2020 Legislative Session Wrap Up
(Interested in the 2019 Session Recap? Click Here)
In 2019, the Legislature adopted its biennial budget without approving significant new revenue. This means that although there were no cuts in major programs, and there were even some enhancements in some programs, new initiatives were largely not possible. The proposed carbon tax and capital gains tax were not approved and neither were major changes to the tax exemptions that could have increased revenue.
The second half of the legislative biennium is typically used for making relatively small adjustments to budgets approved in the first half of the biennium and to further develop policy. This year, the Legislature introduced a record number of new bills and worked on major budget revamping with the revenue forecast update that anticipated new revenue of $600+ million resulting from economic upturns.
The League was among those in a coalition who tried once again to get a change in tax policy that could make this state’s tax structure less regressive and provide more revenue for needs that would still be unmet even with the upswing in revenue forecast. The primary proposal was a combination of the capital gains tax with an increase in the working families tax credit. Unfortunately, the Legislature did not choose to adopt these measures. The supplemental budget appropriation adopted by the 2020 Legislature did not contain any major state tax changes, although a number of local tax opportunities were provided for affordable housing and homelessness.
The Legislature dealt with the sudden economic emergency resulting from the COVID 19 virus by appropriating $200 million from the State’s Budget Stabilization Account (rainy day fund) plus $25 million pass-through from the federal government for addressing the state’s response to the virus.
One significant change, which was announced too late to be included in the revenue forecast, was the Boeing announcement that because of WTO tariff restrictions, they wanted to have their tax preference removed. This tax change was passed and adds to the available revenue that will become the base for next year.
After the Legislature adjourned, the COVID-19 pandemic raged quickly through Washington State, dramatically changing funding needs and the economy, making the State’s most recent revenue forecast invalid. With shelter-in-place requirements and huge layoffs, the State’s unemployment rate will not only create much greater demands for service but also huge revenue losses, particularly in the sales and B&O tax revenues.
By the time the Governor was able to sign the state budget, many changes were necessary, and there is a very strong likelihood of a special Legislative session in the near future to further address this economic crisis. The Governor’s partial veto of the budget included removal of 147 separate expenditure items across a broad range of program areas, reducing state spending by nearly $445 million over the next three years — $235 million in the current budget and $210 million in the next biennium. Additionally, a number of policy bills that supported the need for certain budget items or would have required additional expenditures were vetoed. Read the list of the vetoed budget items.
Click on Bill # for detailed information. See UPDATES below.
Bills League Supported That Have Been Signed Into Law
SB 6492Addressing workforce education investment funding through business and occupation tax reform would amend the three-tiered workforce education investment surcharge established in 2019 as part of the B&O tax dedicated to the Workforce Education Investment Account also established in 2019 to fund additional higher education programs for career development. The amendments in this bill would replace the surcharge with an increased B&O tax rate for service businesses generating revenue over $1 million annually and more for advanced computing industries. The tax credit for small businesses is increased as well. Governor has signed and it was effective Feb. 10, 2020.
SB 6660 Improving fiscal responsibility and budget discipline by replacing the spending limit with additional four-year balanced budget requirements, is not actually a revenue bill. Rather, it indirectly affects revenue because it requires the Governor to submit a balanced four-year operating budget. It allows the Budget Stabilization Account (rainy day fund) to be s revenue source under limited circumstances. This bill has passed the Legislature and was signed into law by the Governor on March 27, 2020.
HB 2945 /SB 6690Concerning aerospace business and occupation taxes and world trade organization compliance would rescind the tax preference (exemption) for the Boeing Company, per their request. Boeing has determined that the tariffs to which they would be subject if this tax preference remains in place would be more financially detrimental than paying the B&O tax in Washington State. The bill is structured to retain the tax preference if the US and European Union resolve their differences regarding large civil aircraft manufacturers. SB 6690 was passed with amendments that established a larger tax, 0.484 percent (up from 0.294 percent) on commercial aircraft manufacturing, with a lower rate for apprenticeship programs. It also establishes an aerospace workforce council in the department of Labor and Industries to establish a framework for apprenticeship utilization reporting and target achievement. This bill is expected to generate more than $100 million annually in revenue. SB 6690 was signed by the Governor on April 2,
SB 6168 Making 2019-2021
fiscal biennium supplemental operating appropriations establishes the
supplemental budget for the state started as the Governor’s request and was
amended by both chambers and passed the Legislature. The Governor signed this bill with many
partial vetoes as noted above.
