HOUSE BILL REPORT

SHB 2167

As Passed Legislature

Title: An act relating to tax revenue.

Brief Description: Concerning tax revenue.

Sponsors: House Committee on Finance (originally sponsored by Representative Tarleton).

Brief History:

Committee Activity:

Finance: 4/26/19 [DPS].

Floor Activity:

Passed House: 4/26/19, 53-43.

Passed Senate: 4/28/19, 25-24.

Passed Legislature.

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 8 members: Representatives Tarleton, Chair; Walen, Vice Chair; Chapman, Macri, Morris, Orwall, Springer and Wylie.

Minority Report: Do not pass. Signed by 4 members: Representatives Orcutt, Ranking Minority Member; Young, Assistant Ranking Minority Member; Stokesbary and Vick.

Staff: Richelle Geiger (786-7139).

Background:

Washington's major business tax is the business and occupation (B&O) tax. The B&O tax is imposed on the gross receipts of business activities conducted within the state, without any deduction for the costs of doing business. Businesses must pay the B&O tax even though they may not have any profits or may be operating at a loss.

A taxpayer may have more than one B&O tax rate, depending on the types of activities conducted. Major B&O tax rates are 0.471 percent for retailing; 0.484 percent for manufacturing, wholesaling, and extracting; and 1.5 percent for services and for activities not classified elsewhere. Financial institutions are subject to the 1.5 percent service and other B&O tax rate.

Summary of Substitute Bill:

Beginning on January 1, 2020, an additional B&O tax is imposed on specified financial institutions (additional tax). The tax is equal to the taxpayer's gross taxable service and other income multiplied by 1.2 percent.

A specified financial institution is a financial institution that is a member of a consolidated financial institution group that reported on its consolidated financial statement for the previous calendar year annual net income of at least $1 billion, not including net income attributable to noncontrolling interests, as the terms "net income" and "noncontrolling interest" are used in the consolidated financial statement. If financial institutions are no longer required to file consolidated financial statements, "specified financial institution" means any person that was subject to the additional tax in at least two of the previous four calendar years. The Department of Revenue (DOR) must notify the fiscal committees of the Legislature if financial institutions are no longer required to file consolidated financial statements.

The DOR may require a taxpayer believed to be a specified financial institution to disclose whether it is a member of a consolidated financial institution group and, if so, to identify all other members of its consolidated financial institution group. A person failing to comply with this requirement is deemed to have intended to evade tax payable under this section and is subject to the statutory penalty on any tax due under this section by the taxpayer and any financial institution affiliated with the taxpayer.

Revenue generated from the additional tax must be deposited in the State General Fund.

Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.

Staff Summary of Public Testimony:

(In support) None.

(Opposed) There are significant issues with the public process around this bill. The bill language was released hours before the hearing, and the public did not receive adequate time to review the language. A fiscal note is needed in order to understand the impact of the bill.

Banking is complicated. In order to avoid unanticipated externalities, the Legislature should take more time to deliberate on this policy and do their due diligence.

This is a doubling of the existing tax rate for this industry and will have a significant impact. The banking community has direct competitors that do not pay state or local taxes. Currently, Washington has about the fifth highest tax burden on banks in the country. If this bill passes, it will move us to one of the highest tax burdens in the country.

Banks are strong supporters of communities across the state. They pay strong wages to employees and are charitable, both with their time and treasure. They also pay significant amounts of taxes already.

Persons Testifying: Trent House, Washington Bankers Association; and Clay Hill, Association of Washington Business.

Persons Signed In To Testify But Not Testifying: None.