As this is being written, the state House of Representatives is passing a massive tax increase, specifically targeting custom software as well as other computer related services.
Yesterday, the state Senate passed Senate Bill 6143, which increased the sales tax by .3 percent and the B&O tax on services from 1.5 % to 1.75%. The Senate bill also contains provisions on “tax avoidance”, a new concept in law that will surely be litigated. It also includes “economic nexus”, which is also a new tax concept that will subject certain businesses to tax liability that they did not have previously.
There is a section that subjects corporate officers to B&O tax liability that did not exist before. This is not to defend tax cheats but the provision is written so broadly that people who may not have had any connection to the non-payment of taxes could be found liable.
There are also a wide range of other sections in the Senate bill that limit deductions. You can read the Senate bill report here: http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bill%20Reports/Senate/6143-S.E%20SBR%20APS%2010.pdf
While these tax increases may be problematic for consumers and businesses, the version the House is debating now (you can watch on TVW, www.tvw.org) is simply disdainful of taxpayers and businesses across the state.
For the tech sector, custom software providers will now have to charge sales tax to its Washington customers. The “advantage”, if you want to call it that, is that the B&O rate drops to .471% from 1.5%. Custom software providers have told us that change is simply not worth the hassle of becoming a tax collector.
In a late development that just happened this afternoon, Rep. Ross Hunter of Medina, the primary author of this tax increase, added a B&O increase for virtually every service business, including all computer related services to 2.0% from 1.5%.
The House has a “striking amendment” that will be placed on SB 6143, essentially wiping out the Senate version. You can find that here: http://apps.leg.wa.gov/billinfo/summary.aspx?bill=6143 (specifically amd 1531). There are also many other amendments being offered but most will not be adopted.
WTIA has been working hard to strip the sales tax on custom software out of this bill. Many members of the tech community have communicated with their legislators opposing this ill-advised tax. We really appreciate your efforts on this.
Unfortunately it appears it will be for naught. The one hope is that the Senate will not buy in to this massive tax increase but it is quite possible that the Senate will go along with this and not hold their position.
Not only does the House version raise taxes by a large amount, it creates enormous uncertainty for businesses, worsening an already fragile business climate.
The two key players in this tax increase proposal are Rep. Ross Hunter, a former Microsoft employee and Speaker of the House Frank Chopp. Instead of truly dealing with the underlying problems that drive government costs, they have cut K-12 and higher education to ensure that state employees pay only 12% of the cost of their health insurance (compared to the 20% that most private sector employees pay).
Large end users of custom software, such as banks, hospitals and utilities will have to pay sales tax on this service, likely driving them to look offshore to keep their costs down.
The best thing now is to contact your state Senator to ask them to reject the House version of SB 6143. You can find them here: http://apps.leg.wa.gov/DistrictFinder/Default.aspx
WTIA will keep working on this for the last three days of session but this new sales tax on custom software and other tax increases look to be a done deal.