Amid warnings of hit to business community, B&O tax clears legislature

Amid warnings of hit to business community, B&O tax clears legislature
The state legislature has passed SB 6492, which imposes several business and occupation (B&O) tax surcharges to pay for workforce development programs. Photo: freepik.com

The state House voted 52-45 on Feb. 6 in favor of SB 6492 creating a new set of business and occupation (B&O) taxes and surcharges, which if signed by Governor Jay Inslee will replace a prior tax regime to fund workforce development programs.

The vote was preceded by an hours-long fight by legislators to exempt certain industries; the lawmakers expressed concern about the bill’s effect on business. Lawmakers who favor the bill painted it as a means to help students fill in-demand jobs, while others argued the tax increase will raise medical and prescription costs.

“You cannot make something more affordable by making it more expensive,” Rep. Ed Orcutt (R-20) told colleagues on the House floor.

E2SHB 2158 passed last year sought to fund higher education programs through a 20 percent B&O tax surcharge on certain businesses. However, the state Department of Revenue (DOR) reported in December that anticipated revenue would not meet caseload demand, which the law stipulates it must do. DOR also found the new taxes were too ambiguous to implement effectively.

SB 6492 eliminates the 20 percent B&O surcharge and creates a new set of taxes as follows:

  • A 1.75 percent B&O rate for most service activities;
  • A 1.5 percent B&O service activities tax rate for hospitals and taxpayers subject to the advanced computing surcharge; and
  • A 1.22 percent B&O surcharge on advance computing services and income.

The bill also clarifies DOR’s authority to enforce the taxes on affected businesses by requiring “clear, cogent, and convincing evidence” that the entity evaded the tax before the agency can impose fines.

“This bill is simply about investing in our future,” former House speaker Rep. Frank Chopp (D-43) told colleagues. “We’re also responding to the needs…of our students who are wracked by record levels of student loan debt. With this bill we’re going to help those students. We’re going to be helping the businesses of the state grow even better.”

However, Republican legislators opposed to the bill said the new taxes on the medical industry will strain providers that are already struggling. Among the 30 proposed amendments not incorporated into the final bill were exemptions for nursing and residential care facilities and certain healthcare providers.

“It (SB 6492) will add more hardship to nursing homes in rural Washington,” said Rep. Jim Walsh (R-19).

“We are raising taxes on doctors at the time we are trying to reduce the cost of health care,” Rep. Drew Stokesbary (R-31) said. “We are raising taxes on pharmacies and pharmacists at the time we are seeking ways to reduce the cost of medicine. We are raising taxes on builders and architects and landscapers and plumbers at the time we are seeking to reduce the cost of housing.”

SB 6492 has been delivered to Inslee.

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