Senate could vote Saturday on increases to state Business and Occupation tax

OLYMPIA – State lawmakers appear all but certain to adopt a budget this weekend that calls for the state to raise taxes to help meet its revenue goals.

While legislators have not signaled how much total new revenue they plan to raise, a proposal to amend the state’s business and occupation tax has continued to work its way through the Legislature.

The tax is based on a business’s gross revenue, rather than its profits, and is charged if a business has $100,000 in combined gross receipts sourced or attributed to Washington or has a physical presence in the state.

The B&O tax includes a flat rate schedule and approximately 200 tax preferences through credits, deductions, exclusions, exemptions and preferential rates, for various industries.

The proposal calls on an increase in the rates paid by wholesaling and manufacturing, retail businesses, printing materials and research, and development by nonprofits, among other industries, and could bring in an additional $5.6 billion in the next four years, according to a fiscal note published Friday.

Rep. April Berg, D-Mill Creek and chair of the House Finance Committee, said in an interview Friday that many of the rates paid by industries have not been increased since 1983.

“So we were pretty upfront with the business community that this is a moment where we’re going to see a little bit of an increase,” Berg said, noting that many of the rate increases amount to a three to six percent increase on the amount of tax paid.

The bill passed the House of Representatives this week on a 50-48 vote, with nine Democrats joining the 39 Republicans in the chamber against the proposal. The proposal received a hearing in the Senate Ways and Means Committee on Wednesday and could be voted on Saturday in the Senate .

While Berg said the tax is not progressive, it’s the one presently available for lawmakers, as Washington has not implemented a tax on the margins between revenue and expenses. The proposal also includes a surcharge on businesses with an annual gross revenue above $250 million, which Berg said makes it “a little bit more progressive.”

The increases, Berg said, are not meant to be punitive towards businesses, but instead, modernize the tax code “to reflect the type of business that is here now.”

Republican lawmakers, and business representatives who testified before the Senate Ways and Means Committee, contend the proposal will hurt consumers as the costs from the increase will trickle down.

During the Tuesday hearing, many argued the proposal would ultimately make things hard for Washingtonians who already struggle to afford the state’s cost of living.

“These increases will ripple through the economy, hitting both businesses and consumers,” said Max Martin of the Association of Washington Business.

Rep. Ed Orcutt, R-Kalama and the ranking member on the House Finance Committee, said in an interview Thursday that while the tax is simple to administer, it does not account for whether a business is profitable or not.

“All of these taxes get built into the price of the goods or services that they provide,” Orcutt said. “They’re ultimately coming out of the consumer’s pocket.”

Berg, though, contends that consumers would not see a sizable increase in prices if the tax is increased.

“Basic business taxation, things going up by three to six percent, it does not mean that the actual costs of the entirety of the business will go up by that amount,” Berg said. “Depending on what category you’re in, you might not even see any increase.”

Many of the industries impacted by the rate increases have voiced frustration about their rates, including at Tuesday’s hearing. Amber Carter, representing the Washington Retail Association, said during the hearing the rate increase from 0.471 to 0.5 amounts to a 6% increase in the industry’s rate.

“We’re asking for a proportional increase, even though we don’t want an increase at all,” Carter said. “We’d rather it be proportional.”

In the House, Orcutt unsuccessfully introduced an amendment to the bill that would have lowered the tax rate for retail businesses. The industry, Orcutt and Carter said, must collect and remit sales tax for the state, and has typically paid a reduced rate for the service.

“This is increasing the burden more on them, and it’s not taking into account what was taken into account before,” Orcutt said.