A contentious new sales tax on services that Democratic state lawmakers relied on to pay for Washington’s latest budget is set to take effect Wednesday.
Senate Bill 5814 is one of the biggest moneymakers used to bring in an estimated $3.6 billion over the next two years to fill a shortfall in the operating budget. This law is expected to fuel $1.1 billion in the two-year budget that began July 1, and $2.6 billion over four years. Hundreds of millions of dollars will also flow to local governments, as they get a share of state sales tax proceeds.
But a key piece of the new tax law is in question.
Cable juggernaut Comcast believes the measure’s sales tax on advertising services is illegal and is suing to get it overturned. The state attorney general’s office is expected to respond to the lawsuit in Thurston County Superior Court in the coming weeks. It could be months before a judge weighs in on the provision’s future.
The tax on advertising services is specifically expected to bring in roughly $475 million over the next four years. It’s unclear what would happen to collections made under the new tax if the law is later ruled invalid, a state Department of Revenue spokesperson said.
A block on the tax would throw a major kink into the $77.8 billion budget passed after months of negotiations in the Legislature. The next 60-day legislative session begins in January.
The law earns the state money by applying the retail sales tax to more services. Beyond advertising, it covers temporary staffing ($833 million over four years), security ($127 million), live presentations ($360 million) and information technology ($189 million), among others. Temporary staffing services hospitals use are exempt.
Over the summer, the Department of Revenue hosted listening sessions with affected businesses. Over 90,000 businesses are expected to pay under the law. Companies complained of a lack of clarity on how the taxes would be implemented and the adverse effects this will have on their bottom line.
The law also adds taxes on emerging nicotine products, like Zyn pouches, which don’t kick in until Jan. 1. Some other tax increases Democrats approved this year, including to Washington’s primary business and occupation taxes, also take effect on New Year’s.
Also starting Wednesday, financial institutions with an annual net income above $1 billion will have a business and occupation tax they pay raised from 1.2% to 1.5%. During the session, Democrats estimated this would impact about 200 firms.
The business and occupation rate for service businesses with a gross income over $5 million is increasing from 1.75% to 2.1%.
Republicans universally opposed this Democratic-backed package of new and increased taxes and fees.
All of these proceeds go into the state’s operating budget, which funds the bulk of Washington’s state government programs and services.
The budget for transportation is separate.
The $15.5 billion two-year transportation budget approved this year also relies on a slate of new and increased taxes and fees, namely a rare gas tax hike implemented in July.
These transportation funding streams are estimated to bring in $3.2 billion over the next six years to fund Washington State Ferries, highway megaprojects, maintenance of state roads and bridges, Washington State Patrol and public transportation.
A few transportation-centric fee hikes also begin Wednesday.
The $9 annual fee for driver’s licenses and IDs is going up a dollar, a move expected to bring in $74 million over the next three budget cycles. The 50-cent capital vessel surcharge paid by state ferry riders is also increasing. This is projected to raise $47 million.
And the latest transportation budget removes an exemption from tolls for public and private transit buses, vans, and rideshare vehicles on bridges. That’s worth $6 million over six years.
Further transportation revenue measures take effect throughout 2026. The taxes and fees respond to a gaping shortfall caused by diminishing gas tax receipts and ballooning costs for the state’s already-expensive road projects.
This story was originally published in the Washington State Standard.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
