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State income tax rejected by workgroup

by CHARLES H. FEATHERSTONE
Staff Writer | April 8, 2022 1:20 AM

OLYMPIA — Washington residents will not be paying state income taxes any time soon if the state legislature listens to the recommendation of a group created to advise the state legislature on future taxation.

In a meeting in late March, the bi-partisan Washington Tax Structure Workgroup, which was formed in 2017 to help advise the state legislature, voted to remove from future consideration a personal or corporate state income tax of any kind as well as any potential value-added tax and an employer compensation tax similar to that enacted by Seattle.

“It was a pretty surprising meeting,” said Jason Mercier, director of the Washington Policy Center’s Center for Government Reform in Kennewick.

Mercier said he believes the workgroup — established by the state legislature in 2017 and composed of 13 members including legislators, local officials and other stakeholders — was set up to eventually recommend the legislature enact a state income tax.

However, Mercier said a study done for the workgroup found little support for a progressive income tax among state residents, especially among minorities.

“Voters have been very clear on an income tax, and they’ve rejected it six times,” Mercier said. “The surprise here is Democrats expected to see more public support. But once outside Seattle, it was universal. There was no support for an income tax.”

Mercier said the workgroup, which still has one or two more meetings this year before it is set to make a recommendation to the legislature this fall in advance of next year’s legislative session, is still considering changes to the state’s property tax system, replacing the current business and operations tax with a marginal gross receipts tax similar to what exists in Texas, and a statewide wealth tax as well.

Of those, changing the business and operations tax would likely be easiest, Mercier said, because there is nearly a century of state Supreme Court cases defining the tax and governing how it is applied.

Currently, Mercier said the B&O tax is applied to all of a business’ gross’s receipts. Changing the tax so it allowed for exemptions or dedications — say on the cost of production or wages paid to employees — would make it easier to pay, especially for small and start-up businesses.

“It’s really hard for start-ups, whether they are profitable or not,” he said.

However, such a tax would still be on business receipts, rather than profit, and fit within a state Supreme Court ruling from the 1930s allowing the state to tax business activity Mercier said, rather than business profits.

Mercier said a wealth tax, however, would be the toughest to enact, given the restrictions on taxation and definitions of property in the Washington State constitution and state law.

“The bills proposed only tax billionaires, and you can’t do that in Washington,” Mercier said.

A wealth tax is a tax on property, Mercier said, and the only way that could pass constitutional muster in to be applied to everyone equally, and to include intangible property — such as stocks, bonds and financial holdings — as well as real property like homes, land and vehicles.

“And I don’t think that’s going to happen,” he said.

Mercier said the Department of Revenue will continue to evaluate possible changes to the state’s tax system before the fall, when the workgroup is expected to make its final recommendations. But what legislators do with that is up to them once they meet in 2023.

“This group will vote on suggestions, but there is no obligation for them state legislature to vote on anything,” he said.

Charles H. Featherstone can be reached at cfeatherstone@columbiabasinherald.com

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