State group recommends axing, replacing B&O tax on businesses

A group of lawmakers wants to get rid of a tax that causes many small business owners heartache.

The Tax Structure Work Group is recommending to the Legislature that the state’s business and occupation tax be replaced by a different type of tax called a margin tax.

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The bipartisan group of legislators and other policymakers spent four years studying the state’s nearly 100-year-old tax system and looking at ways to “make the state’s taxes more transparent, stable, fair, and adequate,” according to a statement from the group.

The B&O tax on businesses is based on the total dollars a business brings in, without taking into account the money going out the door for the business’ expenses. That means businesses are taxed on an amount higher than their actual take-home profit.

“It’s quite an onerous tax because it’s based on what your gross is, not your net … It’s better if it’s based on your net income, rather than your gross income, because of the cost of operation, because of the cost of having employees,” said Seattle-based small business owner Suzanne Royer McCone, who runs nanny referral agency Annie’s Nannies.

In a year with high expenses, Royer McCone said the B&O tax can make it hard for a small business to stay afloat.

“It just makes it very difficult to be able to pay everyone, and then, of course, pay this kind of tax every month,” she said. “I mean, small businesses are definitely hurt by this, no qualms about that.”

The margin tax, however, would factor in a business’ costs. A business owner would be allowed to deduct certain expenses before figuring out their final tax bill, as people do with their income taxes.

A business could choose to deduct one of the following: the cost of the products that were sold; the cost of their employees’ wages; a fixed percentage of receipts; or a flat dollar amount.

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Royer McCone finds this to be a much fairer system.

“I can’t believe what a difference it would make if we could at least have deductions for employees, cost of goods,” she said.

She believes implementing a margin tax would help small businesses to keep their doors open.

“The harder they make it for us, the less we can operate and employ people. We need those jobs, and we need to be able to stay in business,” she said. “Anything that the state can do to help you stay in business is awesome.”

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