State House passes budget without sales-tax increase

OLYMPIA — Rejecting a sales-tax hike to help balance the budget, the state House has endorsed a $790 million tax package that focuses on closing tax exemptions and collecting more money from service businesses.

The new House tax plan, approved on a 53-42 vote Saturday, is the latest revenue offer to pass between Olympia's majority Democrats as they seek to bridge a $2.8 billion state budget deficit.

House Democrats said they hope the newest tax plan, based on a compromise drafted by Democratic Gov. Chris Gregoire, could move legislative negotiators closer to an agreement on tax increases.

"I think it's an honest attempt to broker our differences, and I'm happy to push it forward and see if we can get there," said House Finance Committee Chairman Ross Hunter, D-Medina.

It was not immediately clear how the newest offer would be received by Senate Democrats, who have a competing tax package centered on a temporary sales-tax increase of two-tenths of a cent.

Disagreement over which taxes to raise was the major factor pushing the Legislature into its current special session, which Gregoire called Monday after state lawmakers' regular 60-day work period expired.

House Democrats and Gregoire have opposed an increase in the state sales tax, saying it could harm the economic recovery. Senate Democrats, meanwhile, have objected to several of the House's targeted tax hikes, favoring broader business and sales-tax increases.

Senate Democratic Caucus Chairman Ed Murray, D-Seattle, said the Senate isn't necessarily wedded to a sales-tax hike.

"If we can find 25 votes for their package or some other package, I'm happy to do that," Murray said Saturday. "I have no ideological lines in the sand over any of these items. But again, you've got to find the votes for it."

The new Gregoire-House package is centered on a temporary 0.25 percentage-point increase in business taxes for many service businesses, raising the rate charged on their gross sales to 1.75 percent.

For the budget period lasting through June 2011, the business-tax hike would collect roughly $200 million from lawyers, accountants, lobbyists, janitors, barbers and other service providers. Real-estate agents, scientific research and most hospitals would be exempt under the current plan, House officials said.

The House-endorsed plan also would raise about $180 million by closing an array of tax exemptions, including a sales-tax break for nonresidents and a business-tax exemption for a bank's first-mortgage sales. The minimum threshold for the bank tax would be $120 million in sales annually.

The plan also extends the sales tax to bottled water, overhauls the way taxes are charged on out-of-state businesses, and rewords the state's tax code to counteract recent court losses. Paired with a separate measure boosting tobacco taxes, the overall House tax package would raise about $790 million.

Minority Republicans, unable to affect the outcome of budget or tax negotiations, objected loudly Saturday to the House's newest tax plan. Calling instead for greater government reforms and efficiencies, the GOP said a historic economic downturn was exactly the wrong moment to raise taxes.

"This is nothing but a tax-increasing, job-killing celebration of big government," said Rep. Doug Ericksen, R-Ferndale. "This is big government saying which jobs will be here tomorrow, and which jobs won't."

Democrats responded that, for the state's current two-year budget period, they will have used tax increases to pay for only a small share of the combined $12 billion budget deficit. The rest has been patched with spending cuts, federal bailouts and one-time accounting maneuvers.

AP writer Rachel La Corte contributed to this report.