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Wealth tax, head tax or income tax?

Wealth tax, head tax or income tax? The Tax Structure Work Group (TSWG) is a bipartisan group of legislators and other public officials are looking at ways to alter our state’s tax structure. This workgroup wants to hear from residents and business owners regarding the current state tax structure and feedback on some of the ideas they are discussing. Click here to access the TSWG survey provide them feedback on our state’s tax structure and the ideas that are being discussed. The TSWG will take the feedback they have received from the townhalls they held earlier and the surveys to create legislation that will be introduced in 2023 to change our state’s tax structure.  AGC is monitoring the work of the TSWG and is concerned about some of the options they are discussing so therefore the TSWG needs to hear from businesses and people like you!

Below are six different tax scenarios the TSWG are discussing. On their website they also have a tax calculator so you can see how each of the scenarios below would impact you or your business.

Scenario A:

Revise the state property tax levy limit: The current law caps the state property tax levy growth at the lesser of the implicit price deflator or 1% growth (plus the new construction add-on). In this scenario, that limitation factor would be benchmarked to a new inflation factor tied to the cumulative rates of population growth and inflation.

Scenario B:

Primary residence property tax exemption with a wealth tax: This proposal creates an exemption for residential property tax parcels that are occupied as the principal place of residence and adds a wealth tax. The state property tax would create an exemption from Part 1 & 2 of the state school levy for up to the first $250,000 of assessed value on residential property. This does not apply to locally levied property taxes. The exemption does not “shift” the property tax burden and would require an amendment to the state Constitution. A wealth tax imposed on the taxable worldwide wealth of individuals who reside in Washington. Up to $1 billion of an individual’s financial intangible assets are exempt from the wealth tax.

Scenario C:

Value added tax (VAT) and employee compensation tax (aka head tax): This proposal eliminates the B&O tax, adds an employer compensation tax, and adds a subtraction-method Value Added Tax (VAT). The employer compensation tax would be employer paid on compensation paid to employees located in Washington for businesses that make over $7,000,000 in worldwide income. This tax exempts the first $150,000 per year in compensation for each employee. Subtraction-method VAT would be on the gross receipts of businesses minus the purchase of intermediate goods and services from other businesses. Small businesses can also claim an exemption of $1 million of annual receipts. The small business exemption phases out linearly to zero for taxpayers with $2 million of receipts.

Scenario D:

Margins tax and employer compensation tax: This proposal eliminates the B&O tax, adds an employer compensation tax, and adds a Margins Tax. The employer compensation tax would be on compensation paid to employees located in Washington for businesses that make over $7,000,000. This tax exempts the first $150,000 per year in compensation for each employee. The margins tax would be on the gross receipts of businesses minus one of four deductions: 30 percent of taxable income (before deduction); cost of goods sold; total compensation paid; or $1 million (subject to apportionment).

Scenario E:

Corporate Income Net Receipts and Personal Income Tax (Flat): This proposal modifies current law taxes by reducing the state sales tax rate from 6.5 percent to 4.5 percent; reducing the state property tax rate by 25 percent; adds a state property tax primary residence exemption of $250,000 (but shifts the tax to others through an increase in the rate); and eliminates the B&O tax. This proposal would also add a flat rate corporate income net receipts tax [CINRT] and a flat rate personal income tax [PIT].

Scenario F:

Corporate Income Net Receipts and Personal Income Tax (Graduated): This proposal modifies current law taxes as follows by reducing the state sales tax rate to 4.5 percent; reducing the state property tax rate by 25 percent; adds a state property tax primary residence exemption of $250,000 (but shifts the tax to others through an increase in the rate); and eliminates the B&O tax. This proposal adds a graduated rate corporate income net receipts tax [CINRT] and graduated rate personal income tax [PIT].

This survey will be available until late January 2022. Share with others who may be interested in sharing their opinions. If you have any questions, please reach out to Michele Willms in AGC’s Legislative office.

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