Washington State: Lowest Marginal Tax Rates for Pass-Through Businesses

According to the Tax Foundation, Washington State has the lowest marginal tax rate for "pass-through businesses." A "pass-through" business includes sole proprietors, S Corporations, limited liability companies (LLCs) and partnerships.

The Tax Foundation calculates Washington State's "Top Marginal Tax Rate" for Sole Proprietorships and Partnerships (including LLC's which have no made an "S election") at 42.6%. It calculates the "Top Marginal Rate" for S-Corporations at 39.6%.

The rates calculated for Idaho are 48.2% for Sole Proprietorships and Partnerships and 45.3% for S-Corporations. The rates calculated for Oregon are 49.8% for Sole Proprietorships and Partnerships and 46.8% for S-Corporations. 

The reason that Washington rate is lower than other states is because Washington State does not have an income tax.

Additionally, the Tax Foundation reports that 95% of businesses nationwide are "pass-through" entities. This means that Washington State has a significant edge over other states. 

The Tax Foundation's report can be found here.

Washington State is Number 1! For liquor taxes…

Washington State has the highest liquor taxes in the nation! Washington residents, as the end purchaser, pay the following taxes on liquor (either directly, or as price markup for taxes paid by distributors and retailers):

• 20.5% sales tax on spirits,
• + a $3.77 per liter excise tax,
• + 17% of gross revenues of retailer (termed a "license fee")
• + 10% of gross revenues of distributors.

According to the Tax Foundation, this results in the highest liquor taxes in the nation, with some taxes approaching 100% of the sale price of some products. The Tax Foundation calculates Washington's state taxes on spirits at a $35.22 per gallon, whereas Idaho is $10.92 and Oregon $22.73 per gallon. The national median liquor tax is $5.53 per gallon.

All info from an excellent piece at the Tax Foundation.

Not surprisingly, this has resulted in Washington residents purchasing liquor in Idaho and Oregon. In response, there has recently been a bill introduced in the legislature to reduce the Washington sales tax from 20.5% to 6.5% over 8 years. Certainly this is a step in the right direction.

Idaho’s Constitutional Amendment to require supermajority vote for tax & fee increases.

The Idaho House of Representatives is now considering putting to the electorate a Constitutional Amendment that will require a supermajority (2/3) vote by both houses of the legislature on any bill that "provides for a net increase in revenue, whether through fees or taxes…"

The Joint Resolution can be found here.

Idaho Sales Tax Revenues: Going Up???

Rep. Shirley Ringo (D-Moscow) is now proposing a reform plan for the Idaho Sales Tax. The plan reduces the sales tax rate from 6% to 5% but eliminates numerous exemptions and thereby broadens the base on which that tax is applied.

According to an Idaho Statesman article:

Their plan would retain the production exemption on sales of goods and equipment used by agriculture and other businesses and continue to exempt health care. But it would lift 21 exemptions and exceptions. The biggest hit would be felt in service industries, from lawyers and accountants to hair-stylists and auto repairmen. Other transactions subject to tax would include real estate commissions, construction materials, electricity and other utilities, transportation, trade-ins, lottery tickets and commercial aircraft.

The addition of the tax to many service industries is a significant change in the Idaho Sales Tax. Supporters of the plan believe that elimination of exemptions will raise $371 million of new revenue despite the fact that the actual rate is being lowered.

Additional commentary and analysis of this plan can be found at the Tax Foundation here.