In honor of tax day, I thought it would be worthwhile to take a look a few tax changes the Legislature adopted this year. Gov. Chris Gregoire floated the idea of a temporary half-cent sales tax as a solution to the budget shortfall last year. That idea failed to gain support, as did another proposal she suggested which would have streamlined B&O taxes, or business and occupation taxes.

Here’s a look at some tax changes that did pass:

Local sales tax collections
This was the $238 million solution that helped break the logjam over the budget. It’s been widely called an “accounting maneuver,” but it basically works like this: The state collects sales tax revenue, which lands in the general fund. A share of that money belongs to local cities, counties and other agencies. Currently, their share is transferred to a separate account every day and then redistributed at the end of the month.

Under the new legislation, the money allotted for local governments will stay in the general fund about a month longer. They will still get their distributions at the usual time, but it gives the state a boost in its monthly cash flow. During floor debate on the issue, lead Democratic budget writer Rep. Ross Hunter said it is a way to “modernize” the way the state manages its money. It easily passed the House and Senate, and is awaiting the Governor’s signature.

Roll-your-own cigarettes
Washington state has the fifth highest cigarette tax in the nation, at $3.025 per pack. That means smokers in the state can expect to pay as much as $9 for a pack of cigarettes at the store, but some have found a way around that by using roll-your-own cigarette machines. Customers buy the tobacco and papers, then put it in a roll-your-own cigarette machine found in 65 stores statewide. In about 10 to 20 minutes, they’ve got rolled cigarettes for half the price.

New legislation expands the definition of cigarettes to include roll-your-own, and they will be taxed at the same rate as prepackaged cigarettes starting July 1st. The bill drew heavily debate in the Legislature, but ultimately passed. Opponents said it would put stores out of business and devastate small business owners, who paid about $30,000 apiece for the roll-your-own machines. Supporters say it will deter smoking, which improves public health while also bringing in an estimated $12 million in new revenue – a number that could change depending on how consumers react.

Eliminate tax deduction for big banks
Washington state doesn’t charge taxes on the interest that banks earn on loans for first mortgages. The Legislature voted to end that tax deduction starting July 1st for big banks that operate in more than 10 states. The change is expected to bring in about $15 million a year.

New tax breaks
While banks lost a tax deduction, other businesses got new or extended tax breaks. In an effort to attract more film and TV production companies to the state, the Legislature revived the Motion Picture Competitiveness Program, which expired last July. It gives filmmakers a 30 percent rebate off the money they spend in the state on hiring local crews and other expenses.

Also, craft distilleries that make and bottle their own spirits will get an exemption from paying a retail license fee of 17 percent on bottles they sell in tasting rooms. Businesses that operate processing facilities for fruits, vegetables, dairy and seafood will get an extension of a B&O tax exemption until 2015.

Tags: taxes

A proposal debated in the House that would have repealed the retail sales tax exemption for out-of-state shoppers failed to get a supermajority vote, which is required to raise taxes. Revenue from the bill would have been redirected to help pay for the state’s all-day kindergarten program.

The vote followed a long debate. Rep. Laurie Jinkins, D-Tacoma said she’s heard lawmakers talk all night about “funding education first,” and this bill is an opportunity to do that. “We should not be handing out money to people who don’t live in this state above educating our children,” she said.

Opponents said it would hurt the economies of border cities, particularly cities near Oregon, a sales tax-free state. “I look at the state of Oregon out of my window and it is a constant reminder we have to be careful of tax policy,” said Rep. Ed Orcutt, R-Kalama. He says some businesses in Vancouver generate as much as 50 percent of their retail sales from Oregon residents, and the bill would force layoffs and store closures.

Rep. Andy Billig, D-Spokane, said he spoke to retailers in his community and they said it would have “no impact or minimal impact” on business. He said it would exempt car sales, which was a concern raised by other lawmakers.

The vote was 51-47 — a constitutional majority, but not the two-thirds vote needed to pass, said Speaker Pro Temp Jim Moeller.

Tags: sales tax

The bill to add the state cigarette tax to “roll your own” cigarettes is getting a vote in the House now. Watch live on TVW.

Rep. Cary Condotta said the bill will close 65 to 70 businesses across the state. “There is no question here what they’re doing,” he said, for only about a million dollars in revenue. “No thank you, Mr. Speaker. Not for me.”

But Rep. Chris Hurst, a Democrat from Enumclaw, said the bill will protect jobs — not take them away. He said RYO businesses often advertise cigarettes at half price and that puts all the other businesses around them at risk. “They’re right on the margins right now, Mr. Speaker. They’re barely getting by. These grocery stores legally sell tobacco and that’s a big part of their business,” he said.

Rep. Matt Shea asked how many votes the bill would take to pass, since it increases revenue to the state. Rep. Jim Moeller, acting speaker, said that since roll-your-own cigarettes are already included in the definition of cigarettes under state law, there was no need for a two-thirds vote.

The bill passed 67 to 30 and now heads to the Senate.

Tags: House, Roll your own cigarettes, taxes

Washington state relies heavily on sales tax, which some say is regressive and unpredictable — particularly during a recession. On Wednesday morning, a group of 13 freshmen House Democrats held a press conference to introduce several proposals that they say would help reform the state’s tax code to make it more fair.

One proposal would end the sales tax exemption for out-of-state residents who shop in Washington state. Another bill would impose a 5 percent capital gains tax. And a third measure would allow hundreds of tax breaks to expire over the next 10 years.

Following the press conference, a House committee held a hearing on a handful of the bills.

Rep. Laurie Jinkins, D-Tacoma, is the prime sponsor of the bill that would tax capital gains — or profits that most commonly come from the sale of corporate stocks and bonds. She says that the state’s reliance on sales tax means that the poorest residents are bearing the heaviest tax burden. “Capital gains is far more fair than the current system,” she said.

