Democrat Leader: Targeted Tax Increases on the Table for 2009

Yesterday, the Seattle Times reported Senate Majority Leader Lisa Brown (D-3, Spokane) is planning for tax and fee increases in the 2009 legislative session. The article states:

Senate Majority Leader Lisa Brown, D-Spokane, didn't rule out the prospect of tax or fee increases.

Brown also said lawmakers could look at targeted taxes or fees, or consider ending certain tax exemptions.

"If you look at a tax exemption and you decide you need to close it or limit it somehow, is that raising a tax? Some of it comes down to definitions," she said.

As previously reported, in 2005 the legislature and Gregoire passed tax increases on targeted industries. Based on these comments, that is likely to again be the Democrat’s strategy in 2009.

The Department of Revenue (DOR) tracks exemptions from current state taxes. Its 2008 report finds that eliminating the sales tax exemption for personal and professional services, of which architecture is a part, would generate about $4 billion a biennium for the state and $1.2 billion for local governments. That one move alone would wipe out the state budget deficit. More likely, is they will pick selected industries, such as architecture, for the tax hit.

The DOR report states:

If the sales tax is considered as a broad-based tax upon consumption, then purchases of personal and professional services consumed by individuals and businesses could logically be subject to tax.

The Seattle Times also notes that the legislature might protect Gregoire from breaking her no-tax increase pledge by putting tax increases before the voters for approval:

Paul Berendt, a former chairman of the state Democratic Party, said he thinks Gregoire and lawmakers could put together a tax package that would help balance the budget and support new programs — and send it to voters.

That would allow Gregoire to propose additional spending without signing a tax increase.

Under the Washington Constitution a referendum from the legislature to the people bypasses the governor and goes straight to the ballot.

The idea of eliminating the exemption for architecture services is not new. AIA Florida has led a multi-year battle against an effort there. Most recently they were successful in preventing a ballot measure from going before voters to implement a sales tax on professional services.

The state budget deficit for the next biennium is currently projected to be $3.2 billion and is expected to grow to $4-$4.5 billion by the time the budget is drafted.

The AIAWA will be closely monitoring the budget development very closely.