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 |
$63,700,000$ |
