January 29, 2018
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Major business tax changes and increases proposed; bipartisan manufacturing tax relief also on the table

Lawmakers from both parties and both sides of the state have introduced bills that would reinstate the bipartisan business and occupation (B&O) tax relief that passed the Legislature overwhelmingly last summer, only to be line-item vetoed by Gov. Jay Inslee.

Sen. Michael Baumgartner, R-Spokane, has introduced a bill that hews closely to the manufacturing B&O tax relief that the Legislature passed last summer as part of its budget agreement.

Bills have also been introduced by Rep. Mike Chapman, D-Port Angeles, and Rep. Brandon Vick, R-Felida, that would give manufacturers tax relief to match the current B&O tax rate for the aerospace industry, ensuring that all manufacturers in the state are treated equally.

These bills would be of particular importance in rural areas, where manufacturers are the cornerstone of their communities and economies.

A different sort of B&O tax modification is also being considered. House Finance Chair Rep. Kristine Lytton, D-Anacortes, has proposed a major change to the state's B&O tax structure. The bill would eliminate B&O tax liability for the smallest businesses and pay for it by increasing B&O taxes on larger businesses.

House Bill 2940 would exempt the smallest businesses (those with a gross marginal revenue of under $250,000) from any liability for B&O tax. Businesses with gross marginal revenue (gross receipts minus costs of employees and goods sold) would pay the current B&O tax rate on their gross receipts. Businesses with a gross marginal revenue of more than $1 million would see a B&O tax rate increase of about 6 percent.

In essence, the bill would increase taxes on one group of employers to pay for a tax cut for another group of employers.

“The Small Business Tax Fairness Act is about exactly what the title says: Fairness. Lawmakers in Olympia need to put people first and one of the best ways we can do that is by giving small business owners a fair chance at building and growing their business,” said Lytton. “Let’s fix our business taxes and stop overburdening entrepreneurs and the middle class.”

The bill would also increase the B&O tax filing threshold. Businesses currently have to file if their gross receipts are $28,000 or $46,000, depending on the sector. This bill would increase the filing threshold to $125,000 in gross receipts for all businesses.

The Tax Foundation has a detailed analysis of this B&O proposal: the bill "correctly diagnoses the problem with the state’s business tax structure — but the proposed remedy could use some work."

HB 2940 will have a public hearing at 3:30 p.m. Tuesday before the House Finance Committee.

This morning, Rep. Lytton also introduced a capital gains tax bill, House Bill 2967.

Contact Clay Hill, AWB government affairs director for tax and fiscal policy, to learn more.

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