WR members meet to discuss possible state margins tax

May 19, 2022
Written by WR Communications

On Tuesday of this week, 30 WR members and staff met with State Representative Noel Frame (D-36), chair of the House Finance and the Tax Study Commissions, and Scott Merriman, the Governor’s policy and tax specialist. The purpose of the meeting was to discuss the possibility of replacing the current state Business and Occupation Tax (gross receipts) with a Texas-style Margins Tax. It was a productive conversation that answered many of our member’s questions while raising several new questions.

The Tax Study Commission, a bi-partisan legislative group, has been meeting for several years to examine ways to improve, simplify, and make our current tax structure fairer. Washington state relies on three core taxes: the Business and Occupation (B&O) tax, a state sales tax, and property taxes. Washington does not have an income tax. For years, businesses have complained about the unfair nature of the B&O tax, which taxes based on gross receipts, regardless of if a business made a profit. One suggested alternative to the current B&O is with a margins tax, similar to what the State of Texas has in place.

Among the questions raised, the most important was “what will the tax rate be?” The answer is that we are not sure yet. Rep. Frame explained that the goal is to work backward to determine a proposed tax rate or rates after the November Revenue Forecast. The commission intends to make the proposal “revenue neutral,” meaning the state is not seeking to increase or decrease funds. However, depending on how the proposal is structured and the rates set, some industries may pay more while others pay less under a margins tax. Draft legislation will likely be available in December with the intent of prefiling a bill for the 2023 Legislative Session, scheduled to commence the second Monday in January. This will be a long—105-day—two-year budget adoption session.

Rep. Frame’s other key questions included: Should we use a single entity or compiled system? How often should reporting be required? Yearly, quarterly, or monthly? How should rates be structured? Graduated or flat? Should retailers be compensated for collection? What happens with local government B&O taxes?

WR appreciates Rep. Frame and Mr. Merriman’s engagement with retailers to address this issue with ample time before session. We look forward to continued dialogue on how to improve Washington’s tax system. If you are interested in or have an opinion on a margins tax versus our current B&O tax, please contact Mark Johnson, Sr. VP of Policy and Government Affairs at [email protected].