Truth Needle | Half true: Claim for I-1098 off on number of firms to gain B&O tax exemption

The claim: Campaign materials for the income-tax initiative targeting high-wage earners said that "under I-1098, more than 80 percent of businesses, over 375,000, will not pay any B&O tax."

What we found: That statement is half true.

To understand why, some background is in order.

Initiative 1098 would create a 5 percent tax rate on annual income exceeding $200,000 for individuals and $400,000 for couples, and a 9 percent tax rate on income that tops $500,000 for individuals and $1 million for couples.

The initiative also would cut the state property tax by 20 percent and increase the business-and-occupation (B&O) tax credit to the point that most businesses in the state would be exempt.

However, the campaign was incorrect to say that under I-1098 more than 375,000 businesses would be exempt from paying a B&O tax.

Only 317,000 registered businesses are subject to the tax to begin with, according to state records. Of those, 43 percent already are exempt because of an existing small-business tax credit.

I-1098 would increase the tax credit to the point that an additional 37 percent — 118,000 businesses — would be exempt, according to state estimates.

Sandeep Kaushik, a spokesman for the I-1098 campaign, acknowledged the mistake, saying the campaign misunderstood earlier information provided by the state Department of Revenue. "The continued use of the 375,000 number was an oversight, and we will correct it," he said in an e-mail. "However, there was no attempt to mislead."

As of Sunday, the information had been updated on the campaign website.

The campaign in recent opinion pieces started using the correct figures, Kaushik said, pointing to an op-ed piece that ran in The Columbian in Vancouver, Wash.: "According to estimates by Washington's Office of Financial Management, 118,000 businesses will be newly exempt from B&O taxes."

In addition to using a wrong number, the I-1098 campaign statement could have been read to imply that I-1098 would newly exempt more than 80 percent of businesses in the state, when the reality is that many businesses already are exempt.

It is true, however, that the increased credit under I-1098 would boost the number of businesses that would be exempt from the tax. Overall, 80 percent would not pay, according to the state analysis.

An additional 39,000 businesses would see a portion of their B&O taxes reduced under I-1098 and 24,000 would see no tax relief, the state estimates.

Kaushik said the campaign was just noting that 80 percent of companies would be exempt from the tax if the initiative passed. They were not trying to say that many businesses would be newly exempt, he said.

"I just want to make it clear we certainly haven't been trying to hide the ball," he said.

Andrew Garber: 360-236-8266 or agarber@seattletimes.com