Legislators are no strangers to receiving advice from all quarters, but those in Washington state are about to receive it in extra measure on Election Day. Voters will weigh in with 12 “advisory votes” on 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. policy, nonbinding resolutions intended to advise the legislature on whether to repeal or maintain recently enacted tax legislation on issues ranging from e-cigarettes to the state’s B&O tax to a levy for paint waste management.
A brief summary of these advisory votes follows, organized categorically. All told, they evaluate $20 billion in increased tax collections over the next decade.
Wage/Payroll TaxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue.
Advisory Vote 20 asks whether to retain a 0.58 percent payroll tax (which otherwise goes into effect in 2022) to fund a new Long-Term Services and Supports Trust Program to provide additional assistance and benefits to disabled individuals. The bill up for review passed the House 55-41 and the Senate 26-22. The tax is expected to raise more than $10 billion in its first nine full years in operation, though voters will face a ballot question which merely states that it will cost an “indeterminate amount.”
Business & Occupation Tax Rate Increases
Advisory Votes 21, 25, 30, and 31 pertain to increases in industry-specific rates on the state’s Business & Occupation (B&O) tax, a multi-rate gross receipts taxA gross receipts tax is a tax 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. . The bills they address raised B&O rates on financial institutions ($1.04 billion over 10 years), investment management services ($367 million over 10 years), timber products ($21 million), and travel agents and tour operators ($28 million), representing a net tax increase of $1.45 billion over 10 years. The B&O, as a gross receipts tax, is prone to pyramiding, where the same final good or service is taxed multiple times along the production process, yielding vastly different rates not only across different industries but even within them.
Advisory Vote 24 imposes surcharges on B&O liability for service industries, tiered based on their worldwide gross revenue, to pay for new workforce education programming. This brings the services B&O rate from 1.5 percent to, depending on worldwide revenue, 1.8, 2.0, or 2.5 percent, with a carveout capping liability for advanced computing businesses at $7 million per year. This tax increase, which passed the House 52-46 and the Senate 25-22, is intended to raise $2.25 billion in the first 10 years.
Excise TaxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. Increases
Advisory Vote 27 gives voters the opportunity to consider recent legislation increasing the state’s unusual hazardous substance tax (HST) on petroleum products, including gasoline. The HST was previously 0.7 percent on the wholesale value of any hazardous substance, but under the new law, petroleum products are assessed at a separate, volume-based tax of $1.09 per barrel. The change is designed to reduce volatility in revenue collections, but also represents a significant net tax increase, on the order of $2.76 billion over the first decade. Washington already has the fourth-highest motor fuel tax rate in the nation, at 49.4 cents per gallon.
Advisory Vote 23 addresses the new tax on e-cigarettes and vapor products, slated to raise $178 million in its first 10 years. The tax, imposed at 9 cents per milliliter for larger “open tank” systems (which have more liquid but less nicotine per ounce) and 27 cents per milliliter for smaller “closed tank” vaping systems,” has higher rates than the other states which tax based on volume (Delaware, Kansas, Louisiana, New Jersey, North Carolina, and West Virginia), but is more competitive than the rates in the five states (plus the District of Columbia) which impose ad valorem taxes on the wholesale price. Initially, Washington contemplated a 95 percent ad valorem tax. Given studies showing that e-cigarettes serve as a harm reduction and even smoking cessation tool, it makes little sense to tax them at exceedingly high rates, because the higher cost reduces the incentive for smokers to switch.
Advisory Vote 22 lets voters express their view of a new assessment on paint products, to fund paint waste management. The estimated 10-year revenue is $6 million.
Real Estate Excise Tax
Advisory Vote 29 asks whether the legislature should retain the changes made to the state’s real estate excise tax (a transfer tax, imposed when a property is sold). Beginning next year, the 1.28 percent tax will be replaced with a graduated rate structure with a top rate of 3 percent. The new rate structure is expected to bring in $1.75 billion over the 10-year window.
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. Changes
Advisory Vote 26 asks whether to support the state’s new, post-Wayfair remote sales tax regime, which requires out-of-state companies to collect and remit sales tax to the states if they have more than $100,000 in gross receipts in the state. With the U.S. Supreme Court striking down the physical presence requirement, most states are adopting such provisions. The provisions are anticipated to generate $1.05 billion in additional collections over a decade, though in the early stages, most states are seeing remote sales tax revenue come in below expectation.
Advisory Vote 28 gauges voters’ opinion of recently adopted legislation which repealed a sales tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the IRS, preventing them from having to pay income tax. for nonresidents who made purchases in Washington State, originally designed to remove a disincentive for Oregonians, who don’t face a sales tax in their own state, to shop in Washington. Repealing the exemption is projected to raise $313 million over 10 years.
All 12 advisory votes are nonbinding; legislators are free to ignore the results. They can, however, be instructive for legislators as a measure of how popular or unpopular certain recent tax actions have been—and indeed there have been quite a few tax actions of late, as evidenced by $20 billion worth of tax increases (over a decade) showing up on the ballot this year.
Stay informed on the tax policies impacting you.
Subscribe to get insights from our trusted experts delivered straight to your inbox.Subscribe