Business and Occupation Tax.  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. Revenues are deposited in the State General Fund. There are several rate categories, and a business may be subject to more than one B&O tax rate, depending on the types of activities conducted. The general B&O tax rates are 0.471 percent for retailing; 0.484 percent for manufacturing, wholesaling, and extracting; and 1.5 or 1.75 percent for services and for activities not classified elsewhere—depending on taxable income. Current law authorizes multiple exemptions, deductions, and credits to reduce the B&O tax liability for specific taxpayers and business industries.

Retail Sales and Use Tax.  Retail sales taxes are imposed on retail sales of most articles of tangible personal property, digital products, and some services.  A retail sale is a sale to the final consumer or end user of the property, digital product, or service.  If retail sales taxes were not collected when the user acquired the property, digital products, or services, then use tax applies to the value of property, digital product, or service when used in this state.  The state, all counties, and all cities levy retail sales and use taxes.  The state sales and use tax rate is 6.5 percent. Local sales and use tax rates vary from 0.5 percent to 4.1 percent, depending on the location.  

Rental of Real Estate.  The rental of individual self-service storage space at self-storage facilities is considered a rental of real property and is exempt from B&O tax when customers have direct access to individual storage units and the space is rented for 30 days or longer.  The customers are not charged retail sales and use tax on the amount of their rent.

Beginning January 1, 2026, the rental or lease of individual self-service storage space at self-storage facilities, regardless of duration, is defined in statute as a retail sale.  The change in definition makes the gross receipts of self-storage space rentals subject to the retailing B&O tax classification at a rate of 0.471 percent and makes the rental of such space by consumers subject to retail sales and use taxes.

The Legislature intends for the revenue generated from this bill to be appropriated by agencies and programs that will direct the revenue toward the establishment and preservation of cooperatively owned manufactured home communities and programs to support and maintain affordable housing.

PRO:  The preferential tax treatment of self-storage businesses incentivizes inefficient uses of urban land by prioritizing storing things over housing people. It is appropriate to treat self-storage businesses like any other business and dedicate those tax proceeds toward mitigating the need for housing through community land trusts and land banking. This legislation provides an important opportunity to expand affordable housing and create housing stability for Washingtonians struggling with the state's worsening housing affordability crisis. This bill is good fiscal policy as the state faces difficult choices around the budget and the people that depend on public services. A lot of people have too much stuff that they put away in storage units while others have nothing or are just holding on. The bill directs revenue to agencies and programs supporting affordable housing—making it a new and important resource in addressing the housing needs in the state. Washington urgently needs the home ownership opportunities created in this bill. Expanding access to permanently affordable homeownership models, such as community land trust, housing cooperatives, and resident communities, is a proven solution that stabilizes communities and keeps homes affordable for generations.

Dedicated funding toward housing resources will empower low- and moderate-income families to achieve homeownership while preserving long term affordability. There is a shortage of housing and a shortage of revenue tools for cities to build more affordable housing. This proposal provides a much-needed funding source to support resident owned manufactured home communities. 

CON:  The majority of self-storage facilities in Washington are operated by small business owners. Storage units are not a luxury item. Customers often rent storage units in response to a serious life event like a death in the family or divorce. Self-storage businesses contribute their fair share of taxes to the state budget through retail sales taxes on moving supplies, B&O taxes on portable on-demand storage operators, and personal property taxes on permanent storage structures. This is an unfair financial burden and an unconstitutional attempt to tax rental real estate. A tax on storage rental income runs contrary to long standing precedent in Washington prohibiting the taxation of real estate rents and would negatively impact a hardworking, vulnerable population who use storage units as a temporary cost saving solution.  Storage units are often used by soldiers who are deployed for extended periods. Adding sales tax to storage units would create a negative impact for seniors, veterans, and low-income individuals on fixed incomes who use storage during life transitions.

This bill makes it harder for small storage businesses to compete with larger storage corporations. Nonprofits that support homeless communities rely on storage units.  Persons and families experiencing homelessness rely on self-storage as they are wait for housing. The tax on storage businesses would ultimately get passed on to the consumer—making it more difficult and costly for people. Communities that use storage units who will be negatively be impacted by this bill include those in the military, small businesses, nonprofits, retail stores, fire fighter associations, the sheriff's department, restaurants and coffee shops, universities, libraries, doctor's offices, and construction companies. Many of the individuals and families who may benefit from affordable housing initiatives would be harmed by this bill. One third of households that use self-storage have an annual income below $50,000.

Consumers will be the most impacted by this bill. The state does not have affordable housing because of the level of bureaucratic effort it takes to get housing projects permitted and built. If the state wants more affordable housing, then it should look at the laws that are restricting its development. 

PRO: Victoria O'Banion, Northwest Cooperative Development Center; Nick Federici, NW Community Land Trust Coalition; Carl Schroeder, Association of Washington Cities; Sarah Dickmeyer, Plymouth Housing; Jacinda Steltjes, City of Olympia.