State Senate passes tax package, remains at odds with House on sales tax

OLYMPIA — Senate Democrats approved a revised tax plan on Friday with a smaller, two-tenths-of-a-cent sales-tax increase, hoping to break a stalemate with the House.

So far, the gambit isn't working. The House on Saturday approved a new tax plan of its own that raises business taxes but not the state sales tax. That package is based a proposal by Gov. Chris Gregoire.

Although the split over the sales tax remains, there has been movement. Both sides have agreed to raise roughly $800 million through taxes to help close a $2.8 billion budget shortfall. And they've even agreed on certain steps, such as boosting the cigarette tax.

For the most part, though, lawmakers seem stuck on the same issue that dragged the Legislature into special session, with the Senate pushing for a temporary increase in the sales tax and House Democrats refusing, arguing they don't have the votes.

The House and Senate do not plan to meet Sunday. Negotiators hope for a meeting with the governor over the weekend.

Sen. Ed Murray, D-Seattle, the Senate's lead negotiator on taxes, said Friday that trading proposals is just a way to test the waters.

"It indicates where the strength is here, and what they send over to us indicates what the strength is there," he said. "The dynamics are eventually going to have to change, somewhere."

The Senate's new tax plan, approved by a 25-18 vote, is a smaller proposal than a tax package approved by the Senate last month, mainly because the proposed sales-tax increase was reduced from three-tenths of a cent down to two-tenths.

The smaller sales tax would raise about $223 million for the current two-year budget. It would expire in July 2013. The proposal includes a tax rebate for low-income families that would start in 2012.

In addition to the sales tax, the Senate plan approved Friday ends several tax exemptions, temporarily increases the business-and-occupation tax for certain services, and extends the sales tax to bottled water for three years.

The Senate's cigarette-tax proposal is in a separate bill. It has not been voted on yet in the special session.

The broader tax package was approved Friday after a debate that was relatively short compared with the marathons early in the session. Republicans said it was still a bad idea.

"This is massive and is not good for business or the state of Washington," said Sen. Mike Carrell, R-Lakewood. But GOP senators seemed as ready to call it quits as some Democrats.

The new tax package in the House is centered on a temporary increase in the business-and-occupation tax for many service businesses. It raises money from changes to tax exemptions, extending the sales tax to bottled water, and overhauling the way taxes are charged to out-of-state businesses.

The Associated Press contributed to this report. Andrew Garber: 360-236-8266 or agarber@seattletimes.com