Lawmakers are in the 11th week of their 105-day legislative session, which is scheduled to adjourn a month from today on, April 27.

Budget deliberations are heating up in Olympia, with Monday’s release of budgets from the two chambers. The Senate (SB 5167) proposes a 2025-27 biennial budget of $78.47 billion, a 9.1% increase over the current biennium. The House (HB 1198) proposes a 2025-27 biennial budget of $77.76 billion, an 8.1% increase over the current biennium. 

Both proposals call for significant spending growth in excess of maintaining existing programs and over the projected revenue growth from existing sources. As a result, both include new tax increases to fund their proposed spending; some of the taxes proposed include:

• B&O tax increases
• Intangible wealth tax
• Payroll taxes
• Increasing the cap on annual property tax collections
• Elimination of tax preferences

We expect the budgets to be passed as early as Saturday in the Senate and Monday in the House. Once the budgets are passed, final negotiations between the chambers will commence. 

B&O Tax Increase

HB 2045 would impose even higher taxes on Washington banks. It would increase the existing B&O tax surcharge on large ($1B+) banks from 1.2% to 1.9%, bringing the total tax rate to 3.65%. As a gross receipts tax, that would be among the highest bank tax rates in the nation. It also would be the highest B&O tax rate in the state, surpassing the 3.3% levied on nuclear waste disposal. 

The bill would also impose a new 1% surcharge on any business in the state with earnings over $250 million, bringing that B&O rate to 2.75%. We are estimating this will include roughly five banks. Meanwhile, credit unions of similar size would remain untaxed despite providing the same type of services.

We are adamantly opposed to such significant increases in banks' tax burdens, especially in light of the industry’s previous experiences being singled out by this Legislature. Furthermore, this is one piece of a host of other tax proposals that are part of the most significant tax increases in the state’s recent history. Our team and the rest of the business community are conveying our concerns about the long-term impact of these proposals. These conversations will be ongoing until the session ends next month.

Payroll Tax

The Senate budget proposes a 5% tax (SB 5796) on payroll expenses exceeding the Social Security threshold, which is currently set at $176,100 per year. This tax applies only to companies with payroll expenses of $7 million or more and offers full credit for businesses that are already subject to the Seattle payroll tax. The tax encompasses total compensation, not merely the base salary, and it is anticipated to affect banks if it is incorporated into the final budget package.

Repealing Tax Preferences

Another Senate-only proposal, SB 5794, is 110 pages of repeals of tax preferences the Senate believes are not only being used. This includes the first mortgage interest deduction, which is used extensively by community banks to offer mortgages to first-time home buyers. Despite the bill’s assertion, JLARC reviewed the deduction at the request of the Legislature in 2015 and determined the deduction was worth the tax break and recommended continuing it. We know the removal of this deduction significantly impacts those banks offering mortgages and will continue to share with lawmakers how it hurts the housing market, instead of helping it. There are four other deductions for the industry included in the bill:

• International banking facilities exemptions (RCW 82.04.315).
• International investment management services deductions (RCW 82.04.293).
• Clarifies that businesses earning more than 50% of gross income from finance leases will be taxed as financial institutions.
• Leases treated as loans for federal income tax purposes would be categorized under financial institutions’ tax rules.

Policy Legislation

Meanwhile, bills that have passed one chamber continue to be heard in policy committees of the opposite chamber; they have until April 2 to be voted out of these committees.

Rent Control: HB 1217 has passed the House and was voted out of the Senate Housing Committee yesterday. In reviewing the language of the bill, we recognized that one provision could result in financial institutions losing control of decisions regarding project finances if they pursue tax incentives for the inclusion of affordable housing. This would provide a disincentive to invest in projects that include an affordable housing component. We have developed a simple solution to that unintended consequence and are sharing it with bill supporters to get the measure amended before final passage. 

Financial Education: Financial education remains a top priority in WBA’s proactive legislative agenda. The House version (HB 1285) of legislation to make financial education a graduation requirement has been voted out of that chamber and referred to the Senate Early Learning & K12 Education Committee. We encourage the committee to chair to hear and move the bill before the April 2 deadline.

Credit Union Taxes

The bill that would create a new B&O tax on credit unions in Washington, HB 1506, sponsored by Rep. Amy Walen, is a measure with budget implications, so it remains alive for consideration throughout the session. It would require that any credit union regulated at the state level that purchases a bank be subject to a B&O tax rate of 1.2%. The Department of Revenue recently published a fiscal note estimating that the tax could raise more than $72 million over the next six years. While we’re still unsure whether the bill has the momentum to make it all the way through the process, we continue to hear interest on the part of some key legislators.

Medical Debt

Legislation (SB 5480) similar to a law recently passed in California would prohibit the inclusion of medical debt in credit bureau reporting. It has passed the Senate and is scheduled for a committee vote in the House Consumer Protection & Business Committee on 3/28. Because we have confirmed that it only exempts credit card debt from reporting if the card is issued exclusively and solely for payment of medical expenses, we are neutral on the bill. 

Other Issues

Here are a handful of other bills of interest that remain alive:

• HB2020: Regarding B&O tax deduction for credit card processors. The bill is scheduled for a vote in the House Finance Committee on 3/27.
• HB 1747: Prohibiting employers from asking a job applicant about prior criminal convictions until a job offer has been made. It has passed the House and been referred to the Senate Labor & Commerce Committee. Note: it appears that financial institutions would be exempted from the statute.
• SB 5280: Regulation of virtual currency kiosks; has passed the Senate and was heard in the House Consumer Protection & Business Committee on 3/25.
• SB 5109: Mortgage lending fraud prosecution account; it has passed the Senate and been heard in the House Appropriations Committee, is scheduled to vote on the bill tomorrow.