WA State Adopts Transgender Bathroom & Locker Room Policies

The day after Christmas, the Washington State Human Rights Commission has adopted rules which allow transgender individuals to use opposite sex bathrooms. As reported by The Daily Signal the rules "make it illegal for business owners to limit sex-specific facilities (such as bathrooms, showers, and locker rooms) to persons with the anatomical parts of one sex." The article goes on: "The rules, which a state legislator told The Daily Signal took effect on Dec. 26, apply to businesses with eight or more employees. They also dictate that schools should "allow students to use the restroom that is consistent with their gender identity" and in most cases, give transgender students "access to the locker room that corresponds to their gender identity."

For some reason, the Human Rights Commission has not yet posted the final rules.

Gov. Inslee Proposes a Washington State Capital Gain Tax

Governor Inslee's 2015-17 budget has an anticipated deficit of just under $2 Billion (expected revenue of $37.1B, Inslee budget of $39B in expenditures).

To compensate, Governor Inslee proposes several tax increases including a brand new 7% Washington State Capital Gains Tax.

This is a brand new income tax, currently Washington State does not have any form of income tax. As previously discussed, Washington State's lack of income taxes has helped to establish its edge over many other states in tax competitiveness. Washington's lack of income tax has helped it achieve the lowest State marginal tax rate for pass-through entities, gain 11^th place on the 2015 State Business Tax Climate Index, and rank 4^th among the states for mature retail stores & call centers.

Inslee's Capital Gains Tax Proposal Key Facts (drawn from FAQ on HB 1484/SB 5699)

• Capital Gain Rate of 7%
• Applies to Long Term capital gain income above $25,000 (single) $50,000 for married couples. Generally, based on gains as reported on federal tax returns.
• Exemptions:
  • Retirement Account gains
  • Family Home sale exemption (only if (1) IRC § 121 otherwise applies or (2) the home has been owned for 20 years and used as personal residence for at least 10 years).
  • Agriculture Property
    • Exemption only applies to sale of "cattle, horses or breeding livestock" (if more than 50% of taxpayers gross income is from farming/ranching)
    • Exemption for sale of agricultural land: exemption only applies to land held for at least 10 years (assuming taxpayer has "regular, continuous and substantial involvement in the operation of the agricultural land")
  • Timber
• Credits
  • Individual can take a credit for capital gains taxes paid in other states for gains subject to the Washington Tax.
  • No credit for federal capital gains taxes paid.

Conclusions

Imposing any form of income tax will bring Washington State down in its tax competitiveness with other states. As reported by the Washington Policy Center, capital gains tax is an extremely volatile revenue stream for governments and Governor Inslee proposes to allocate these revenues solely to education spending. Additionally, the Washington Policy Center questions the constitutionality of Governor Inslee's proposal and cites to former Washington State Supreme Court Justice Phil Talmadge's 2010 legal analysis of Initiative 1098 (2010 Initiative to impose and income tax, that initiative ultimately failed 64.15% against, 35.85% in favor).

Tax Freedom Day 2015 (April 24th)

The Tax Foundation calculates the 2015 Tax Freedom Day as April 24, 2015.

This is calculated as the day of the year when the nation as a whole has earned enough money to pay its total tax bill for that year.

Tax Foundation Key Findings:

• Americans will spend more on 2015 taxes than they will on "food, clothing, and housing combined."
• Americans will pay 31% of the nation's income in taxes.
• Americans will pay $3.3 Trillion in federal taxes, $1.5 Trillion in state and local.
• Washington residents Tax Freedom day: April 29, 2015
• Idaho residents Tax Freedom day: April 14, 2015.

Graphic from the Tax Foundation:

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: Ranked 11th on State Business Tax Climate Index

The Tax Foundation has recently released its 2015 State Business Tax Climate Index. The full report can be found here.

Washington State ranked 11^th overall on the index for best State Business Tax climate nationwide.

The purpose of the index is to enable "business leaders, government policymakers, and taxpayers to gauge how other states his tax systems compare."

In making its rankings, the Tax Foundation surveys each State's tax system comparing over 100 different variables in five areas of taxation (corporate, individual, sales, unemployment insurance and property). Then it compiles those results to create its final overall rankings.

However despite the fact that Washington scored well overall, it has one of the highest combined state and average local sales tax: at 8.88%.

Washington has the highest tax rate on spirits ($35.22 per gallon).

Looking at the corporate tax component alone, Washington ranked 28^th.

Looking at the individual income tax component alone, Washington ranked 6^th.

Looking at the sales tax component alone, Washington ranked 46^th.

Looking at the property tax component alone, Washington ranked 23^rd.

Looking at the unemployment insurance tax component alone, Washington ranked 19^th.