Supporters say 42 other states have a capital gains tax, and it would give Washington a steady revenue stream — unlike the sales tax. Mary Moore from the League of Women Voters said during the hearing that it could help the state avoid the “feast or famine” budget problems that have become all too common.

Opponents say that the measure would be detrimental to businesses who need access to capital to expand and grow their operations. They also warn that it could open the door to further tax increases. Washington does not have an income tax, but Amber Carter of the Association of Washington Business said the measure could be the beginning of one.

“Not only does it create a whole new tax, but it creates a whole new layer of appeals, filers, tax code and law that has not been fully tested in our state,” she said.

A House committee is scheduled to vote on it Thursday.

Tags: tax reform

A bill heard by the House Ways and Means committee would qualify the product of a roll-your-own cigarette machine as a cigarette and the retailer as a manufacturer. This would add certification and taxing requirements to roll-your-own, or RYO, cigarettes and the retailers that provide these machines.

Supporters of the bill said RYO machines can be used by retailers as a way to sidestep taxes and regulations, and that retailers with these machines should be counted as a manufacturer. They say increased regulation is fair and will generate revenue for the state.

Tk Bentler, from the Washington Association of Neighborhood Stores, said this bill is needed to level the playing field for cigarette retailers.

“We have invested in our land, our brick-and-mortar stores, and we play by the rules that you guys set here in the legislature. And, we have a company that has gotten very creative and selling cigarettes at $36.50 a carton. You’ll hear testimony that this is going to cost 250 employees and 65 store outlets throughout the state — well I can assure you that we have 4,000 stores throughout the state, thousands of employees that are playing by the rules,” Bentler said.

But opponents of the bill say it could result in the closing of stores and a loss in jobs. They say it puts a higher tax burden on these cigarettes and that roll-your-own customers would likely just start rolling their own cigarettes at home, instead of purchasing traditional cigarettes in stores.

Representatives from roll-your-own distributors and stores said their industry is playing by the rules and this bill would put an unfair tax burden on these cigarettes.

“It’s been claimed in about every committee we’ve been in that we are not playing by the rules, or that we are committing tax evasion. It’s just not true — we do play by the rules — we have retail stores who pay every single tax that is applicable to our tobacco. We’re not breaking any rule, and by classifying us as manufacturers it does effectively shut down our business,” Joshua Baba, a RYO distributor, said.

The committee hasn’t voted on the bill.

Tags: cigarette tax, cigarettes

Gov. Chris Gregoire announced a plan today that would streamline the way that small businesses pay local taxes and apply for a business license.

Under her proposal, Washington state would become the sole collector of all local and state B&O taxes, or business and occupation taxes. It would also create a single state website where businesses can obtain a business license, eliminating the 50 or so websites that are now run by individual cities.

Currently, if a business has operations in more than one city it may have to pay the B&O taxes to multiple cities  – a system that is “at its best complicated, and at its worst a nightmare,” Gregoire said. Her proposal would bring the collection of all B&O taxes under the state’s jurisdiction, much like the sales tax.

Gregoire said she is also issuing an executive order to determine if the restaurant industry has too many state and local regulations that are hindering business. ”Do we need all these inspectors? Do we give conflicting advice? We’ll find out the answers so that businesses can get on with their bottom line, ” Gregoire said.

Gregoire is also directing $1.1 million in federal funds to specific job training programs, including:

• Training 460 veterans for a careers in manufacturing
• Providing paid internships and professional training to at-risk, low-income youth
• Offering on-the-job training for 300 women and minorities working in the construction and transportation sector

Tags: B & O taxes, business licenses, employment, Gov. Gregoire, Jobs, small business

Tags: taxes

If you prefer the long version of what was said at the noon press conference in the Senate Democratic caucus room, scroll down and read the dispatches posted in real time. I’ll also post the video soon.

If you don’t have time, here’s the basics:
- Senate Majority Leader Lisa Brown said the “high-earners” income tax is dead for this session.
- Sen. Jeanne Kohl-Welles said she’ll continue to fight for it until Sine Die — scheduled for Sunday.
- Brown said she was unsure whether the House would pass the .3 percent sales-tax-for-healthcare bill. If they did, she said she’s unsure whether it would come up on the Senate floor.
- Brown said the budget should come out today, possibly very late. It will come out of the House first, she said. It then may or may not be referred to the Senate Ways & Means committee.
- Sen. Adam Kline said he believes people are increasingly realizing that the state’s tax system is unfair.
- Sen. Jeanne Kohl-Welles said she is introducing a bill today or tomorrow to extend the sales tax to candy and gum. The money would go to child healthcare and immunizations, which she said were damaged in the budget. She reminded everyone that bills introduced this session are still alive next session.
- Kohl-Welles also said she thinks an income tax that could withstand Constitutional challenges is on the horizon.

Tags: tax

Today at 12:15, Senate Majority Leader Lisa Brown will hold a press conference on the “unfair tax system” with Sens.: Joe McDermott, Adam Kline, Jeanne Kohl-Welles and others. TVW will be there and air the press conference as soon as we can. I’ll keep you updated here.

Tags: income tax

Since you (probably) couldn’t be there, I’m posting the videos from this morning — both the House Health and Human Services Appropriations Committee and the subsequent Republican caucus rebuttal to the tax vote — here.

The committee — particularly the discussion before the vote — is interesting stuff because many of the lawmakers on the committee take a moment to describe the philosophy behind their vote. Enjoy.

On the subject of taxes, I mentioned in an earlier post that Rep. Gary Alexander didn’t think people would die if a tax wasn’t passed but, he said, he did believe people would lose their jobs. Joe Turner from The News Tribune has a mathematical explanation of that here.