By Kris Johnson
The Washington Legislature recently adjourned after passing the largest tax increase in state history, and small businesses are going to bear the brunt of it.
One of the bills includes an across-the-board increase in the business and occupation tax (B&O). This is a tax that businesses pay on gross receipts — or revenue — and not on profit, meaning businesses are required to pay it even if they are not profitable.
Raising the B&O tax will lead businesses to make difficult decisions about how to make cuts and absorb the taxes (think delayed expansion plans, postponed hiring or even staff layoffs), and raise prices for their customers where they can.
The owner of a tree service company told the Association of Washington Business the B&O tax increase will cost his company about $40,000 per year in additional taxes. That’s almost one staff member. A larger company that operates in the engineering and technology sector estimates it will pay an additional $300,000-400,000 per year. An accounting firm said the B&O will cost it about $1.5 million in additional taxes.
And an agricultural employer calculated it will pay in numerous ways, including higher cold storage and warehousing costs, higher costs for packing materials and higher wholesaling taxes.
Those are just a few examples of what businesses all over the state are discovering as they begin to crunch the numbers.
And that’s just one of the taxes that lawmakers approved this year.
Another tax increase that lawmakers approved this year expands the state sales tax to a number of professional services that were previously not required to pay sales taxes. The list includes services like advertising, IT, security, and professional staffing.
This is obviously bad news for advertising and website design firms, security and staffing companies and others that are directly impacted. One firm told AWB this tax will amount to a 10% hit to the bottom line, likely forcing the company to lay off staff.
But it’s also bad news for any business or nonprofit that uses those firms — in other words, the small and medium-sized businesses that are less likely to employ their own staff for those kinds of services and more likely to outsource them. The tree service company that figured the B&O tax increase will cost it $40,000 per year estimated the hit from the professional services tax will be an additional $40,000, totaling an extra $80,000 per year in new taxes.
These additional taxes couldn’t be coming at a worse time for small businesses. A recent survey of Washington employers showed growing concern over a potential recession in the next 12 months, and widespread impacts from tariffs and retaliatory tariffs. Nearly three-quarters of survey respondents expect tariffs to hurt their business, and nearly half (48%) said they have already experienced negative impacts. Of those businesses affected by tariffs, 76% said tariffs have raised the cost of business inputs.
The B&O tax increase and the new sales taxes on professional services will only add to the overall cost pressures that businesses and families have experienced over the last few years. The average family of four will pay an estimated $2,000 per year extra because of these tax increases.
Gov. Ferguson has until May 20 to veto parts of the budget. We implore him to do so, on behalf of Main Street businesses throughout the state.
Simply put, you can’t make Washington more affordable by making it more expensive.
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Kris Johnson is president of the Association of Washington Business, the state’s chamber of commerce and manufacturers association.
