Analyst: Tax relief can help Washington businesses, consumers

Analyst: Tax relief can help Washington businesses, consumers
Although many Washington business operations have come to a halt except for essential services, the state may be relatively well-suited to weather this period without dramatic long-term implications, and tax relief can help, says a state business analyst. Photo: freepik.com

The COVID-19 response by the state of Washington has both small and large businesses taking a hit. However, Washington may be relatively well-positioned to navigate the crisis in comparison with other states, while business advocates say suspending some taxes could help both consumers and employers alike.

“We need absolutely reforms to help small businesses survive in this state,” Washington Policy Center Small Business Director Mark Harmsworth said in a March 25 virtual update.

Nordstrom last week announced it is furloughing portions of its corporate employees for six weeks, while other major national retailers are laying off hundreds of thousands of workers – though Kroger has experienced higher-than-expected revenue.

According to the St. Louis Federal Reserve, “as of March 2020, the U.S. economy has almost certainly entered a recession.” Nationwide unemployment may go up to 30 percent, while in Washington roughly 130,000 people between March 15-21 filed unemployment claims. Employment Security Department Commissioner Suzi LeVine in a statement called it “unprecedented in the history of the program – going back to the 1930s when it was established.”

According to Seattle-based John Engber, a lobbyist for the Washington Retail Association, the closure of so many brick-and-mortar stores in the city has caused owners to board up the entrances to prevent burglaries. In an April 1 webinar, he said it “really creates a ghost town feeling around here (Ballard).”

That feeling might be reflected elsewhere in the state – particularly among small businesses. According to a WalletHub survey, 87 percent of businesses nationwide say their bottom line has taken a hit. Just over a third of small businesses in the survey said they can’t survive more than three months under the current conditions. However, that organization also noted that  Washington ranks fairly low (12th) in terms of impact to industries and workforce and high (48th) regarding available resources to businesses.

To help businesses affected by the COVID-19 response, the state Department of Commerce is offering $1.8 million in grant money for rural small business. Governor Jay Inslee has allowed the state Department of Revenue to delay some tax collections and waive business license renewal fees along with interests from any unpaid business and occupation (B&O) tax owed. The timeframe for collecting unemployment benefits has also been extended from 26 weeks to 39 weeks.

Harmsworth said another way the state can help both businesses and consumers is by declaring a sales tax holiday “so folks can go out there and start…putting money back in (the economy).”

He added that the B&O tax suspension is a good start, but it “just gave us a little extra time. We really need to think about B&O holistically.” Among that is reconsidering a new B&O tax enacted this session to fund higher education programs.

The B&O tax has fostered a love-hate relationship from some Washington industries that dislike its pyramiding effect and disproportionate impact on high-revenue, low-profit employers. Yet those employers have yet to find a preferable alternative that could also garner enough political support to pass the legislature.

While some tax analysts and legislators believe the B&O tax could be replaced with some form of an income tax, Harmsworth said the lack of one is why “people move here (and) companies do business here. We’re somewhat resilient. There’s some stability in there. We don’t see the ups and downs that the other part of the country sees during recession and growth, but obviously slapping on an income tax would make us like everybody else.”

State lawmakers have in recent years proposed a capital gains tax, a measure which has proven volatile in other states such as California. A March 18 post by the state’s Legislative Analyst’s Office concluded there was a “very high likelihood that tax revenues from capital gains income will be several billion dollars lower than what the Governor’s budget assumed.”

Despite the jump in unemployment claims and shuttered business fronts in Washington, Harmsworth said he doesn’t see long-term economic harm, though the state government “is definitely going to see reduced revenues for the next 24 months.” With the legislature likely to hold a special session to address anticipated revenue shortfall, he said the situation is an opportunity for “going back to the drawing board and deciding what is essential for Washington.”

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