Rep. Drew MacEwen, R-Union, introduced a bill to update and simplify the state’s business and occupation (B&O) tax. House Bill 2150 would eliminate the tax burden on over 285,000 businesses in Washington state by ending preferences built in to the tax structure since its inception in the 1930s. MacEwen’s plan is revenue neutral, meaning there will be no impact on the budget writing process, but would provide Washington’s economy with a modern tax structure to help grow the economy.

“My plan would make Washington’s B&O tax fairer, flatter and more flexible,” said MacEwen. “In the past couple of years the Legislature has debated numerous preferences, closing loopholes, and extending credits, including 85 bills in the last biennium alone. According to Forbes Magazine, Washington state has one of the highest startup business failure rates in the nation. I believe this is due in large part to our outdated and complex B&O tax. By allowing businesses to choose the deduction that works best for them, we can create a 21st century tax structure and move Washington’s economy forward.”

MacEwen’s plan would give businesses the opportunity to deduct $500,000 of their gross receipts if that is greater than the other deductions the plan provides. This change alone would eliminate the B&O tax for over 285,000 businesses in the state. Businesses could also choose one of the following three deductions:

• Cost of goods sold;
• 30 percent of revenue; or
• Up to $200,000 per-employee compensation.

The plan maintains the aerospace and agriculture system currently in place. Further, it excludes non-profit organizations altogether.

Washington state businesses are taxed on gross receipts. Gross receipts is defined as gross income, or total sales receipts before payroll and other exemptions. Different rates are then applied based on business activity classifications, such as manufacturing or retail. Under the current tax code there are 50 classifications and ten rates under which businesses are taxed.

There is broad support for reforming the B&O tax code among legislators in Olympia and business owners across the state. Joining MacEwen in support of House Bill 2150 is the National Federation of Independent Business (NFIB).

“Washington’s small business owners have long supported wholesale reform or replacement of our state’s preference-riddled Business & Occupations tax code,” said NFIB/Washington State Director Patrick Connor.  “We applaud Rep. Drew MacEwen, himself an entrepreneur and NFIB member, for introducing a bill that should finally get Olympia talking seriously about how to craft a tax structure that allows firms of all sizes to succeed, rather than giving special advantages to a favored few.”

The impact of this reform is revenue neutral, meaning no money is taken out of the state coffers. This is achieved by consolidating the number of rates from ten to four, and having a service rate of 3.75%, retail/wholesale/manufacturing at 1.6% and telecommunications at 1.2%, while keeping aerospace at its current rate.

“I’ve been working on this proposal over the past several months, and have looked at a lot of different models across the country,” MacEwen said. “It became clear that Washington has an outdated and unnecessarily complicated way of taxing businesses. Simplifying the tax code will allow those businesses to grow in a way that benefits the whole state. It’s time for bold leadership and fresh ideas in Olympia. We need to remove barriers to growth so we can accelerate job growth and get Washington working again. By making this change now, we can ensure Washington is a national leader, and a global competitor, well into the future.”

More information on exempted businesses can be found here.

House Bill 2150 will be assigned to a committee later this week, where it will await a public hearing date.