Session Ends on Sour Note for Small Business

New taxes, regulations targeting small business on tap as Legislature adjourns

State Director Patrick Connor reports from Olympia on the small-business agenda at the April 28 end of the 2019 session

The 2019 session of the Washington State Legislature adjourned sine die just moments before its constitutional deadline of midnight Sunday, April 28.

Small business suffered some bruising defeats in the final days (and nights) of the session. These overshadowed the many victories we achieved earlier in session.

Taxes

Despite nearly 500 messages in opposition sent by NFIB members during the final week of the session, the Legislature approved several tax measures disproportionately, and adversely, affecting small business. The bills have been delivered to Gov. Jay Inslee for his signature.

House Bill 2158, B&O tax hike to enhance higher education spending. A number of service activities will be subject to a 20% surcharge, bringing the B&O rate to 1.8%, when this bill takes effect. As previously reported, this includes many business-to-business activities. Consequently, even small businesses not in the service sector themselves are likely to see price increases for:

- bookkeeping and accounting
- check and credit card processing
- tax preparation
- advertising and marketing
- graphic and industrial design
- architectural and engineering
- land surveying
- legal services
- and a variety of other activities typically purchased from other small businesses.

As we testified repeatedly, Big Businesses will largely avoid the tax because they often have in-house personnel to perform these tasks.

Senate Bill 5997, changing the nonresident sales and use tax exemption to a remittance. Under this bill, residents of Alaska, Oregon, Montana, and several Canadian provinces will no longer be tax-exempt when making purchases in Washington. Instead, these customers will need to save their receipts, and if the sales tax totals at least $25, submit them to the Department of Revenue the following year for a refund of the state portion of the sales tax, 6.5%. The local portion, which can be nearly 4%, will not be remitted to these out-of-state buyers. We expect a substantial decrease in sales to these visitors, particularly business-to-business sales. It would be far easier – and tax free – for them to simply order items online, rather than make purchases here and have to wait up to a year for a tax refund.

SB 5998, graduated real estate excise tax (REET). Beginning January 1, 2020, the current REET of 1.28% on all real estate sales will be replaced with a new, graduated scale. The bill also includes an inflationary adjustment every four years. Commercial and industrial property, as well as multi-family housing, will bear the brunt of the increase.

- 1.1% if the selling price is equal to or less than $500,000
- 1.28% percent on the portion of the selling price that is greater than $500,000 but equal to or less than $1,500,000 (this rate also applies to all undeveloped land, timberland, agricultural land, and water or mineral rights, regardless of the selling price)
- 2.75% on the portion of the selling price that is greater than $1,500,000 but equal to or less than $3,000,000
- 3% on the portion of the selling price that is greater than $3,000,000.

On a positive note, the Legislature passed NFIB-supported HB 1059, extending the B&O tax due date to April 15 for annual filers. This will allow them more time to receive Form 1099 from customers before state B&O tax returns are due.

Environment

Small business will also suffer a few setbacks thanks to new environmental regulations and mandates NFIB opposed.

HB 1112, banning hydrofluorocarbons. The bill includes some phase-in provisions for commercial air conditioning and refrigeration, which helped address NFIB’s concerns with the bill. We supported efforts to extend the deadlines so suppliers have time to build an adequate stock of AC and refrigeration units utilizing alternatives to HFCs, and time for techs to be trained on how to properly install and service these devices.

HB 1257, energy-efficient buildings. NFIB objected, unsuccessfully, to the requirement that small businesses devote onsite parking spaces to electric vehicle charging stations, particularly when large retail centers would not be subject to the same mandate.

SB 5116, green energy mandate. This legislation will almost certainly lead to higher electric bills for small businesses and other consumers.

We did help defeat a last-minute effort to resurrect a low carbon fuel standard, and a gas tax hike to fund more transportation spending. Friday, April 26, the Senate Ways & Means Committee held a hearing but did not vote on a substitute version of SB 5971, the Senate’s transportation revenue bill. NFIB opposed the measure.

