As the state legislature winds its way toward the end of its regular 60 day session, massive tax increases and new taxes are being debated.

Especially dangerous for the tech community is the new sales tax on custom software and the general B&O tax increase on all other business services.

The proposal that embodies these ill-advised taxes is the House amended version of Senate Bill 6143.  The Senate passed this bill on Sunday and included a temporary 3 year increase of .3 percent in the sales tax and a temporary 3 year .25 percent increase in the B&O tax on service businesses (from 1.5 to 1.75%).

While no one relishes tax increases, the Senate approach is easier to deal with than what the House is proposing in their version of SB 6143, http://apps.leg.wa.gov/billinfo/summary.aspx?bill=6143&year=2010.  (See Parts 15 and 19 of “engrossed striker” near bottom of page)

The House tax increase, led primarily by Rep. Ross Hunter, a former Microsoft employee, and Speaker of the House Frank Chopp, will hurt businesses and kill jobs.

The sales tax on custom software will require custom software providers to charge their customers sales tax on their Washington customers based on the customer’s location (almost 10% in King County, over 9% in Snohomish).  Custom software providers will then have to remit sales tax to the state.  The “upside”, if you will, is that the B&O rate drops for custom software providers to .471% on only Washington based revenue.  Custom software developers have told WTIA that B&O reduction is not worth the effort of having to become tax collectors for the state.

For every other business service, the House proposes to increase the B&O tax to 2.0% from 1.5%, a 33% increase.

Many WTIA members and others in the tech community contacted their legislators about this but, unfortunately were ignored.  Those voting for the House version of SB 6143 included Democrats from Seattle, East King County, Tacoma, Everett, Spokane, Vancouver and rural areas.  Democrats voting against included a couple from East King County, one from Spokane, one from the Vancouver suburbs, one from Lakewood, two from South King County, one from the Vancouver suburbs, one from Skagit County and one from Gig Harbor, plus all of the House Republicans.

It is a bit ironic that Seattle and East King County Democrats voted directly against the interests of their tech industry constituents in favor of the public employee unions and SEIU, who have been furiously lobbying for tax increases on business, i.e. those that employ people and pay the bulk of state taxes already.

What WTIA is working on now before the session ends is to have the Senate reject the House version of SB 6143 and have the House accept the Senate version.  While we are not overly enthused over any tax increases, the Senate approach is significantly better than a sales tax on custom software and a 33% B&O increase.

Attached is WTIA’s one page argument against the custom software sales tax.  Please contact your state lawmaker today and ask them to reject the House version of SB 6143, reject the sales tax on custom software and accept the Senate’s version of SB 6143 without the sales tax on custom software.

http://apps.leg.wa.gov/DistrictFinder/Default.aspx  You can find your state legislator at this link.

Thanks very much for your engagement on this critical issue.