Initiative 1098 would put local Bartell Drug at serious disadvantage

RETAILERS shy from public questions, "and no one more than me," says George Bartell. "But it's not my paycheck I'm talking about," says the Seattle retailer. "It's the survival of the business."

He's talking about Bartell Drug Co., which has 59 stores and 1,700 employees in Washington, and about Initiative 1098, which would create a personal income tax in Washington.

The initiative would be a backdoor business tax on S corporations, limited liability companies and partnerships. These are taxed at the shareholder level. Bartell Drug is an S corporation. George and other Bartell family members pay the company's taxes on their Form 1040s — even on money the company keeps for opening and remodeling stores. There is a rough fairness in the system: The top rate Bartell pays on his 1040 is 35 percent, the same rate the national drug chains — all "C" corporations — pay on their federal corporate tax.

Now comes Initiative 1098. Its extra 9 percent individual rate nails S corporations, LLCs and partnerships — but not C corporations.

Probably it wasn't the sponsors' intention to favor one group of companies over another. But they are activists. They are not sympathetic to business and don't understand it very well. I-1098 is the result.

And so George Bartell worries. He does not fit the image of a fat cat. He does not have a fancy office in some Bartell skyscraper. He works in a two-story building in the Duwamish industrial district on the edge of a railroad yard.

"We put our money in the stores," he says. It is what a good retailer does. But it is more difficult to do that if you pay a 9 percent tax that your major competitors don't.

Bartell likens it to running a marathon in which the hometown boy has to wear lead shoes.

"It threatens our long-term viability," he says. It could even force the family to sell the century-old chain — the largest independent drug chain here — to an out-of-state buyer, though Bartell says he doesn't want to think about it.

Why not convert Bartell Drug to a C corporation? "We've asked our accountants," he says. "They say that is not an option because of the costs of doing it."

And so George Bartell joins the fight against I-1098. "I'd rather be working on other parts of the business," he says. "But this would have a huge impact on us. It may be the most serious threat we've ever faced."