Washington Business Fall 2017 | Legislative Review & Vote Record | Page 45

issue area reports | taxation
Budget & Taxation
Eric Lohnes: Tax and Fiscal Policy
Coming into the 2017 legislative session, it was well understood the
problems facing the Legislature were both significant and difficult.
Yet even with this general awareness, the record 193-day legislative
session proved to be longer and more complicated than many had
expected. The McCleary clock imposed by the Washington Supreme
Court was clicking toward midnight and the race to find billions
of dollars in additional education funding was intensifying. The
governor started the budget discussion in December, just prior
to the beginning of session, by proposing a $47 billion budget
relying heavily on various new and increased taxes. Some of the
larger items included a capital gains tax on investment income, a
67 percent increase on business and occupation (B&O) taxes for
those businesses filing under the “service and other” category, a tax
on carbon emissions, and the elimination of several differential tax
rates. The House, in offering its proposed solution, largely followed
the governor’s eclectic model, but with some notable variations.
The B&O tax was applied to all the industries filing under the four
primary B&O classifications, not just “service and other.” While the
House proposal also included an increase in the B&O deduction,
something AWB strongly supports, the overall negative impact of
the proposal far outweighed the benefit. Rounding out the House
plan was a graduated real estate excise tax (REET) proposal, which
would have shifted more of the tax onto employers.
Ultimately, the legislative solution that lawm akers agreed to in
July looked very much like the Senate’s approach. The $44 billion
Sen. John Braun, R-Centralia, chair of the Senate Ways and
Means Committee.
compromise budget included a so-called “levy swap,” along with
several other tax provisions contained in the House’s proposal, such
as marketplace fairness, and ending certain differential tax rates. A bright spot when the final budget deal was announced was
the inclusion of a 40 percent B&O rate reduction for manufacturers. The bill carrying this provision went on to pass both the
House and Senate with supermajority votes. In what is a significant hit to manufacturers in Washington state, the governor went
on to veto this rate reduction.
In the end, we were able to build off of previous tax and fiscal legislative successes from previous sessions with notable help
from Sens. John Braun, R-Centralia; and Sharon Brown, R-Kennewick; and Reps. Kristine Lytton, D-Anacortes; and Terry Nealey,
R-Dayton. Each year, AWB updates its legislative goals for tax and fiscal policy. Last year, we successfully reduced the number of
times local jurisdictions can change sales tax rates in a given year, eliminated the 100 percent penalty for late surveys and reports
related to economic development tax incentives and replaced with a much more reasonable penalty, and made considerable
progress with respect to consolidating and simplifying local business licensing. This year, we continued to build off those successes,
particularly with ESHB 1296 and HB 2005. AWB will be back next year seeking to improve Washington’s competitiveness and
increase economic opportunity across the entire state, including a reinstatement of the manufacturing tax rate reduction.
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