Does the AWB Want an Income Tax?

Don Brunell frequently argues on his blog that state business taxes are too high. (As president of the Association of Washington Business (AWB), it's part of his job.) His recent blog post used a new study from the Council of State Taxation (COST) to emphasize his point about business taxation.

In the study, Washington State is ranked 12th among the 50 states by the share of state and local taxes that are paid by businesses. We noticed a commonality among the top-ranked states: most have little or no income tax.

The table below shows the 17 states that rank in the top third. Thirteen (including Washington State) have no personal income tax or a low personal income tax. If we had a personal income tax, we'd probably be lower on the list. The remaining four states either have no general sales tax or a relatively low reliance on property taxes.

Here's some more to chew on: Studies that measure the share of taxes paid by businesses versus individuals can be misleading because they don’t fully account for who actually pays the tax in the end.

In Washington State, this is particularly true because of our reliance on the business and occupation tax (the B&O) rather than a corporate income tax. Businesses are more able to pass the cost of the B&O to consumers. And since the tax is levied regardless of the business’s ability to pay, it falls disproportionately on individual small business owners.

Bottom line? Studies like the one cited on the AWB blog are hardly conclusive evidence that Washington State’s business taxes are too high. We need a more comprehensive conversation about how to improve our tax structure in ways that benefit all Washingtonians.