Turning Up the Heat for New Taxes

The AIAWA is paying close attention to the State Budget; there is concern that the deficit will cause legislators to target architects with a new taxes. The latest news is not encouraging. Other groups have also been watching the budget and during the recent gubernatorial campaign the state’s financial situation was a hot topic. At the time of the election, forecasters predicted there would be a $3.2 billion gap between expected revenue and planned spending. They underestimated.

Yesterday, the State Revenue Forecast Council, as reported by the Seattle Times and other news outlets, stated that the state’s budget deficit now is a whopping $5.1 billion. And, there will be one more forecast before the budget is finalized – meaning the budget hole may grow even more. The Seattle Times also pointed out that, “State spending has increased by $8 billion since Gregoire was elected governor in 2004.”

AIAWA previously warned about the impact of a big budget deficit on the profession. Even before the latest forecast, legislative leaders were predicting the need for new taxes.

Senator Lisa Brown, the Senate Majority Leader, said that the definition of tax increase is important and “closing loopholes” isn’t equivalent to raising taxes. Representative Hans Dunshee, the probable next chair of the budget-writing House Appropriations Committee, said “… it’s likely any tax proposal would go to a vote of the people.” Under the state Constitution, the legislature can by-pass the governor and put a bill directly on the ballot without her signature. Such a move would push every business group in the state, including the AIA, to raise money and have a voice on a ballot measure next year.

Longtime budget analyst Richard Davis (former head of the Washington Research Council and now with the Association of Washington Business) wrote in yesterday’s Everett Herald, “Some lawmakers will want to extend the sales tax to business and professional services.” He further writes, “Others will press to repeal existing tax exemptions. A repealed exemption is a tax hike.”

As previously reported, four years ago when the budget hole was much smaller (more than half of what it is projected at now), there was a host of new taxes introduced. In the end, they did enact a huge new tax on estates and raised taxes on selected industries and products; that set the precedent of going after targeted industries. In addition, the legislature may choose to eliminate tax incentives passed in recent years for renewable energy, energy efficiency, affordable housing or other important environmental and economic benefit programs.

The AIAWA will continue to closely review the budget and tax bills for direct or indirect impacts on the profession and your businesses. Please look for more updates from us.

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.

Legislature Passes New Tax Incentives for Multifamily Housing

The legislature has sent to the governor a bill to expand tax credits for multi-family housing. Currently, a city with a population of 30,000 may offer a ten-year property tax exemption to new, rehabilitated or converted multifamily housing projects. Engrossed Second Substitute House Bill 1910 will lower that threshold to 15,000 in most counties to and 5,000 in the largest counties (King, Pierce, Snohomish, Kitsap, Thurston and Clark). The legislature also made some changes to the program. First, it limited the tax exemption to 8 years, but allows it to expand to 12 years if the developer includes at least 20 percent of the units as affordable housing.

The bill also adds new reporting requirements for developers and the cities. Developers must provide data to the city annually including the total number of units developed, total cost of each unit, monthly rental or sale amount of each unit, income of each renter at occupancy and the first homeowner of any unit sold. Cities will be required to report aggregate the data it collects from developers and report that information to the state.