The proposal to replace the state B&O tax with a new margin tax is scheduled for a hearing in the Senate Business, Financial Services, Gaming & Trade Committee. SB 5482 sponsored by Sen. Noel Frame (D–Seattle), represents one of the recommendations of the State Tax Structure Work Group. The proposed bill would not directly impact tax authority for cities that impose a local B&O tax, other than updating references to state B&O tax provisions that would be repealed.

The bill would impose a new 3.1966 percent margin tax on the gross revenues of businesses beginning in 2027. Businesses would be able to choose one of several deductions in calculating the tax on gross revenues:

• Cost of goods sold
• Amount of employee compensation
• A standard margin of 30 percent of gross revenues
• A standard deduction of $1 million gross revenues

The proposal is modeled after a business tax in Texas, with some changes to definitions to align to federal IRS definitions for deductions like cost of goods sold and calculation of compensation.

Existing state B&O tax exemptions and deductions would be repealed.

Those businesses under a threshold of $5 million per year that chose not to calculate any of the deduction options could elect to pay a reduced easy computation and rate of 1.75 percent on their gross revenues without the deductions.

For more information, see the State Tax Structure Work Group recommendations. We continue to monitor these discussions due to the potential for impacts on local tax authority.

Date to remember

SB 5482 is scheduled for public hearing in the Senate Business, Financial Services, Gaming & Trade Committee on Thursday, January 26 at 10:30 am.