On April 15, Democratic leaders in Washington State’s Senate and House of Representatives introduced new revenue-raising proposals to help fill the state budget deficit. 

New proposals were necessary as previous versions failed to garner support. The Senate’s payroll tax on employers will not be moving forward. The House and Senate have now both released a modified B&O excise tax proposal on companies with taxable revenue of more than $250 million. This new version also increases the B&O tax rate on physician services.
 
Another new proposal, SB 5814, would add a sales tax to a list of services not currently taxed. This would impact hospitals through their use of temporary staffing services, security-related services, information technology-related services, advertising services, and digital automated services. Taxable services likely include travel clinicians, electronic health records, and telehealth services. These would now all be subject to the retail sales and use tax (6.5%) and retailing B&O tax (0.471%).  
 
SB 5814/HB 2083: Relating to funding public schools, health care, social services, and other programs and services to benefit Washingtonians by modernizing the excise taxes on select services and nicotine products and requiring certain large businesses to make a one-time prepayment of state sales tax collection. 

  • The bill would add information technology technical consulting services, information technology training services, custom website development services, security-related services, temporary staffing services, and advertising services to what is subject to retail sales and use tax (6.5%) and retailing B&O tax (0.471%). The bill would also add custom software and customization of prewritten computer software to the definition. The definition of digital automated services is also expanded and subject to retail sales and use tax and the retailing B&O tax. Live presentations and any service that primarily involves the application of human effort by the seller are now included.  
  • Impact to hospitals: At least $180 million per year. 

HB 2081/SB 5815: Modifying business and occupation tax surcharges, rates, and the advanced computing surcharge cap, clarifying the business and occupation tax deduction for certain investments, and creating a temporary business and occupation tax surcharge on large companies. 

  • Adds an additional .5% B&O tax on revenue above $250 million. Hospitals deduct Medicare and Medicaid net revenue to calculate taxable revenue. For hospital taxable revenue below $250 million, the tax rate remains 1.5%. For hospital taxable revenue above $250 million, the tax rate becomes 2.0%. This bill also increases the B&O tax on physician services from 1.75% to 2.1%. We estimate that hospitals pay about 50% of the B&O tax on physician services 
  • Impact to hospitals: $77.4 million annual impact. WSHA believes 21 hospitals would be subject to the 0.5% surcharge with an aggregate impact of $60 million/year. All hospitals providing physician services would be impacted by the physician services B&O tax rate increase with an estimated aggregate impact of $17.4 million/year. 

SB 5812/HB 2049: Investing in the state’s paramount duty to fund K-12 education and build strong and safe communities. 

  • The bill makes changes to property tax limits and maximum per-pupil limits for school levies and makes changes to funding formulas. It also requires the Superintendent of Public Instruction to convene a kindergarten through grade 12 (K-12) funding equity workgroup to analyze options for revising K-12 funding formulas.   
  • Impact to hospitals: None. 

SB 5813/HB 2082: Relating to increasing funding to the education legacy trust account for public education, child care, early learning, and higher education by creating a more progressive rate structure for the capital gains tax and estate tax 

  • Generally applicable tax proposal to fund the education legacy trust account. Beginning Jan. 1, 2025, imposes additional excise tax on the sale or exchange of long-term capital assets (2.9% multiplied by the portion of an individual’s Washington capital gains exceeding $1,000,000). Restructures the estate tax by increasing the top tier rates up to 35% and increasing the exclusion amount to $3 million.  
  • Impact to hospitals: None.

Newly proposed revenue bills are scheduled to be heard in committee today, April 16 and voted on by fiscal committees on Friday, April 18. WSHA will continue to advocate for the least possible impact on patient access to hospital care.