Bill League Supported That Governor Vetoed
HB 2919Adjusting the amount and use of county fees on the real estate excise tax. This bill did not make a significant impact on state revenue but helps counties. This bill passed the Legislature but was vetoed by the Governor
on April 3, 2020.
Bills the League Supported That Did Not Pass
HB 2948 Granting additional and progressive tax authority for counties with populations exceeding two million and cities therein to impose an excise tax on businesses that addresses the affordable housing crisis and reduces homelessness through evidence-based practices that will save lives and improve public safety, while also ensuring certainty and predictability for businesses would authorize a tax on businesses’ payroll for salaries equal to or exceeding $150,000 per year. The tax would be 1/10 of one percent and would be used for affordable housing, supportive housing, rental assistance, maintenance and operation of affordable and supportive housing units, and related functions. This bill may replace HB 2907 as the bill that will be adopted to allow this tax authority within King County.
HB 1343 / SB 5129 Increasing revenues for the support of state government. This is the 2019 Governor’s request ed capital gains tax.
HB 1527 / SB 5810Providing a working families' tax credit would expand and rename the existing Working Families Tax Exemption program. While it would reduce overall revenue to the state, it would help to reduce the inequities in the current tax structure. Both of these bills have been held over from the 2019 session and neither bill passed this session.
HB 1703 Increasing tax exemption transparency and accountability. The Department of Revenue report on all tax exemptions and their fiscal impact would be updated every 2 years instead of 4 years. Any tax exemption that has NO sunset and reduces revenues by over $50,000/year or $100,000/biennium would appear in the budget documents and have to be proactively reauthorized as part of the budget or it would sunset. If the Legislature has taken no action on reviewing and clarifying or adding a sunset on a tax exemption which the Joint Legislative Audit and Review Committee and Citizens Commission on Tax Preferences have recommended to be ended or clarified, and the tax exemption reduces revenues by over $50,000/year or $100,000/biennium. Then the exemption would appear in the budget documents and require re-adoption in the budget or it would sunset. This bill did not move out of committee by the cutoff.
HB 2907 Authorizing counties with populations over two million to impose an excise tax on business. This bill would allow King County to enact an annual payroll tax, which may be graduated based on employees’ compensation, of .1% to .2% of salaries for employees whose compensation exceeds $150,000 annually. The tax must not be deducted from the employees’ compensation. Small businesses and certain industries are exempted and there are some other exceptions described in the bill. Revenue from this tax would be dedicated to affordable housing, including supportive housing and rent assistance, behavioral health and related services as defined in the bill. This bill was replaced by HB 2948 as the active measure to implement the King County payroll tax, but neither passed.
HB 2948 Granting additional and progressive tax authority for counties with populations exceeding two million and cities therein to impose an excise tax on businesses that addresses the affordable housing crisis and reduces homelessness through evidence-based practices that will save lives and improve public safety, while also ensuring certainty and predictability for businesses would authorize a tax on businesses’ payroll for salaries equal to or exceeding $150,000 per year. The tax would be 1/10 of one percent and would be used for affordable housing, supportive housing, rental assistance, maintenance and operation of affordable and supportive housing units, and related functions. This bill may replace HB 2907 as the bill that will be adopted to allow this tax authority within King County. This bill did not move out of committee.
SB 6474 Replacing the streamlined sales tax mitigation program with sales tax diversification awards for certain eligible cities. This bill augments legislation passed in 2017 that shifted payments to cities that lost revenue when the streamlined sales tax approach was initiated in 2008. The streamlined sales tax was designed to compensate jurisdictions that lost revenue when sales tax payments were shifted from the point of sales to the point of receipt. Cities with extensive warehouse industries lost funding. This bill allows additional local revitalization grant programs to those cities that continue to experience less revenue than before. It applies to Auburn, Fife, Issaquah, Kent, Sumner, Tukwila, and Woodinville. This bill did not move out of committee by the cutoff.
Bills the League Watched
HB 2236 / SB 6068 Concerning sales and use tax exemptions for large private airplanes would continue a current exemption of non-Washington residents from paying excise tax on purchase of large private airplanes and also from sales tax on aircraft refurbishing work until 2031. These exemptions would otherwise expire in 2021. There are valid reasons for the first, but League testified that the latter (refurbishing) should not be exempt. SB 6068 passed the Legislature and was signed by the Governor on
April 2, 2020.
SB 6017 Increasing revenues for the support of state government would provide progressive tax reform by imposing an excise tax on annual compensation in excess of one million dollars. This bill is held over from the 2019 session and has not moved during the 2020 session.This bill did not pass.
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