House Finance Committee approves $905 million in tax increases despite Republicans’ objections; Nealey votes ‘no’

Majority Democrats on the House Finance Committee this morning (Tuesday) rejected Republican amendments to prevent tax increases and then moved forward to pass House Bill 2038, a measure that would increase taxes by nearly $905 million. The vote was 8-5, with all Republicans voting against the tax measure, including Rep. Terry Nealey, who serves as ranking Republican of the House Finance Committee.    “We’re in a downturn in the economy. What you’re attempting to do here is tax our way out of this recession. It just won’t work,” said Nealey, R-Dayton.   Nealey said extension of business and occupation (B&O) taxes to certain businesses would cost thousands of jobs in Washington.   “The multiplier effect is staggering against businesses’ bottom line. That’s because the B&O tax is a tax on gross income, not net.  So when companies make a large gross, but actually make only a little bit of money, this is a huge increase in taxes,” said Nealey. “This uses a butcher knife to these businesses instead of a scalpel, which would carve out what we think is fair and more equitable across the board. This picks winners and losers among our businesses. It’s not a good way to develop tax policy. I’m an adamant ‘no’ against this bill!”   Nealey is also concerned with a proposal in the bill that would make trucks pay a public utility tax in Washington on interstate hauling.   “If you had a little company with 10 trucks that earned $200,000 revenue per truck, the tax paid in Oregon and California would be $80,000. If this bill passes, the tax in Washington would be $2 million for that little company. The other states are taxed on the net income. Truckers in Washington are taxed on the gross income. That’s the danger of the B&O tax,” said Nealey.   Republicans offered amendments that would have removed tax increases in the bill aimed at sellers of prescription drugs and travel agents. They also tried to preserve a sales tax exemption for non-residents that could affect businesses along the Oregon and British Columbia borders. Each of those amendments was rejected by majority Democrats.   One of the amendments Nealey introduced would have removed the proposed sales tax on bottled water.   “We heard testimony from a water bottler in Eastern Washington who would like to expand his business, but he is hesitant because of this proposed tax. He’s ready to hire more employees and construct a rather large building to expand his business. He’s probably not going to do that if this tax passes. So this would hurt another business that could produce more jobs, income, and revenue to the state,” added Nealey. “This proposal would tax water. We’ve come down to that – taxing water! The voters rejected this tax in 2010 by a large margin and we should do the same.”    The 16th District lawmaker also offered an amendment that would remove an emergency clause on the bill. An emergency clause would immediately enact the tax increases once the governor signs the bill and prevent voters from sending a referendum to the ballot to repeal the tax hikes. Nealey argued voters should not be blocked from the process. However, Democrats rejected his amendment by a vote of 8-5.   “I am very concerned that these tax increases would put a big road block in the way of our state’s economic recovery and create further job losses. We heard from many businesses that are just barely getting by that another tax increase could force them to lay off employees,” said Nealey. “Democrats argue these tax increases are necessary for kids and schools. However, the bipartisan Senate Majority Caucus Coalition and House Republicans have shown that we can fully fund education without all of these big tax increases and without elimination of tax preferences.”   “We need to grow jobs,” added Nealey. “This bill grows government and kills jobs. That’s not the direction my fellow Republicans and I want to go.”   Nealey was encouraged that four tax increases were removed from the bill. They included: extending business and occupation taxes to insurance agents and marine cargo handling activities ($73.8 million); sales and use taxes on janitorial services ($36.2 million); and an extension of the beer tax to all brewers ($58.7 million). A list of the remaining tax increases within House Bill 2038 are provided below.   The bill could be considered by the full House later this week. The regular session of the Legislature ends on April 28.


$534 million – Would permanently extend the business and occupation (B&O) surtax on certain businesses.
$14.6 million – B&O tax rates for travel agents.
$51.5 million – Would place sales and use tax on bottled water. This is the same tax that was repealed by voters in 2010.
$63.7 million – Would repeal the nonresident sales and use tax exemption. This could especially hit our border counties very hard along Oregon and the British Columbia borders.
$78.7 million – B&O taxes for high-tech research and development.
$63.2 million – Public utility tax on truck transport of goods in state that are destined for out of state.
$24.1 million – B&O and sales and use taxes for import commerce.
$29 million – B&O tax for sellers of prescription drugs
$40.8 million – Fuel tax for extracted fuel
$5.2 million – Handling losses fuel tax
TOTAL: $904.8 million


Washington State House Republican Communications