Locke Gives Gop Half-A-Loaf Tax Cut Reduction That Republicans Demanded Won’t Go Into Effect Until Next Year

In one of his first triumphs over the Republican Legislature, Gov. Gary Locke on Monday signed a big tax cut for business that takes effect next year rather than this year, as the GOP had wanted.

The $100 million-a-year reduction in the business and occupation tax came after Locke vetoed an earlier measure that would have made the cut effective this July 1.

He insisted on putting it off until July 1998 after the Legislature committed the state to a big cut in property taxes. Voters will cast ballots on the $220 million property tax reduction in November.

Locke said that given the size of the proposed property tax cut and the likelihood of its passage, the state could not afford to make the business tax cut effective this year.

Despite their unhappiness at the timing, Republican lawmakers and business lobbyists crowded around the Democratic governor to watch him sign the measure, HB1821. The reduction returns the tax to its level before 1993.

“This tax was raised at a time of fiscal emergency” by the 1993 Legislature, Locke said. “I’m pleased to be signing this legislation now that the emergency has passed.”

Locke was chairman of the House budget committee in 1993 when the increase was passed.

“It’s not happening soon enough, but we’re just glad it’s happening,” said Carolyn Logue, a lobbyist for the National Federation of Independent Business. “It’s half a loaf, but we’ll take it.”

The measure reduces a tax imposed on a variety of services businesses, including architects, lawyers, real estate salesmen and engineers.

It would cut the “selected business service” rate from 2 percent to 1.5 percent; the “financial business service” rate from 1.6 percent to 1.5 percent; and the “other activities” rate from 1.75 percent to 1.5 percent.

In addition, the selected business service and financial business classifications would be consolidated into the other activities classification.

The measure repeals the last chunk of a large B&O tax increase passed by the then-Democratic Legislature to help plug a budget deficit. Previous Legislatures have repealed other portions of the increase.