Proposal would mean bigger taxes for some, lower taxes for others.
Restructuring Washington’s Business & Occupation (B&O) tax has long been one of the top recommendations for improving the state’s business climate. To achieve that goal, NFIB member Rep. Drew MacEwen introduced a reform proposal, House Bill 2150, which was the subject of a public hearing in the state House Finance Committee on March 13.
While an important step, the bill could still be improved to better achieve broad-based reform, say business leaders. In March, Patrick Connor, NFIB’s Washington state director, and two NFIB members submitted testimony to the House Finance Committee to address some of the bill’s challenges.
NFIB/Washington’s Leadership Council members compared the proposed tax deductions and rates to their 2014 B&O tax payments, and results are mixed. Smaller, younger firms would have paid less or no B&O tax, while larger, more established firms would have seen their tax liability increase.
Jeff Chambers, owner of living assistance company Visiting Angels, would have paid roughly $5,400 less under the new bill, but he’s hesitant to endorse a 250 percent increase in the B&O tax rate for services, even with the proposed deductions.
Dean Hartman, who owns three businesses in Washington, also has reservations about the bill. “I agree that B&O tax reform is long overdue, but the devil is in the details,” he wrote. “HB 2150 is more of a tax shift to the businesses that do more volume, while letting some other small businesses out of the tax. Real tax reform shouldn’t punish successful firms to benefit startups or other small businesses.”
Currently, the B&O tax code is littered with preferential rates, exemptions, deductions and credits for dozens of special interests, few of which apply to small businesses, Connor wrote. HB 2150 would allow taxpayers to choose one of four deductions:
- $500,000 a year gross receipts deduction
- Cost of goods sold
- Total compensation (actual wages and benefits up to $200,000 per employee)
- 30 percent of revenue
This would eliminate the B&O tax burden for approximately 286,000 businesses. The bill would also replace dozens of tax classifications and preferences with three new tax rates:
- 3.75 percent for services
- 1.60 percent for retail/wholesale/manufacturing/banking
- 1.20 percent for telecom
The bill did not receive a committee vote before the April 7 deadline, so is likely dead for the year.