Legislature approves business tax changes to fix problems in workforce education investment account

The House yesterday approved SB 6492, substantially changing last year’s Business and Occupation tax increase that funded the newly-created workforce education investment account. Tuesday we pointed you to the Washington Research Council’s analysis of the problem and the SB 6492 fix adopted by the Senate. From the WRC’s summary:

One of the major new taxes adopted last year was the workforce education investment business and occupation (B&O) tax surcharge. Appropriations were also made last year from the new workforce education investment account (WEIA) to fund higher education programs.

The Legislature is now working to overhaul the surcharge to address three issues: (1) Administrative and compliance complexities that may make revenue collection difficult; (2) a late amendment last year reduced the 2021–23 revenue estimate so much that a significant shortfall is expected in the account in the biennium; and (3) caseload increases may create a shortfall in 2019–21—depending on what account those increases are charged to.

The Senate has passed a bill that would repeal the surcharge (except for advanced computing) and apply a 1.75 percent tax rate to a broader category of businesses while exempting those with less than $1 million in gross income. Unfortunately, the Senate did not act to include the WEIA in the four-year balanced budget requirement as we have previously recommended.

Reporting in The Seattle Times, Joseph O’Sullivan writes,

The Legislature has passed a bill changing the business-and-occupation tax to increase funding for a new program to make college more affordable to students across Washington.

Democratic House lawmakers Wednesday night approved Senate Bill 6492, 52 to 45. No Republicans voted in favor of the bill; five Democrats from swing districts around the Puget Sound voted against it.

The measure, which has passed the Senate, now heads to Gov. Jay Inslee. If he signs it, the law would take effect April 1.

He summarizes the tax increase.

SB 6492 repeals last year’s three-tiered set of surcharges for business-and-occupation taxeson services. It replaces those with a 1.75% rate in that category for most of those services — such as architectural, legal and medical firms — for businesses grossing more than $1 million annually.

It also sets a 1.5% business-and-occupation tax rate — which was the rate before last year’s tax plan — for hospitals and some other categories, like services with less than $1 million in gross receipts annually, according to a legislative analysis.

And it levies an “advanced computing surcharge” of 1.22% for some large tech businesses, such as Microsoft. That surcharge would tax those companies up to $9 million per year.

The new version would raise about $234 million over the 2021-23 budget cycle to fund the Washington College Grant.

It only took 25 days.