February 24, 2007 in Business

Businesses hope for break on estate tax

Richard Roesler Staff writer
 

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For more Statehouse news, please read our Eye on Olympia blog at www.eyeon olympia.com.

OLYMPIA – Trying to regroup after voters last fall overwhelmingly voted to uphold Washington’s estate tax, business groups are asking state lawmakers to exempt some property of family-owned businesses from the tax.

Washington’s version of the tax – which ranges from 10 to 19 percent – applies only to estates valued at more than $2 million. In a typical year, 215 estates pay a total of about $100 million in taxes, with the money going to support education.

Last fall, business groups tried to torpedo the “death tax,” arguing that it breaks up companies and kills jobs simply because a key owner happens to die and heirs must sell off part or all of the business to pay the tax.

Opponents painted the measure as a “tax on the rich” that affects very few people. They also stressed that farm land and farm equipment are generally exempt.

In November, voters rejected Initiative 920 – which would have repealed the tax on property passed to heirs – by a landslide: 62 percent to 38 percent.

Now family businesses are trying for a mulligan.

“This is our family farm. This is what we do,” longtime Spokane packaging-company owner Mark Sonderen told a House committee Friday morning.

Sonderen’s father started the 110-employee operation in 1963. The company makes and prints packaging, such as boxes for local candy companies. And a $2 million threshold doesn’t go very far, he said, in a business where a package printing press can cost $3.5 million and a cutter can cost $1.1 million.

Sonderen and other proponents from capital-intensive, low-margin businesses say the estate tax threatens to ruin their hopes of passing on their businesses to their children. Already, he said, companies must go to great lengths to try to preserve their operations from taxes. His two children, for example, gained ownership in the company at ages 13 and 16 for tax reasons.

Now, Sonderen told lawmakers, he’s thinking about a $2.5 million expansion – perhaps in Post Falls.

Amber Carter, a lobbyist for the Association of Washington Business, said she thinks that voters didn’t understand the impact of the estate tax on family-owned businesses.

“We do believe that they were confused,” she said. The opposition frequently noted that family farms are exempt from the estate tax, she said, and voters likely assumed that that exemption covered all family-owned businesses.

Exempting family-owned businesses would cost the state just over $5 million over the next two years, according to state budget researchers.

That loss would be more than made up by family businesses that stay in Washington or stay in business after an owner’s death, said Gary Smith, of the Independent Business Association.

“How much does this state spend each year trying to recruit businesses to come here?” he asked.

House Bill 1884 has broad support in the House, with 20 Democratic and Republican lawmakers signed on as co-sponsors. Among the local lawmakers backing it: Rep. Steve Hailey, R-Mesa; Rep. Alex Wood, D-Spokane; and Rep. Timm Ormsby, D-Spokane.

Richard Roesler can be reached at (360) 664-2598 or by e-mail at richr@spokesman.com. For more statehouse news, read the Eye on Olympia blog at www.eyeonolympia.com.

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