On April 28th, the Washington Legislature adjourned after passing a $52.4 billion two-year state operating budget. To help fund the budget, the Governor signed a tax package worth at least $830 million over the next two years, despite unprecedented revenue from existing sources.
Some articles have estimated the tax increases to be up to $2.5 billion over the next two years and $7.5 billion within the next four years.
I, like many small business owners with families, was disappointed with the massive increase in spending by Governor Inslee and the Legislature. The investments in the budget, like for counselors and mental health treatment, could have been realized through efficiencies and from existing revenue sources- without increasing taxes on business and working families.Peter Abbarno, Centralia City Councilmember
According to a new report from the state Economic and Revenue Forecast Council (ERFC), Washington state can expect another two years of increased revenue. The council anticipates $51.7 billion in revenue for the 2019-21 biennium – a increase of almost $300 million and 12.3 percent from the 2017-19 biennium. That two-year figure is only expected to grow by 2021-23 to $55.154 billion
Here are some of the 2019 Tax Increase you can expect to see (and feel) beginning in 2020:
Business & Occupation Tax Increases
The state B&O tax is a gross receipts tax, meaning businesses are taxed on the value of products, gross proceeds of sale, or gross income of the business. This regressive tax means government gets paid before employees or the small business’ bills are paid; there are no deductions from the B&O tax for labor, materials, taxes, or other costs of doing business.
Effective January 1, 2020, the B&O tax rate will increase in the following ways:
- 1.8% for approximately 43 select professional service businesses, including architecture and engineering services, legal services, data processing, software publishing, medical services, insurance carriers, telecommunication services, and more.
Real Estate Excise Tax Increases
Currently, the Washington State portion of the real estate excise tax (REET) rate is 1.28%. Beginning January 1, 2020, Engrossed Substitute House Bill (ESHB) 5998 stipulates REET will be imposed at the following state rates—though additional local rates may apply:
- 1.1% if the selling price is equal to or less than $500,000
- 1.28% on the portion of the selling price that’s greater than $500,000 but equal to or less than $1.5 million
- 2.75% on the portion of the selling price that’s greater than $1.5 million but equal to or less than $3 million
- 3% on the portion of the selling price that’s greater than $3 million
Beginning January 1, 2022, and every four years thereafter, the DOR may increase the selling price thresholds to reflect the lesser of 5% or the growth in the Consumer Price Index for Shelter over the past four years.
The current 1.28% REET rate will continue to apply to timberland and agricultural land.
Nonresident Sales Tax Exemption Eliminated
Historically, retail sales tax hasn’t applied to purchases of certain goods made by nonresidents for use outside of Washington State. This greatly benefits SW Washington, which competes with the State of Oregon, which has no sales tax.
Nonresidents must pay Washington sales tax at the time of purchase and request a refund from the state. However, the following conditions apply:
- Taxpayers may only request a refund for the immediately preceding calendar year,
- The refund requested must be $25 or more, and
- A nonresident may only make one refund request per calendar year.
The Sales Tax Exemption creates jobs and revenue by attracting customers far and wide. The elimination of the exemption will be felt throughout the region and disproportionately in SW Washington and along the Oregon border.
Local School Property Tax Increase
Current law set the maximum local levy that school districts can collect as the lesser of (a) $1.50 per $1,000 of assessed value or (b) $2,500 per student.
The Washington State Constitution specifically states that it is the paramount duty of the state to make ample provision for the education of all children and that the legislature shall provide for a general and uniform system of public schools. Lifting the levy lid for local school districts to increase taxes only creates greater disparity in education and perpetuates the cycle of poverty.Peter Abbarno, Centralia City Councilmember
Beginning January 1, 2020, the maximum levy schools can collect as property will be the lesser of (a) $2.50 per $1,000 of assessed value or (b) $2,500 per student for school districts with less than 40,000 full-time students.
At some point, Olympia and Governor need to measure the success of programs by the families lifted out of poverty and student success stories coming out of our school system, not by the amount spent on another cookie-cutter government program.Peter Abbarno, Centralia City Councilmember
Last legislative session, tax increases included: HB 2158- B&O increase of $380 million; SB 5998- Real Estate Excise tax for $245 million; HB 2167- B&O increase on banks for $133 million; SB 6016- B&O on investment management companies for $59 million; HB 1873- Vaping tax for $27 million (which was spent but likely lower due to ban on flavored vaping); SB 6004- B&O tax increase for travel agents for $5 million; and all the tax incentives removed and title only bills in the dark of night.