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.

Washington Policy Center Proposes “Single Business Tax” to replace the B&O Tax

The Everett Herald recently published an op-ed by Jason Mercier and Erin Shannon of the Washington Policy Center (WPC) in which they proposed that Washington's B&O tax be replaced by a "Single Business Tax." This single business tax would be based on total receipts but would eliminate the complexity of the current B&O Tax's multiple rates and tax breaks.

The proposal would be revenue neutral but use "one fair, flat rate" that applies to all businesses equally. They described the proposed tax thus:

"Here is how the Single Business Tax would work. Each year business owners would choose one of three ways to calculate their taxable receipts, selecting the one that results in the lowest tax burden. Calculating the taxable margins would be based on the business':

•Total gross receipts minus labor costs, or;

Total gross receipts minus all production costs except labor, or;

60 percent of total gross receipts.

The business owner would then multiply the taxable receipts by the Single Business Tax rate. Cities could levy their own business tax, but the same uniformity standard would apply -- any local business tax would have to be based on a single rate applied equally to all business owners, with no political favoritism. The final amount owed for each taxing jurisdiction would be sent to the state in one payment. State officials would then distribute the funds to different local governments."

They state that this proposal would eliminate the multiple rates on business and repeal the special interest credits and exemptions that currently riddle the B&O tax.

More information on this proposal can be found at the WPC website here.

Washington’s sales, excise and gross receipts taxes

The Tax Foundation reports that Washington State has the highest proportion of its state and local tax revenues generated from sales, excise and gross receipts tax. Washington State generates 60.5% of its state and local tax revenues from sales, excise and gross receipts tax. The Tax Foundation's tax map with all other states is included below and can also be found here.

The balance of Washington State's state and local tax revenue comes from property taxes (31.5%) and other taxes (8.0%). Washington State has no individual income tax or corporate income tax per the Tax Foundation's report on The Sources of State and Local Tax Revenues.

Washington State’s Tax Costs on Business: comparison to other states

The Tax Foundation has released its study "Location Matters, a Comparative Analysis of State Tax Costs on Business."

Washington State ranks 17^th overall for mature operations and 40^th overall for newly established operations. Selected key findings from the study for Washington State are summarized below. The study can be accessed here. The data is searchable by state and Washington's summary is here.

Mature Operations

• Best ranking: Retail stores & call centers: WA ranked 4^th
  • Tax burden for retail is 28% below the national average and 33% below national average for call centers.
  • Main Reasons:
    • WA has no income tax at either state or local level (although it does have a Business and Operations (B&O) tax).
    • WA has a relatively low property tax burden for these operations.
• Worst ranking: Corporate headquarters: WA ranked 46^th.
  • Tax burden on Corporate HQs is 42% above national average.
  • Main Reason: Although WA has no income tax and a low property tax burden, WA has the highest sales tax costs and among the highest costs for unemployment insurance (UI).

New Operations

• Best ranking: New Retail. WA ranks 17^th for new retail operations.
  • Tax burden is on average 8% below national average.
  • Reason: Low income tax and property tax.
• Worst ranking: New Corporate Headquarters. WA ranks 49^th.
  • Tax burden (total) is 81% above the national average.
  • Reason: highest sales tax burden in nation combined with above-average UI costs and gross receipts tax.

Washington State B&O Tax Credits

Washington State has recently reinstated the "Motion Picture Competitiveness Program." This program offers a B&O tax credit to Washingtonians that contribute to a Washington motion picture competitiveness program. The credit is limited to the lesser of $1M or 100% of the contributions made by the person to a program during a calendar year. The motion picture competitiveness programs are designed to help bring film production to Washington State. The definition of a "motion picture" includes all types of video delivery including the internet.

The bill as passed can be found here.