B&O Tax Hike on Certain Services Proposed to Fund Higher Ed

Date: March 25, 2019

House Democrats unveil 2019-21 operating budget, tax package

Majority Democrats in the Washington State House of Representatives today released their two-year spending and tax plan for the 2019-21 operating budget. They propose boosting state spending by about $8 billion, a roughly 16 percent increase, over the current operating budget.

The spending proposal will receive a public hearing this afternoon in the House Appropriations Committee, and is scheduled for amendments and approval on Wednesday, March 27.

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Following the advice of the presidents of Microsoft and the UW, along with the vice chair of the state’s community and technical college system, who opined jointly in a recent Seattle Times guest editorial that a targeted increase in the state’s Business & Occupation (B&O) Tax on services was needed to ensure a highly skilled workforce, the House Democrat’s revenue plan includes just such a scheme, complete with even higher rates on the state’s largest tech firms. It’s almost as if an advance copy of the House Democrat’s tax plan was shared with the editorialists.

The bill authorizing B&O services surcharges, HB 2158, “creating a workforce education investment to train Washington students for Washington jobs,” will be heard in the House Finance Committee on Friday, March 29. If approved, there would be four B&O rates for services: 1.5, 1.8, 2.0, and 2.5 percent. The tax provisions begin on page 77.

Interestingly, the surcharges do not apply to many “blue collar,” agriculture, or entertainment-related occupations such as: barbers or beauty salons, commissioned sales, janitorial, security, farming for hire, horse boarding, or games of chance.

The state Senate will likely unveil its two-year spending plan, and possible tax package, next month.

Here’s an overview of the service activities on which the bill would increase the B&O tax rate:

1.8 Percent B&O Tax

Effective January 1, 2020, a 20-percent surcharge to the existing 1.5 percent B&O tax rate would apply to the following services, under the House Democrat’s plan:

Business to Business, General Business

  • Administrative and office services including financial planning, billing and recordkeeping, personnel, distribution and logistics.
  • Advertising, public relations, media buying, billboard or other outdoor advertising, direct mail, and related services.
  • Architectural, engineering, drafting, building inspection, surveying and mapping services.
  • Business management, environmental, scientific, and technical consulting services.
  • Business or professional associations, labor unions, political organizations.
  • Credit card processing, check clearing, credit intermediation services.
  • Holding companies or other enterprises with financial interests in other firms for the purpose of influencing or making management decisions.
  • Interior, industrial, graphic, or other specialized design services.
  • Legal services including lawyers, notaries, and paralegals.
  • Licensing intellectual property, franchise agreements, or collecting other royalties.
  • Manufacturing aircraft, missiles, space vehicles, aerospace engines or other propulsion systems (including auxiliary parts or equipment); aircraft conversions, aircraft or propulsion system overhaul or rebuilding; aerospace product prototype development or manufacturing.
  • Market research, polling, translation and interpretation.
  • Newspaper, magazine, periodical, book, directory, mailing list, calendar, greeting card, map, or other product publishing in print or electronic format.
  • Wholesale distribution of office, photographic, computer (and computer peripheral), or other commercial and professional equipment and supplies.

Computers, Information Technology, Online Services

  • Computer software publishing and purchaser support services.
  • Custom software or system design; information technology systems management and support.
  • Cellular phone, paging, wireless internet, wireless video, switching and transmission.
  • Data processing, web hosting, streaming, application hosting, mainframe timeshare.
  • Data, text, sound, video, voice transmission by wired telecommunications network, includes telephone, VoIP, broadband internet.
  • Entertainment production studio and related facility operations used for subscription or fee-for-service cable or satellite broadcast programs.
  • Internet, catalog, mail-order, toll-free phone, internet or other retail sales not occurring in a brick-and-mortar store.
  • News media content services such as supplying news reports, articles, pictures or photographs, features; library and archival services; internet-exclusive publishing or broadcasting; web services including email, auctions, news, landing pages.
  • Online marketplace facilitators receiving commissions or fees for business-to-business transactions involving durable or non-durable goods; includes agents or brokers for all durable or non-durable goods.
  • Reselling telecommunications services, including satellite tracking, communications telemetry, radar station operations, internet access, VoIP services, mobile virtual network operators.
  • Satellite telecommunication services.
  • Satellite TV services.
  • Scientific research for products or processes, including modeling and simulations.

Financial & Insurance Services

  • Banks and credit unions.
  • Central banking, including banks holding reserves from other banks.
  • Extending credit or lending using commercial paper or other debt instruments.
  • Financial portfolio management; investment advice; trust, fiduciary, and custody services.
  • Insurance or annuity sales agents, claims adjustment, third-party administration, or other employee-benefit or insurance-related services.
  • Property, life, accidental death or dismemberment insurance or annuities, or reinsurance policy underwriting.
  • Securities and commodities agents, brokers, and underwriters.


  • Ambulatory health care services.
  • Dentistry or dental surgery.
  • General or specialized medicine or surgery in independent practices, hospitals, HMOs, or other facilities.
  • Imaging and diagnostic laboratory services.
  • Other independent health practitioners, other than physicians or dentists.
  • Outpatient medical services such as family planning, mental health, alcohol or substance abuse, or other general or specialized outpatient care.
  • Veterinary services.

Utilities, Public Administration

  • Electrical power generation, distribution, or transmission.
  • Public administration and government services, including tribal and Alaskan Native governments.
  • Water treatment or supply systems; sewer systems; sewage treatment facilities; providing steam, heated air, or cooled air.
2.0 Percent B&O Tax

A 33.3 percent surcharge would apply to “advanced computing businesses” with worldwide gross revenues of $25 billion to $100 billion (yes, BILLION), beginning January 1, 2020, if HB 2158 becomes law.

Advanced computing businesses are defined as those engaged in the design or development of computer hardware or software, including modifications, cloud computing, online marketplaces, online search engines, and online social networking platforms.

2.5 Percent B&O Tax

Advanced computing businesses with worldwide gross sales in excess of $100 billion would be subject to a 66.67 percent surcharge, bringing their B&O rate to 2.5 percent.


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NFIB is still reviewing the details of the legislation, but is likely to raise concerns about tax increases on business-to-business transactions that threaten to create tax pyramiding or other distortions.

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