Health Care

NFIB is disappointed that the state House and Senate failed to reach agreement on SB 5887, clarifying that a limited number of covered visits to a chiropractor or physical, massage, or occupational therapist are exempt from health insurers’ prior authorization requirements. The bill sought to end workarounds insurers have employed to sidestep last year’s bill allowing policyholders access to as many as six of 10 or 12 covered visits without unnecessary delay caused by prior authorization and utilization review paperwork hurdles. NFIB supports the bill to allow workers suffering minor injuries to get immediate treatment and quickly return to work.

The Legislature did approve three other bills impacting small businesses:

HB 1087 imposes a payroll tax to fund a new long-term support services benefit. Qualifying residents could receive a lifetime $36,500 benefit to help pay for a variety of home-care, medical assistance, and other support services, primarily for the elderly. NFIB successfully negotiated several amendments to the bill, helping to better protect small businesses and other taxpayers.

SB 5526, adding standard benefit design health insurance plans to the state Health Benefit Exchange. The final bill includes an NFIB-requested amendment ensuring the Exchange will continue to offer traditional health insurance plans, in addition to the new standard-design plans. This new plan design will allow families needing more intensive medical and pharmaceutical treatment to shift some of the deductible, co-payment, and co-insurance cost-sharing into the monthly premium, helping them avoid hitting their out-of-pocket maximums early in the year. These “OOP max” costs can easily exceed $10,000 and often must be paid before insurance benefits kick in, creating a substantial strain on family budgets during the first few months of the year.

SB 5741, a change in oversight and some statutory language for the state’s All Payer Claims Database. NFIB supported the bill, hoping these improvements will soon result in better information about health care cost and quality being made publicly available. In time, this will help small employers and self-employed business owners make better-informed health insurance and medical treatment purchasing decisions.

Labor

The state is likely to face litigation over HB 1575, an attempt to undermine the US Supreme Court’s Janus decision. The bill will allow unions to bully workers, particularly home health and child care workers, as well as public employees, into joining and allowing automatic dues deductions. The bill effectively removes secret ballot requirements to unionize certain employers and makes it very difficult for workers to leave a union or revoke permission for dues deductions from their paychecks. NFIB opposed the bill.

Businesses will soon be prohibited from asking for job applicants’ salary history under HB 1696. Firms employing 15 or more workers will also be subject to new wage and salary disclosure requirements, most of which will apply when promoting internally. Essentially, employers will be required to disclose the wage or salary range for open positions. NFIB won an amendment to the bill removing a double-jeopardy penalty clause that could have subjected employers to simultaneous or sequential administrative and judicial sanction for the same alleged error or violation.

Businesses employing 15 or more workers will also be required to provide private rooms for mothers to pump breastmilk during work hours, under HB 1930. The bill slightly expands existing federal regulations. NFIB secured an amendment waiving the requirement for one-room or open-concept workspaces. Those employers will still need to coordinate with workers needing an appropriate space for breastmilk pumping.

Small Business Bill of Rights

While neither of the NFIB-authored companion bills, HB 2093 and SB 5948, establishing a small business bill of rights passed this year, the final operating budget includes a $110,000 proviso directing the Governor’s Office of Regulatory Innovation and Assistance (ORIA) to convene meetings between NFIB and affected state agencies to develop a small business bill of rights and communication plan. A report is due to the Legislature in November. NFIB has already reached out to ORIA’s director about the proviso. We look forward to working with ORIA, and various state agencies with regulatory authority over small business, in our continuing effort to develop legislation implementing a small business bill of rights. We greatly appreciate the work of Sen. Christine Rolfes, chairwoman of the Senate Ways & Means Committee, in securing the proviso in the final budget agreement, as well as the continued support of our outstanding lead sponsors: Sens. Guy Palumbo and Lynda Wilson, and Reps. Andrew Barkis and Mike Chapman.