Would Hurt Small Business, It Says – Endorsements in I-1098 Campaign Draw Battle Lines

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Aug. 13.—An income tax proposal heading for this fall’s ballot would cripple small businesses and shoot business-recruitment efforts in the foot, says the Greater Seattle Chamber of Commerce.

            The chamber, the largest regional business organization in the state of Washington, voted this week to oppose Initiative 1098, the latest in a long line of endorsements for both sides that show how battle lines are being drawn in this year’s campaign.

            The measure is the best-organized attempt to impose an income tax in Washington state since the Great Depression. It would target those making more than $200,000 a year, while making a modest reduction in property taxes and expanding business and occupations tax credits for small businesses.

            Chamber members started taking a look at the way the tax would affect them, said George Allen, senior vice president of governmental affairs. “They started saying, holy smokes, as an owner of a family business this is really going to hit me hard.”  

            Though the tax is aimed at personal income, the key problem is that small business owners typically report income on federal income tax forms – as “S” corporations, partnerships and other entities. The federal income tax forms would be used to calculate the Washington state tax. All businesses in Washington already pay the state’s unique business and occupations tax on gross receipts, which takes the place of a corporate income tax. So in some cases the hit would be doubled.

            “Partnerships and LLCs would be hit really hard,” Allen said. “It would hurt small, medium and even neighborhood businesses, and work against creating the kind of economy we want.”

One of the reasons Washington traditionally does well in national rankings of business climate is that it doesn’t have an income tax, Allen said. But pile it on top of the B&O tax, the sales tax and the property tax and Washington will be at a severe disadvantage in recruiting new business.          

            Organizations Choose Sides

The 2,200-member chamber is the latest in a long line of organizations to take sides in the campaign. Opposition to the measure so far has come primarily from business organizations, and the Defeat 1098 campaign has heavy support from the Washington Roundtable, an association of the state’s large businesses. The Washington State Farm Bureau also has weighed in on the opposition side.

Meanwhile, I-1098 is being supported by a broad coalition of labor and social service organizations. Endorsements come from more than 100 organizations. They include:

The Main Street Coalition, an organization of about 2,000 small businesses; the Greater Seattle Business Alliance, a gay and lesbian business association with about 1,000 members; the Washington Education Association, the League of Education Voters, the League of Women Voters, the Washington State Senior Citizens Lobby, the Eldercare Alliance, the Washington State Labor Council and the Washington Association of Churches. Primary organizational support for the campaign has come from the Service Employees International Union.

Sandeep Kaushik, spokesman for the yes-on-1098 campaign, said the smallest businesses in the state would pay less under the plan because it would raise the threshold for payment of the business and occupations tax. About 80 percent of businesses would be exempted, and another 12 percent would see a B&O tax reduction.