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Washington State Legislature Passes Massive Tax Increases

Lane Powell PC

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USA April 29 2019

Over the weekend, the Washington legislature passed one of the most comprehensive set of tax increases in recent memory. The increases were enacted through five primary bills and raise approximately $2.1 billion over the next four years. While the proposed capital gains tax was not among the tax proposals that were passed, virtually every industry was impacted through increases to the business and occupation (B&O) tax and the real estate excise tax (REET). Below is a list of the industries most impacted:

  • Large Financial Institutions. HB 2167 enacts an additional 1.2 percent B&O tax on financial institutions that are part of a consolidated financial group with net income of more than $1 billion in the prior year. This increases the B&O tax burden for these financial institutions by approximately 80 percent, raising the rate from roughly 1.5 percent to 2.7 percent starting January 1, 2020.
  • Companies Involved in Real Estate Transactions. SB 5998 establishes a graduated REET starting January 1, 2020. For most real estate, the rate for the state portion rises from 1.28 percent to 3 percent for selling prices above $3 million dollars. In many locations the combined state and local rate will go up to 3.5 percent. The rate for agricultural and timberland remains the same at 1.28 percent. The bill also contains a number of provisions to eliminate many of the traditional REET minimization strategies.
  • Service Oriented & High-Tech Businesses. HB 2158 imposes a B&O tax surcharge on businesses in selected service industries (see list of affected NAICS codes below) and large “advanced computing businesses” starting January 1, 2020. The selected service businesses are subject to a 20 percent surcharge on their general service revenues, raising the effective B&O tax rate from 1.5 percent to 1.8 percent. “Advanced computing businesses” with affiliated group revenues between $25 and $100 billion are subject to a 33.33 percent surcharge and those with consolidated group revenues over $100 billion are subject to a 66.66 percent surcharge. If either of these surcharges apply, the surcharge has a floor of $4 million per year and a cap of $7 million per year.

HB 2158 B&O Surcharge Fiscal Impact by Industry[1]

Category

FY 2020

FY 2021

Advanced Computing

$19,000,000

$19,000,000

Specified Businesses

Medical

$21,200,000

$55,800,000

Financial

$9,200,000

$24,100,000

Everyone else

$63,700,000

$168,000,000

Fiscal Note Totals

$113,100,000

“Everyone Else”

3-Digit NAICS

NAICS Title

Count of Businesses

FY 2020

FY 2021

221

Utilities

80

$450,000

$1,180,000

336

Transportation Equipment Manufacturing

30

$50,000

$140,000

423

Merchant Wholesalers, Durable Goods

310

$510,000

$1,350,000

454

Nonstore Retailers

280

$290,000

$760,000

511

Publishing Industries (except Internet)

580

$620,000

$1,640,000

515

Broadcasting (except Internet)

40

$890,000

$2,360,000

517

Telecommunications

380

$6,340,000

$16,730,000

518

Data Processing, Hosting and Related Services

830

$1,570,000

$4,140,000

519

Other Information Services

80

$580,000

$1,540,000

521

Monetary Authorities-Central Bank

10

$320,000

$840,000

522

Credit Intermediation and Related Activities

1,810

$10,630,000

$28,030,000

523

Securities, Commodity Contracts, and Other Financial Investments and Related Activities

2,180

$4,140,000

$10,920,000

524

Insurance Carriers and Related Activities

970

$1,970,000

$5,180,000

525

Funds, Trusts and Other Financial Vehicles

230

$190,000

$500,000

533

Lessors of Nonfinancial Intangible Assets (except Copyrighted Works)

80

$150,000

$390,000

541

Professional, Scientific and Technical Services

53,460

$34,400,000

$90,710,000

551

Management of Companies and Enterprises

440

$290,000

$760,000

813

Religious, Grantmaking, Civic, Professional and Similar Organizations

420

$160,000

$430,000

921

Executive, Legislative and Other General Government Support

60

$150,000

$400,000

 

Total "Everyone Else"

62,270

 $63,700,000$  

Lane Powell PC - Brett Durbin and Scott M. Edwards
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McDonald Carano Wilson LLP
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