House B&O surcharge proposal potential impacts on city utilities

HB 2158 is one of several proposals this session to provide new revenues for the state budget. The bill would impose a 20 percent business and occupation (B&O) surcharge on the tax rate for service and other activities of select businesses and additional tax surcharges for high income technology businesses directed to workforce education. It is uncertain which of the tax proposals will ultimately be included as part of the final budget negotiations.

Sewer and water treatment is listed in the activities that could be subject to the surcharge, resulting in a tax rate increase from 1.5% to 1.8% if more than 50% of annual gross revenues was generated from engaging in the service activities listed in section 72(2) of HB 2158.

Currently sewer and water utilities pay a mix of state taxes:

• State public utility taxes on utility operations and service; and
• B&O for sewer treatment and certain other services as outlined in administrative rule WAC 458-20-251(4).

Impacts would depend on a utility’s mix of revenue sources.

The final mix of new revenues for the operating budget will be part of the conference negotiations and likely not finalized until the last days of the session with passage of the budget proposals.

HB 2158 is still in the House Finance Committee and would need to be voted on by that committee and make its way through the legislative process before enactment. If the bill advances as part of a final budget agreement, cities will have a short and limited opportunity to evaluate the impact and share that information with legislators.