Washington Sales Taxes Are Highest in Nation » Publications » Washington Policy Center

Ernst & Young’s annual report to the Commission on State Taxation (COST) continues to show that business owners in Washington state must contend with an ever-increasing tax burden and labyrinthine regulations imposed by the state legislature.

Ultimately, new regulations or taxes for small businesses are passed on to consumers as the prices of the products and services provided increase.

The report highlights that businesses paid a total of $23.5 billion in state and local taxes in fiscal 2020. Businesses pay an average of $8,100 in taxes to the state per employee. Washington state continues to rely heavily on its businesses for tax revenue, with Washington state businesses paying nearly half of the taxes collected by state and local government agencies.

Washington ranked #9th Tops the nation on the business-unfriendly list, even surpassing California.

Hidden in the numbers are the costs of complying with tax returns, state regulations, state audit costs and government requirements for small businesses. Some businesses have full-time employees just to deal with government regulation. Onerous regulations and taxes, such as prorated sales taxes, municipal poll taxes on employees and unemployment taxes, create a compliance nightmare for small businesses that don’t have the time or income to meet filing requirements.

One of the most punitive taxes hidden from consumers and incorporated into the cost of producing a product or providing a service is the state business and occupation (B&O) tax. The tax represents 19.1% of the tax paid by the business and is calculated on gross income, with no deductions allowed for costs. Even loss-making businesses must pay B&O tax on any income they generate.

Sales tax is not a tax that someone else pays, and ultimately the tax is passed on to consumers because no business can make a profit without it.

Reducing regulations and taxes on businesses, especially small businesses, will lower consumer prices and provide budget relief. This is especially needed amid ongoing inflationary pressures created by Washington state and federal government policies.

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