No Income Tax is Major Point in Department of Commerce Literature

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Aug. 25.—Why should businesses think about relocating to the state of Washington?

            There’s no income tax here.

            So says the state Department of Commerce on its business-recruitment website, Choose Washington. It’s an essential part of the pitch that the state is making to businesses nationwide – even as an initiative that would impose an income tax heads to the ballot this year. Initiative 1098 would place a high-earner income tax on many of the entrepreneurs and small and medium-sized businesses that the state hopes to attract.

            Among other things, the lavishly illustrated official state website touts Washington’s cheap electricity rates, its proximity to Asia, and its “beauty” and “brains.” But among the nitty-gritty details, it also points out that Washington has ranked highly in national surveys of business climate – precisely because it doesn’t have an income tax.

            The website says, “Washington’s lack of income tax helped earn the state the rank of 9^th in the 2010 State Business Tax Climate Index by the Tax Foundation in Washington, D.C.”

            Big Issue for Business

            It’s not that the Department of Commerce is taking a position in this year’s initiative campaign. But the state’s marketing tools highlight the points that are most important to business, said spokeswoman Penny Thomas – and the lack of a corporate or personal income tax is certainly one of them.

            “It’s very important,” she said. “I’ve heard anecdotally that several companies have made their site-selection decisions based on that.”

            Washington is one of just seven states nationally that do not impose their own income taxes. That means capital gains aren’t taxed here, as they are in many other states. And business owners who report business income on their personal tax forms – operating as “S” corporations, for example – don’t have to give a cut to the state.

            It’s one of the reasons the number of registered businesses in the state of Washington have doubled in the last 15 years, Thomas said.

            “A lot of things contribute to a good business environment, but the fact that we let companies who improve their profitability keep that extra margin instead of sharing it with government through an income tax is an important point.”

            It is especially important in recruiting entrepreneurs and small businesses, she said.

            Would Change Under I-1098

            Initiative 1098, backed by a coalition of labor unions and social service organizations, and spearheaded by Bill Gates, Sr., would change all that. It would impose an income tax on individuals making $200,000 or more a year, $400,000 for a couple. A report by the Washington Research Council indicates that Washington would have, in the top bracket, the sixth highest income tax in the country.

            The measure would offset the income tax somewhat by offering a credit to the state’s smallest businesses on the business and occupations tax, and by making a modest reduction in property taxes. The state Office of Financial Management estimates that the net take the first year would be about $1.5 billion, rising to $2.5 billion in the fifth as the economy recovers.

            Mark Funk, spokesman for the Defeat 1098 campaign, said the state recruitment effort demonstrates what business has been saying all along – that the lack of an income tax is one of the best things the state has going for it.

            “Clearly, this is a tremendous advantage Washington has as we try to attract jobs and companies to our region,” he said. “This isn’t the first time we’ve heard it. Gov. Christine Gregoire delivered the same message herself when she went to the Paris Air Show in the middle of the last decade.

“The pro-income tax activists just don’t get how important this is. They want to suck $2 billion out of the private sector each year.”

A spokesman for the I-1098 campaign could not be reached for comment.