Nine days — that’s how long Democratic lawmakers in Olympia took to pass a sweeping expansion of sales taxes, estimated to impact more than 90,000 businesses in Washington. Hurrying to approve a multipronged tax on many services was a reckless way to craft foundational economic policy.
The tax, expected to raise almost $2.7 billion over the next four years, takes effect Wednesday.
Already, fallout from its rushed passage has caused widespread confusion among the companies expected to pay it and has generated a challenge in court over whether it’s legal.
Most notably, the tax — part of the largest tax package ever approved by the Legislature — will reverberate throughout the state’s economy, ultimately putting a dent in the wallets of all Washingtonians. The new taxes cover a broad range of business services, including information technology, security, temporary staffing and more.
Ruling Democrats bemoaned a runaway budget this past session, one they said required a bevy of tax increases. But this obfuscated the truth: State tax revenues had been increasing, just not enough to cover all their spending priorities. So they solved this political quandary with taxes whose deep economic impacts many lawmakers failed to consider.
The result isn’t pennies across the economy. They are broad hacks into many small businesses’ bottom lines. Take DigBI Consulting, an IT company of 15 employees based in Sammamish. The company’s prices just went up 10% overnight, amounting to about $10,000 apiece for many customers, according to Lee Derks, the company’s founder and CEO.
“I don’t think (the Legislature) realized how much this is going to hurt small businesses,” Derks said.
The legislative rush job also created uncertainty. Many companies had no idea whether they would be paying the tax on jobs they perform for clients located across the country, because the Legislature didn’t specify, according to the Washington State Research Council. The state’s Department of Revenue subsequently stepped in with interim guidance — the tax will only apply to Washington state customers, for now.
Then there’s whether the taxes will hold up in court. The legislation has been challenged by Comcast, which alleges the taxes on digital advertising are illegal under federal law. Should the cable conglomerate win the case, an estimated $475 million in new revenue would vanish.
Increasingly evident is the fact that the Legislature’s reliance on taxes this year will make choices next year far harder. That’s when lawmakers will deal with real crises. The Trump administration’s escalating tariffs will cost Washington an estimated $2.2 billion over the next four years; federal budget cuts will cause further financial pain. Other state troubles, including a surge in payouts of tort claims and lawsuits, will add on to about a $1 billion shortfall.
This, in a state with an already sky-high cost of living.
“Looking at the kitchen table is where we all should be focused,” state Rep. April Berg, D-Mill Creek, chair of the House Finance Committee, said recently at an Association of Washington Business forum in Spokane.
If only lawmakers had done that earlier this year.
