House hears State Tax Structure Work Group proposal to replace state B&O tax with margin tax

The House Finance Committee heard the State Tax Structure Work Group’s proposal to replace the state B&O tax with a new margin tax on Monday, February 20. HB 1644, sponsored by Rep. Walen (D–Kirkland), is one of the recommendations of the State Tax Structure Work Group, in addition to HB 1670 the property tax cap fix also heard in the committee on Monday.

AWC continues to monitor these discussions due to the potential for impacts on local tax authority. 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for cities that impose a local B&O tax, other than updating references to state B&O tax provisions that would be repealed by the new margin tax system.

The margin tax would impose a 3.1966 percent tax on the gross revenues of businesses, less an allowed deduction, 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

Existing state B&O tax exemptions and deductions would be repealed.

Smaller businesses with revenues less than $5 million per year could elect to pay a reduced easy computation and rate of 1.75 percent on their gross revenues if they chose not to use the deductions.