B&O tax is 'patently unfair,' business owner says
Small business owners know that operating in Washington can be a challenge. Here are four steps legislators could take to improve the state’s business climate.
1. Restructure the Business & Occupation (B&O) tax.
The B&O tax—a gross receipts tax—is levied disproportionately on small businesses and requires the government to be paid even when the owner experiences business losses.
“The B&O tax is patently unfair,” says Steve Neighbors, owner of TERRA Staffing Group in Everett, Washington. “If I sell a product for $100 and it cost $110, I have a loss of $10—but I still must pay B&O tax on the $100 sale. As a result, Washington businesses pay more than 55 percent of the total taxes paid each year, nearly double that of neighboring states.”
The B&O tax also contains a variety of preferential rates for certain industries that are generally inapplicable to small businesses. Restructuring the tax to have fewer classifications and preferential rates (or, better yet, exploring alternatives like the single business tax proposed by the Washington Policy Center) would allow small business owners to devote more time and funds toward increasing wages, making capital improvements or adding new employees.
2. Lower the unemployment insurance tax on employers.
While many states depleted their unemployment benefits funds during the recession, Washington paid out record benefits and still amassed a $3 billion surplus—fully paid for by employers. In light of this, Patrick Connor, NFIB’s Washington state director, recommends the legislature lower the unemployment insurance tax so employers can devote saved funds to business growth. Neighbors agrees.
“Even though we have lower than the national average unemployment rates in most of our western Washington cities, we have one of the most generous benefits as far as eligibility and length of time benefits in the nation,” Neighbors says. “Not only does the rate need to be reduced, benefit levels need to come in line with other states to remain competitive.”
3. Convert to a payroll-based rate structure for workers’ compensation.
The state’s workers’ compensation system is in shambles, Neighbors says. In addition to a lack of competition with the state monopoly, the payment system—based on an hourly rate calculation depending on the type of work, of which there are dozens of categories—is also complicated, confusing and time-consuming.
Converting to a structure in which costs are a percentage of payroll would give small business owners more predictability and allow Washington to better compare its system to other states’.
4. Reduce, eliminate or streamline the regulatory burden.
There are 26 state agencies that administer nearly 1,400 licenses, permits and inspections affecting Washington small businesses. Reducing, eliminating or streamlining the number of agencies and the licenses, permits and inspections they require would free up small business owners to focus on business growth and job creation rather than jumping through regulatory hoops. NFIB/Washington also supports the creation of a statewide permit tracking system to spur competition between jurisdictions and encourage a more efficient permit approval process.
