Public hearing 10 a.m. Monday, January 28
A Senate bill targeting hair stylists is still moving forward, despite some quick back-peddling by its sponsor.
Initially, Senate Bill 5326, sponsored by Sen. Karen Keiser (D-Kent), sought to ban “booth rentals,” the practice of self-employed hairstylists renting a chair or station at a salon, and require those stylists to obtain unemployment and workers’ compensation insurance from the state. The bill also claimed to eliminate a non-existent exemption from the state Business & Occupation (B&O) tax for these booth renters.
Curiously, the bill only applied these changes to cosmetologists, while barbers and manicurists remained exempt.
Outrage over the proposal sparked a Change.Org online petition that has already gathered more than 57,000 signatures as of Friday morning, as well as generating a fair amount of media coverage.
In response, Sen. Keiser released a new bill draft that drops the booth-rental ban, and expands the scope to cover barbers. Strangely, the effect statement does not accurately match the true changes the new proposal would make.
KING-5 News’ Take-5 broadcast on Thursday debunked some of Sen. Keiser’s more questionable claims about the “unlevel playing field” she insists exists between self-employed stylists, many of whom rent space at salons, and stylists working as employees for a salon owner.
Unfortunately, many questions remained. So, we’ve dug up more answers.
B&O Tax
Both salon owners and self-employed stylists already pay the state B&O tax. There are thresholds below which a business does not have to file or pay B&O, or is eligible for a small business tax credit. These thresholds and credits apply exactly the same to both salon owners and self-employed stylists.
- Salon owners pay B&O tax on their business’ gross receipts. However, stylists who are employees of the salon, often commissioned workers, do not pay B&O taxes.
- Self-employed stylists, including those who rent or lease space at a salon, must pay B&O taxes, just like a salon owner, since they are business owners themselves. Existing law makes it clear that for the purposes of the B&O tax, “booth renters” are considered independent contractors subject to the tax (see RCW 82.04.360(3) and Notes “Intent—Findings—2010 1st sp.s. c 23 (1), (2) and (5)).
Sen. Keiser’s amendment would make cosmetic changes to RCW 82.04.360(3), essentially limiting “booth renter” to estheticians and manicurists, treating those professionals as “independent contractors” only for B&O tax purposes. This appears to be an unnecessary change, so we have asked the Department of Revenue for clarification. It also seems a tacit admission that self-employed barbers and cosmetologists are already subject to the B&O tax by virtue of being small business owners.
In this KING-5 interview, Sen. Keiser mistakenly claimed booth renters could “opt in” to the state’s unemployment insurance program, but not the state-run workers’ compensation system. She appears to have confused the two state insurance programs.
Unemployment Insurance
Under current law, business owners are not eligible for unemployment insurance (UI). This makes sense. Unemployment benefits are intended for workers who lose their jobs, not employers who go out of business. Sen. Keiser’s amendment, however, would force self-employed barbers and cosmetologists – small business owners – to buy unemployment insurance from the state Employment Security Department. NFIB has contacted the department to get a sense of the average unemployment tax a barber or cosmetologist would pay if the bill passes. ESD is still reviewing the Keiser amendment and are unsure whether self-employed, booth-renting barbers and cosmetologists – again, small business owners themselves – would be treated as employees of a salon or shop for unemployment insurance purposes. It is also unclear whether self-employed barbers and cosmetologists who have their own shops or in-home businesses would also be required to pay unemployment taxes under Keiser’s latest proposal.
Workers’ Compensation
Self-employed barbers and cosmetologists, whether they rent booths or not, may voluntarily purchase workers’ compensation insurance (also called industrial insurance) under existing law. RCW 51.12.020(12) specifically permits booth renters to “… elect coverage under RCW 51.32.030.” RCW 51.32.030, in turn, authorizes “[a]ny sole proprietor, partner, or joint venturer …” to voluntarily purchases workers’ compensation insurance and receive benefits if they suffer a workplace injury or illness.
Paid Family and Medical Leave
Sen. Keiser is correct that any self-employed person, including sole proprietors and independent contractors, may opt-into the state’s new paid family and medical leave program, so long as they agree to remain in the program – and pay the appropriate taxes – for three years.
Property Taxes
The building owner pays the property taxes. A building owner who rents or leases space to a salon operator almost certainly includes property tax in the rent or lease amount. A salon operator would then pass along a portion of the property tax to individual stylists who rent or lease space. To claim booth operators enjoy some unfair advantage by not paying property taxes is disingenuous.
The net effect of Sen. Keiser’s proposal is to impose new tax obligations – for unemployment insurance and workers’ compensation – on a targeted segment of small business owners. This would take money out of the pockets of barbers and cosmetologists, or their customers if these new costs are passed along, simply for the sake of “leveling the playing field.” A field, that on closer inspection, doesn’t appear to be unlevel at all.
Most disturbingly, this is not the only bill introduced this year attacking the ability of entrepreneurs to operate as sole proprietors or independent contractors. NFIB is reviewing companion bills, Senate Bill 5513 and House Bill 1515, which seek to make significant changes to independent contractor tests and obligations.
Both SB 5326, concerning booth rental agreements, and SB 5513, concerning the employer-employee relationship, are scheduled for public hearing at 10 a.m. Monday, January 28, in the John A. Cherberg Building, Hearing Room 4.
Those unable to travel to Olympia for the hearing should contact Sen. Karen Keiser to express their concerns, or support, about her bills.
Sen. Karen Keiser
[email protected]
219 John A. Cherberg Building
PO Box 40433
Olympia, WA 98504
(360) 786 – 7664
