Yesterday, April 24, Democrats in the House of Representatives ignored repeated opposition to House Bill 2038, which would increase taxes on small service business by $905 million.

The bill narrowly passed with a 50 to 47 vote as five Democrats sided with Republicans.   According to the title, the intent of the bill is to fund the education legacy trust account through new taxes and ending tax exemptions that were set to expire this summer. The largest exemption to change is business and occupation (B&O) tax on many self-employed people, small businesses and service businesses.

Rep. Drew MacEwen, R-Union, along with most House Republicans, vocally opposed this legislation on the House floor. McEwen’s floor speech had unique insight since he is business owner with first-hand knowledge of how this tax will impact employers.

“My timing in starting my company wasn’t great, it was three weeks before nine-eleven. And I still remember that morning. I had rolled some big dice in resigning from the company I was working for and starting my own… and in the days after nine-eleven my dad came to me because I was pretty distraught over this whole thing. I was wondering how I was even going to get through that month and I still remember what he said to me. He had run a successful business and he said, ‘When you can’t control the revenue, control the expenses.’ We are seeking to try and control revenue that we really can’t control. We spend $10,300 per student in this state, on education. McCleary didn’t say just throw more money at it; it said fix it. We have not made a fair effort fix it. Instead, we seek to put more money toward it. We’re going to raise taxes again.   “I stopped to get gas in my district on the way to come back here. I know the owner of the gas station and he comes out and starts talking to me about these taxes. He is pretty astute. He knows what’s going on but the guy on the other side of the pump stops pumping and sticks his head around and says, ‘Are you serious? How am I going to afford this?’   “I met with my assistant yesterday to sign payroll which happens today. And, I always make it a point to look at those names on the checks. I’m thinking to myself, this won’t happen tomorrow if this bill passes, it will be over the course of the next year or so, but at that point which one of these people are we going to let go? And, between me and my partners everyone of those employees has been chosen for a reason. And, one of them just had a baby. So which one? Which one, if this goes into law, do we let go?   “I urge this chamber to think. We need to do some serious reforms. We do need to fix education and we do need to fund it first. But, we can’t just keep digging into the pockets of the taxpayers… there’s not much left there. Vote ‘no’ …thank you Mr. Speaker.”

Taxes included in House Bill 2038 would come from many small businesses, including: contractors, landscapers, realtors, barbers, janitors, truck drivers, warehouse workers, bus drivers, music teachers and others. Since the B&O tax is calculated on gross income, if a company incurs a large gross income but nets little actual money they could be in for a huge tax increase. Republicans further argued that because of this the B&O tax could eliminate thousands of jobs in Washington state.

Now, House Bill 2038 goes to the Senate for a vote and has three days to progress, depending on the reaction of the Senate, the bill could be brought to the floor for a vote and pass, be changed and returned to the House for concurrence, or die. The regular session of the Legislature ends this Sunday, April 28.

View MacEwen’s speech online:https://www.tvw.org/index.php?option=com_tvwplayer&eventID=2013040151A#start=6916&stop=7068

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TAX INCREASES INCLUDED IN HOUSE BILL 2038

$534 million – Would permanently extend the business and occupation (B&O) surtax on certain businesses.
$14.6 million – B&O tax rates for travel agents.
$51.5 million – Would place sales and use tax on bottled water. This is the same tax that was repealed by voters in 2010.
$63.7 million – Would repeal the nonresident sales and use tax exemption. This could especially hit our border counties very hard along Oregon and the British Columbia borders.
$78.7 million – B&O taxes for high-tech research and development.
$63.2 million – Public utility tax on truck transport of goods in state that are destined for out of state.
$24.1 million – B&O and sales and use taxes for import commerce.
$29 million – B&O tax for sellers of prescription drugs
$40.8 million – Fuel tax for extracted fuel
$5.2 million – Handling losses fuel tax

TOTAL: $904.8 million