building from a qualifying use to a non-qualifying use, we owe the tax on the unvested sales tax deferral plus interest.
- Failure to send in an annual survey by the March 31st deadline of each year of the 8 year deferral or to omit a project. The annual survey is submitted on a combined basis for all of the UW deferral projects. Most of the information required comes from administrative areas of the UW, rather than from the particular schools/colleges/departments utilizing the buildings or space. For these reasons the annual survey is completed and filed by the Tax Office.
Failure to update the survey on an annual basis on time causes us to lose one year's worth of the deferral (i.e. we have to immediately pay that's year's worth of vesting plus interest)
The Schools/Colleges/Departments will ultimately be responsible for each of the above risks associated with the change in usage of space and providing accurate and timely information when requested.
The UW is working to minimize each of the above risks. The University has an agreement with the Department of Revenue that we can work together in the event a question arises as to the % of qualifying square footage.