Tax Structure Work Group Continues Looking at Major Tax Changes for Washington

by Mike Nelson

At their May meeting, the TSWG voted on a number of proposals and decision points in directing the Department of Revenue to model and draft proposal language for different taxes in Washington.

The TSWG was established by the Washington State Legislature in 2017 to look at fundamental changes to the Washington State tax system. These changes are required to be revenue neutral in scope. The TSWG is comprised of Republicans and Democrats from the State House of Representatives and Senate as well as representatives from city and local governments.

In 2020 and 2021 the workgroup conducted a series of meetings and surveys to gauge the interest of individuals and the business community in various changes. In March the TSWG voted to continue evaluating several taxes while taking income taxes off the table. They have elected to keep considering these options: a wealth tax, replacing the B&O tax with a margins tax, adjusting the property tax growth factors, adding new property tax exemptions, and enhancing the working family tax credit.

Following the March meeting the Department of Revenue (DOR) asked the TSWG to answer a number of basic questions before they spend the next several months working to draft proposed language for these ideas. We at the WSCPA held several meetings with TSWG members both one-on-one and as part of larger groups to discuss the questions raised by DOR for the various proposals.

At the last meeting on May 25, the TSWG voted to make the following guidelines for a proposed margins tax: consolidated corporate entity; use the current nexus standards; single-factor apportionment; rate basis based on receipts; maintain current B&O surcharges; maintain the current B&O tax base; eliminate current preferential rates, deductions, credits, exclusions, and exemptions; use a standard deduction; and not include the public utility tax.

They also directed DOR to model both a flat and graduated (progressive) rate structure for the margins tax still based on the above criteria.

In addition to this margins tax replacement of the B&O, the TSWG has also directed the DOR to look at a lower rate for the wealth tax (current proposal has been $1 billion dollars), in order to lower the overall rate and provide more stability in tax collections by widening the base of taxpayers.

The DOR will draft versions for each of these policies for the TSWG to evaluate in September. More feedback from the group will be given for DOR to refine the proposals. Then in the fall, the Workgroup will vote on the policies that they will recommend the legislature adopt in the 2023 Legislative Session.