Taxes

Position Statements

A strong, vibrant design sector is essential to future economic growth in Washington State, as is an adequate tax base that will support necessary functions provided by state government. Exporting architectural and engineering services out of state is becoming increasingly important to successful economic development. The tax structure of Washington can have a significant impact on a design firm's ability to compete nationally or globally. In today's technological age, owners are unconcerned about where design services are generated, but are interested in where they can be purchased economically. This state's high B&O tax rate, and business taxation generally, can put Washington firms out of the competition.

Business and Occupation Tax

The State of Washington levies a business and occupation (B&O) tax for the privilege of doing business in Washington. The tax is levied on the gross receipts of all business activities (except utility activities) conducted within the state, at different rates for different types of business and industry. The Council believes the B&O tax, as it is currently constituted, is onerous for design firms practicing architecture in this state. The service sector of Washington has traditionally paid a higher rate than other sectors; now it is paying three-to-one over other sectors.

In 1994, the Legislature established a credit against the B&O tax due. The maximum amount of the credit is $35 per month, phased out dollar-for-dollar by the amount the B&O tax liability exceeds the maximum credit amount. The Council supports repealing the tax credit and replacing it with an exemption on the monthly "gross income of the business." That action would provide welcome relief to the small practitioners in this state and would ease the tax liabilities experienced by larger firms.

Much of the work done on a design project is co-produced by more than one design firm as part of the same effort and under one fee. These concurrent design services related to a single project include subconsultants such as structural engineering, surveying, etc. The lead firm is taxed on all proceeds relative to the entire project. When the proceeds are distributed to the project's subconsultants, they are taxed again, at the same rate. The Council believes the Legislature should adopt a fair and equitable tax policy that would tax each firm only on the proceeds each firm has earned.

Sales Tax on Professional Services

From time-to-time, the Legislature seeks out a new revenue source and gives serious consideration to collecting a sales tax on professional services. The Council opposes any legislation that imposes a sales tax on design services.

A sales tax on design services is a tax on public health and safety. Generally speaking, the purchase of design services is not a discretionary purchase, but rather is required to comply with design and building codes. Sales taxes will increase the total cost of design services, and the added cost will be paid by clients and/or users of capitol projects.

Intangible Personal Property Taxes

The Council supports legislation clarifying that property taxes shall not be levied on intangibles such as company stock, bonds, client lists, company logos and trademarks, goodwill and copyrights.

Tax on Unearned Income

The Council opposes any efforts to impose a tax on “unearned income.” Unearned income is typically defined to include the increased valuation of business ownership equity, bonds, stocks, securities, dividends paid to the taxpayer, interest from debts owed to the taxpayer and other tangible property that increases in value over time.