Washington Court of Appeals Clarifies Semiconductor Use Tax Exemption
The Washington Court of Appeals has issued a significant decision for semiconductor manufacturers, ruling in REC Solar Grade Silicon LLC v. Washington Department of Revenue (No. 40685‑7‑III, Dec. 11, 2025) that natural gas used to grow semiconductor materials qualifies for the state’s use tax exemption—even when the gas does not come into direct contact with the product.
This ruling reverses the Board of Tax Appeals and provides important clarity on how RCW 82.12.9651(1) should be interpreted.
Why This Case Matters
Washington imposes a use tax on natural gas purchased from out‑of‑state sources. However, RCW 82.12.9651(1) provides a targeted exemption for gases and chemicals used in the production of semiconductor materials.
The dispute centered on a key question:
Does the exemption require the gas to come into direct contact with the semiconductor product?
The Department of Revenue said yes.
REC Solar argued no.
The Court of Appeals sided with REC Solar.
What the Statute Says
RCW 82.12.9651(1) exempts gases and chemicals used:
“to grow the product,”
“to deposit or grow layers,”
“to etch or remove material,”
“to anneal,”
“to immerse,”
“to clean the product,”
and “other such uses whereby the gases and chemicals come into direct contact with the product…”
The Department argued that the “direct contact” requirement applied to all listed uses.
The Court disagreed.
Key Holding: “Direct Contact” Applies Only to the Catchall Clause
The Court applied the rule of the last antecedent, a well‑established principle of statutory interpretation. Under this rule, a qualifying phrase typically applies only to the phrase immediately preceding it—unless the statute clearly indicates otherwise.
The Court concluded:
The “direct contact” requirement modifies only the phrase “other such uses”,
Not the earlier, specifically listed uses such as “to grow the product.”
Because REC used natural gas to grow semiconductor materials—one of the explicitly listed uses—the exemption applies even without direct contact.
Why the Court Rejected the Department’s Interpretation
The Court found several problems with the Department’s reading:
1. The statute’s structure supports REC’s interpretation
The exemption is divided into three parts:
A list of specific qualifying uses
A catchall category requiring direct contact
A separate clause for gases used to clean equipment
The “whereby” clause naturally modifies only the catchall.
2. Applying “direct contact” to all uses creates grammatical and logical problems
The list is long and syntactically varied. Extending the qualifier across all items would be “cognitively burdensome” and unnatural.
3. Legislative intent supports a broader exemption
The statute was enacted to encourage semiconductor manufacturing investment in Washington. The Department’s narrow reading conflicted with that purpose.
What This Means for Manufacturers
This decision provides meaningful clarity for Washington manufacturers—especially those in semiconductor, solar, and advanced materials industries.
Key takeaways:
Natural gas used to grow semiconductor materials qualifies for the exemption even without direct contact.
The “direct contact” requirement applies only to “other such uses,” not the entire list.
Manufacturers may be entitled to refunds for previously paid use tax if their gas usage aligns with the listed exempt purposes.
The ruling limits the Department’s ability to narrowly interpret the exemption.
Practical Steps for Businesses
Manufacturers using gases or chemicals in semiconductor production should consider:
1. Reviewing historical use tax payments
You may have refund opportunities similar to REC Solar.
2. Evaluating how gases are used in your production process
If the use aligns with any of the statute’s listed activities, direct contact is not required.
3. Documenting production processes
Clear documentation strengthens exemption claims and supports refund requests.
4. Monitoring future Department guidance
This ruling may prompt updated interpretations or administrative guidance.
Final Thoughts
The REC Solar decision is a major win for Washington’s semiconductor and solar manufacturing sectors. By reaffirming a plain‑language reading of RCW 82.12.9651(1), the Court has restored the exemption’s intended scope and provided manufacturers with greater certainty.