One Small Step for the State’s Small Business Climate, One Giant Leap for New Businesses
On Wednesday, the House Economic Development, Trade & Innovation Committee approved SB 6327. The bill now moves to the Ways & Means Committee for further consideration.
SB 6327 would create a one-year exemption from the state Business & Occupation (B&O) tax for all new businesses and a two-year exemption, plus a 50 percent exemption in the third year, for new businesses employing fewer than 25 people.
Washington Policy Center has long recommended that lawmakers provide B&O tax relief, and we have done extensive research over the years on the issue of B&O taxes. On Monday, at the request of the bill’s sponsor I shared WPC’s research findings with the EDTI Committee during the public hearing on SB 6327.
When weighing how important B&O tax reform is to small businesses, consider that of the five Statewide Small Business Conferences sponsored by WPC since 2003, reducing the B&O tax burden on employers has always been one of the top conference recommendations to improve the state’s small business climate.
The hundreds of small business owners who have attended these biennial conferences consistently say the state’s B&O tax is unfair and badly in need of reform. While these small business owners call for a complete overhaul of the B&O tax system to provide relief for all employers, providing an exemption for new businesses, as proposed by SB 6327, is a step in the right direction.
Washington has the 3rd highest business start-up rate in the nation—and the 2nd highest failure rate. While many factors account for this high failure rate, WPC’s research shows the inherent unfairness and complexity of the B&O tax is particularly burdensome for start-up businesses struggling to find their footing in a new market.
Any reforms to alleviate the obstacles facing vulnerable new businesses, such as providing a temporary B&O tax exemption, would increase the start-up success rate and provide some much needed stimulation to our state’s lagging economy.
That said, WPC’s research concludes that offering special exemptions, credits and deductions to some businesses and industries, leaving other businesses to shoulder the full B&O tax burden, does little to improve the overall business climate and competitiveness of the state. We need to reduce the total cost of the B&O tax, not just shift more of the burden on to other small businesses that have been in business longer.
The B&O tax was enacted during the Great Depression as a temporary emergency measure to raise revenue for the government. Today, providing relief for every employer in the state, by replacing the B&O tax with a simpler and fairer business tax, would significantly improve the state’s business climate, encourage job creation and spur economic recovery.
