Johnson: Rushed sales tax law will raise costs for all Washingtonians

The state Legislature passed a major expansion of Washington’s sales tax this spring, and starting Oct. 1, that law will hit businesses and Washingtonians across the state.

For the first time, digital advertising, IT support, custom website development, live presentations, temporary staffing and security services will be taxed like goods at the store.

What will that look like?

A small business that hires a firm to design a website will now pay sales tax on that service. Employers’ costs for advertising and IT work may increase as much as 10%, depending on their local sales tax rate. Registration fees will go up for conferences, seminars and workshops in Washington due to the tax on live presentations, both in-person and virtual.

There are many reasons to be concerned. It puts Washington businesses at a continued disadvantage compared to competitors in other states while increasing prices for everyday Washingtonians. It will squeeze the budget of small businesses, who often rely on outside firms for technical services instead of hiring someone in-house.

With the new tax just weeks away, we still don’t have a full picture of its impact. The problem is the bill was rushed through the Legislature this year and its implementation is also being rushed.

In the final weeks of the legislative session, lawmakers introduced and passed the bill in less than 10 days, as part of a historical tax package that was also fast-tracked. At the time, the Association of Washington Business (AWB) and business community warned there would be unintended consequences.

As the Washington Research Council notes, there were many “administrative, legal, and policy” impacts that were not fully considered before passage. Months later, key details remain unclear.

This summer, AWB heard from dozens of Washington employers about industry-specific impacts. Advertising and creative firms say their clients will simply seek out-of-state contractors to avoid paying the tax. Businesses that rely on temporary staffing may no longer use those services. Fees for courses like driver’s ed or professional development training will increase. Others remain unsure what services will be taxed.

We’ve shared their input with the state Department of Revenue, which is now working to implement the new law. Over the summer, the department offered listening sessions and surveys to gather feedback. Most participants called for greater clarity and less administrative burden.

The department would normally conduct a full rulemaking process with public participation. But because lawmakers set the start date as Oct. 1 — just 157 days after passage — the tax will take effect without that important step.
In the meantime, the department is working to release interim guidance this month.

As the next legislative session begins in January, AWB looks forward to working with lawmakers to correct mistakes in the new law. They’ve already acknowledged that needs to be done. And we’ll learn more in the coming months as businesses begin collecting the new tax.

For many employers and families, Washington was becoming increasingly unaffordable — even without these new taxes. Unfortunately, this is a step in the wrong direction.

•••

Kris Johnson is president of the Association of Washington Business, the state’s chamber of commerce and manufacturers association.