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Tax Increases in the Evergreen State Start Phasing in This Saturday

3 min readBy: Rob Shrum

On Friday, Governor Gregoire signed a package of bills into law that are estimated to bring in roughly $800 million in revenue in the state of Washington during the current biennium. The taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. increases in the plan, which include taxes on beer, bottled water, candy, cigarettes, soda, and a vast array of service businesses, will be phased in over the next two months beginning this Saturday, May 1. Kathie Durbin of the The Columbian provides an analysis of the phase in which includes:

May 1st:

  • The tax increase on tobacco products, including an additional $1 for a pack of cigarettes begins. The increases will bring Washington’s tax to $3.025 per pack, which will be second-highest in the nation behind Rhode Island.
  • A temporary increase in the B&O tax (business and occupation tax) from 1.5 percent of gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” to 1.8 percent also begins on May 1. The tax will increase for a wide array of service businesses such as accounting and law offices.
    • The legislation enacting the B&O tax increase offers a permanent tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. of $70 per month to small service businesses.

June 1st:

  • Washington’s sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on candy and bottled water goes into effect. The tax on candy and tobacco products are both permanent.
    • Candy manufacturers will be eligible for a B&O tax credit of $1,000 per job they retain per calendar year after the increase goes into effect.
    • The bottled water tax could be extended indefinitely in November if voters pass a ballot measure raising funds through the sale of bonds to fund infrastructure and job creation projects. (The bottled water tax would provide supplemental funding) Additionally, bottled water sold for medical reasons or in areas where there isn’t a viable source of drinking water will be exempt from the tax increase.
  • Washington’s beer tax increase of 50 cents per gallon also begins on June 1. (Microbrewery beers will be exempt from the beer tax increase)

July 1st:

  • The soda taxA soda tax is an excise tax on sugary drinks. Most soda taxes apply a flat rate per ounce of a sugar-sweetened beverage. increase of 2 cents per 12-ounce can begins.

All of the tax increases are projected to expire on July 1, 2013, except for the increases on candy and tobacco products. In a previous blog post we mentioned the quote, “there is nothing more permanent than a temporary tax,” and I fear it comes into play here as the state’s elected officials get use to the “temporary tax” revenues.

Expanding the economically destructive and tax-pyramiding B&O gross receipts taxA gross receipts tax, also known as a turnover tax, is applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. will undoubtedly do harm to the state’s current ranking of 9th in the State Business Tax Climate Index. The tax increases also place a disproportionate burden on certain groups of taxpayers such as smokers or those who purchase certain types of beverages and food, and encourage citizens to base economic decisions on the state’s taxes; an overall neglect of sound tax policy.

More on Washington State here.

Washington State Debating Tax Increase Options, March 2, 2010

Washington State Considers Having Highest Sales Tax in the U.S., February 12, 2010

Washington State Considers Mystery Tax Bill, February 9, 2010

Washington State Study: Legislators Shouldn’t Count on Sin Taxes for Balancing Budgets, January 29, 2010

Washington Gov. Gregoire Wants to “Buy Back” Spending Cuts, January 13, 2010