2015-17 tax debate

By Jason Mercier

Although Governor Inslee campaigned on the promise in 2012 to not propose new taxes, the 2015 session started and ended in perfect symmetry with him calling for tax increases. The size of those desired tax increases, however, changed significantly from December 2014 to when the 2015-17 budget was finally signed in July. Let's review how the tax debate unfolded.

When proposing his budget last December Governor Inslee said that Washingtonians should "buck up" and accept his proposed tax package.

At the time the Governor was calling for net tax increases of $1.4 billion:

• Creation of a capital gains income tax - $798 million
• Create state cap and trade system - $380 million (another $549 million for transportation budget)
• Cigarette/e-cigs tax increase - $56 million
• Remove sales tax exemption for trade-ins - $105 million
• Remove use tax exemption for extracted fuel - $51 million
• Charge sales tax on non-residents - $52 million
• Charge sales tax on bottled water - $44 million
• Change B&O tax rate for royalties - $30 million
• Also had new, extended or expanded tax preferences - ($94 million)

In May, however, a continued improving economy led the Governor to say that his $1.4 billion tax proposal was no longer needed though he wasn't able to say how large of tax package he thought was still necessary for the budget.

By June the Governor said that his proposed capital gains income tax was off the table and instead the Legislature would need to focus on closing unspecified tax preferences.

Ultimately the Legislature agreed to a net revenue increase of $180.3 million for 2015-17:

• Marijuana market reforms - $14.9 million
• Unclaimed property laws - $1.3 million
• Lottery unclaimed prizes - $15.2 million
• Click through nexus - $28.3 million
• Nexus/Wholesaling - $45.4 million
• Software M&E - $57.2 million
• B&O royalties - $31.4 million
• Late penalties - $23 million
• Server farms - ($12.5 million)
• Food processors - ($13.2 million)
• Manufacturing sales tax/deferral ($3.2 million)
• Aluminum ($2.7 million)
• Newspaper ($0.5 million)
• Log trucks ($1.8 million)
• Nonresident vessels ($1.6 million)
• Aircraft excise ($0.6 million)
• Veterans tax ($0.2 million)
• Honey bees - no net impact

With the exception of changing the B&O tax rate for royalties, neither the House nor Senate voted on any of the other tax increases originally proposed by the Governor (several House committees did but not the full House). 

Between the time the Governor first proposed his $1.4 billion tax package and the $180 million net revenue increase agreed to by the Legislature, the state's economic outlook changed with improvements to the revenue forecast as well as a reduction in caseloads.

As previously noted, however, the Governor concluded the 2015 session by once again calling for new tax increases.

We'll have to wait and see how this new tax debate unfolds next session.

Additional Information
Evolution of 2015-17 budget proposals