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Business taxes
 

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Although many people don't realize it, businesses pay about 46 percent of all Washington taxes — a greater share than in most states. Besides paying the same sales and property taxes that you do, Washington businesses also pay the business-and- occupation tax, or B&O.

Washington's B&O, unique in the country, essentially taxes gross sales; there are six rate categories covering every business activity, from retail sales to radioactive-waste disposal.

The B&O brought in almost $2 billion last year, making it the state's second-biggest revenue source behind the sales tax. Cities, which can impose local B&O taxes, took in $205.3 million from them in 2000, the last year for which figures are available.
 
I don't own a business. Does the B&O affect me?

It does, because often businesses pass along some if not all of their B&O burden to their customers.

Most products are taxed at every step of the production process, from raw material to finished item. The tax is then built into the price paid by the next guy down the line.

An example: A lumber company sells wood to a furniture maker. The company will pay tax on the sale, so it charges a little extra to compensate. Ditto for the furniture maker who builds a dresser from the wood and sells it to a distributor, for the distributor who sells the dresser to a furniture store, and for the store that sells the dresser to you. The retail price — on which you also pay sales tax, remember — reflects four layers of B&O.

I'm not sure I like that.

You're not alone. Businesses complain about this "pyramiding" effect because it results in widely varying effective tax rates depending on a company's structure and the nature of its industry.

Why else don't businesses like the B&O?

Because it taxes gross revenue rather than profits. That means that unprofitable or marginally profitable companies pay B&O at the same rate as highly profitable ones. With a corporate income tax, of the sort most states have, only profitable firms pay tax.

Critics of the B&O call it a burden on small business, and say it isn't fair to tax a software startup, which might not turn a profit for years, at the same level as Microsoft.

But defenders of the tax counter that all businesses benefit from government services and should help pay for them. They also note that, because businesses' net profits vary from year to year much more than their gross revenues, the B&O is a more stable tax than the corporate income tax.

How stable?

Over the past two decades, collections have risen an average of 8 percent a year.

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