B&O tax surcharge on services

The Department of Revenue is in the process of developing guidance to implement HB 2158, which will impose a state B&O tax surcharge on certain services reliant on a highly-educated workforce.

Beginning January 1, 2020, the bill imposes a 20% surcharge on the B&O tax rate for services and other activities of select businesses. This will result in a tax rate increase from 1.5% to 1.8% if more than 50% of annual gross revenues is generated from engaging in the service activities, and additional tax surcharges for high income technology businesses. The revenue will fund workforce education. HB 2158 was amended before final passage to exclude water and sewer utilities from the surcharge; these utilities had been included in the original version of the bill.

The new surcharge is expected to raise over $375 million to help fund higher education and workforce training. It funds the following new and expanded programs in addition to other items:

• Washington College Grant program, replacing the State Need Grant and expanding it so that students with a median family income (MFI) of 55% or less than the state MFI qualify for 100% funding;
• Student Loan Refinancing Program to provide incentives for refinancing;
• Career Connected Learning grant program to fund additional regional networks; and
• Working Connections Child Care changes for full time students who are single parents.