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Municipal Tax Fairness—Washington’s Tea Party |
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Written On: Spring 2003 |
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Written By: By Scott Carlson, Managing Editor, AWB |
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On December 16, 1773, Samuel Adams and three companies of 50 men each, masquerading as Mohawk Indians, went aboard three British ships anchored in Boston Harbor, broke open the tea chests, and heaved them into the water. Colonists had enough of King George III’s tax policy.
The same thing is happening in Washington, and it is not Tim Eyman leading the charge.
For the last six years, AWB has worked to bring fairness, predictability and uniformity into the way local governments invoke the Business and Occupation (B&O) tax.
As an example, when Snohomish florist Paul Shinoda, an AWB Board member and former state legislator, sends a delivery truck to Tacoma, his wallet gets a little lighter and it’s not from the price of gas. Tacoma demands that he pay their B&O tax even though agriculture products, such as flowers, are exempt from the state B&O tax.
Current System is Confusing
Sound confusing? It is.
Multiply that confusion by 37. That’s how many Washington cities levy a B&O tax and all have different rules. To resolve that issue, AWB wants the Association of Washington Cities to develop a set of uniform rules for all cities and then require that that model ordinance be adopted by all cities imposing a B&O tax.
Dave Bulger, manager of Stihl Northwest with a distribution center in the unincorporated area of Lewis County near Chehalis, has a different problem. Unlike Shinoda, Stihl pays a state B&O tax on revenue for its chainsaw and weed whacker sales. So there is a precedent to charge a tax on the income from Stihl product sales.
Bulger, like Shinoda, also delivers into Tacoma. Because Lewis County has no B&O tax, the City of Tacoma wants to levy a local B&O tax on the income from all of his business transactions.
“That’s a big problem for business,” AWB Tax Policy Director Tom Dooley said. “Our members can easily be overtaxed under the current system.”
That’s where the fairness argument comes in. AWB believes that you ought to pay tax only on the transactions that occur within the city attempting to levy a tax. AWB members make the argument colonists made to Lord North, the British Governor of Massachusetts in 1773, that the local B&O on all transactions is “taxation without representation.”
AWB is supporting HB 2030, sponsored by House Majority Leader Lynn Kessler (D-Hoquiam) and Rep. Jack Cairnes (RCovington) and its companion, SB 5900, sponsored by Sen. Jim Horn (R-Mercer Island) and Aaron Reardon (D-Everett). Both bills are the request of Governor Gary Locke. If passed and signed into law, the legislation would require cities to adopt a model B&O ordinance, require all cities to comply by 2005, and phase in a formula allowing businesses to apportion local income by 2008.
Governor Keeping His Promise to AWB
The Governor promised AWB members at the Policy Summit last September that he would push to pass a municipal tax fairness bill in the 2003 legislative session. “We’re delighted he is sticking to his word,” AWB President Don Brunell said. “Our goal is to have that bill on his desk this year.”
Former Seattle Mayor and past AWB Board Chair Wes Uhlman led the AWB effort to negotiate a municipal tax fairness bill with representatives from the Association of Washington Cities (AWC). “HB 2030 basically attempts to provide three fundamental aspects of a fair tax structure—predictability, uniformity and fairness. If any system is going to survive the confidence of the public, it has to have those three elements,” he said in testimony before the House Finance Committee in early March.
HB 2030 Eliminates Confusion
“We want to eliminate the confusing menagerie of differing tax rates, classes and definitions,” Dooley concluded.
As an example of the way the new apportionment formula works, if a company does 30 percent of its business in Seattle, 20 percent in Renton and 50 percent in Tacoma, that company would pay 30 percent to Seattle, 20 percent to Renton and 50 percent to Tacoma.
“The total business taxation limit would be 100 percent,” Shinoda concluded and that is what is fair.”
If a company such as Stihl, for example, which is located in a taxing jurisdiction where there is no B&O tax, and does 30 percent of its business in Tacoma, then it would only pay Tacoma the 30 percent.
Gov. Gary Locke and lawmakers kept their promise to employers of Washington by bringing fairness to the way cities assess local B&O taxes.
“This is not a partisan issue,” Dooley concluded. “We applaud both bodies and urge them to pass these bills in order to avoid the next Boston Tea Party.”
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