The Good and the Bad -- State taxes and the business climate

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Washington’s unique tax structure puts it at both the top and bottom of various studies that attempt to rank states’ business climates. Some reports, including one prepared by Forbes magazine, rank Washington very high, in large part because the state does not have a personal income tax. The absence of a state personal income tax has been a major recruiting tool for Washington businesses conducting national searches for skilled employees and executives. Success in recruiting highly educated workers to relocate from elsewhere is, in turn, a factor in Washington’s high ranking for the educational attainment of its workforce.

Other reports, including one prepared by Ernst & Young for the Council on State Taxation, rank Washington near the bottom quintile for business climate. Washington fares poorly in these studies because of the heavy tax burden the state imposes on its businesses. The business and occupation tax, commonly referred to as the B&O tax, combined with the state’s heavy reliance on sales taxes, results in more than half of all tax revenues collected by state and local governments being paid by Washington businesses. The tax burden on Washington businesses is well above the national average; according to the 2011 Ernst & Young study, only 12 states impose a heavier tax burden on their businesses than Washington. Reducing the tax burden on Washington businesses can put people back to work and grow state revenues as the economy recovers.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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