Accounting
Washington State tax hikes target tech giants
New taxes passed in the final days of Washington’s legislative session seek to bridge a record budget deficit by shifting more of the tax burden to technology companies like Amazon.com and Microsoft Corp.
The bills, currently awaiting Democratic Governor Bob Ferguson’s signature, will have a much broader impact, shifting business calculations across nearly every industry, including banks, grocery stores and hospitals.
The new levies — passed less than two weeks after they were introduced — inject additional uncertainty into an economy still recovering from the pandemic and bracing for supply chains disruptions from President Donald Trump’s tariffs. A pending Republican economic package also aims to pair federal tax cuts that could add trillions to the national debt with healthcare and other spending reductions.
Without a state income tax — on individuals or corporations — Washington legislators turned the dials up on several existing taxes. They expanded the kinds of services subject to sales tax, increased rates for the state’s nearly 100-year-old levy on gross receipts and added a new top tier for capital gains to be taxed at 10%.
“This budget forced us to make choices that no one would like to make,” said Senator June Robinson, who led the budget process for state Democrats. She said she’d been flooded with messages warning of “dire circumstances” for both spending cuts and tax increases. State law requires a balanced budget, unlike at the federal level where the government can run large deficits.
Big tech companies that fueled so much of the region’s growth — and inequality — over the past two decades were the primary target of the new tax hikes. The final package would raise more than $9 billion in additional revenue over the next four years.
The existing tax on corporate gross receipts, known as the Business and Occupation tax, was designed to have a low rate that is broadly applied. Now “advanced computing” companies would see that rate more than triple, including a 7.5% surcharge for companies earning more than $25 billion in the previous year. That tax obligation would be capped at $75 million.
The sales tax bill would repeal the exemption for digital automated services, including advertising.
That’s easier for Microsoft and Amazon, the world’s second- and fourth-largest companies, to absorb, but it’s harder for the rest of the local tech ecosystem that has grown out of the talent pool seeded by those behemoths.
These cumulative tax changes would add extra costs for a Seattle startup competing with a company in Austin, Texas, according to Kelly Fukai, head of the Washington Technology Industry Association, who said the tech industry accounts for 22% of Washington’s economy and pays $4.3 billion in taxes.
“While we’re trying to make it be more progressive, we’re just not getting there,” Fukai said of the tax package. “In fact, we’re probably hurting some of the people that we want to hurt the least.”
Even changes to the capital gains tax, aimed at wealthy investors, would also impact founders trying to sell their startups. A bill increases the top rate on long-term investments to 10% from 7% for sales of more than $1 million.
There’s still uncertainty over what Ferguson, who took office earlier this year, will do next. He has less than three weeks to decide if he’ll veto anything, and he could still call lawmakers back to Olympia for a special session. In a statement Sunday night, he said he intends to “carefully review all revenue increases.”
Ferguson dashed earlier Democratic proposals to raise even more taxes, including a first-in-the-nation wealth tax. The Senate on Sunday went ahead with a
Democrats said they consistently heard from constituents advocating for a “balanced approach” that didn’t rely just on cuts. Republicans argued that there was still more room to whittle down a nearly $78 billion biennial budget that spends 8% more than the last one, but Democrats said they cut as much as they could without gutting core services.
Business impact
Lawmakers on Sunday bemoaned the tough choices forced by a record budget deficit. Almost everyone who spoke in Olympia, Washington shortly before legislative business concluded for the year said it was the hardest session they’d ever seen.
Drastic cuts from the federal government are poised to further dent state finances and institutions. Emotions were heightened by the unexpected death of one senator and the wife of another just in the past week. More than one member cried.
In the case of hospitals, higher taxes mean cuts to services, according to Chelene Whiteaker, head of government affairs for the Washington State Hospital Association. She estimates that health care finances will face a $260 million hole by the time this year’s legislation is fully implemented in 2027.
“There are sometimes unintended consequences,” Whiteaker said. “Hospitals are seen as quote ‘the big guys.’ Yes, we employ a lot of people, but we’re operating at no-margin or low-margin.”
Tammie Hetrick, head of the Washington Food Industry Association, which represents independent supermarkets, convenience stores and their suppliers, warned that increasing the business and occupation tax on producers and wholesalers creates a pyramiding effect of higher costs at every step from farmer to shopper.
“We are looking at a significant amount of tax increases that will disproportionately impact independent grocers,” Hetrick said. She said she’s urging Ferguson to use his veto power “to protect the cost of food for consumers.”
The legislature passed other taxes as well, including higher rates on property and fuel. Lawmakers even passed a levy that appears to be
Fukai said businesses will look at the entirety of these new taxes, and even if they don’t pick up and leave, they’re likely to plan their growth for elsewhere.
“People love Washington, right? We all are here for a reason. We all love our communities,” Fukai said. “However, when we start adding these costs on like this, and especially of this magnitude, I think that’s where we’re hitting this sort of tipping point.”
The Internal Revenue Service is facing a busy and uncertain future, with major staffing cuts, a decrease in funding, and turnover — including a veritable revolving door of acting commissioners, as
Ian Comisky, a partner at law firm Fox Rothschild LLP, believes the IRS “is not operating properly” and is being “taken apart.”
Comisky, who specializes in civil and criminal tax litigation, anticipates growing and continued chaos. The IRS is currently at least 20% understaffed, and that will only grow as cuts continue, he predicted. The agency was given more money in the Inflation Reduction Act of 2022 to improve its efficiency, but of that a huge amount was clawed back. Of the amount designated, cuts were made across the board, affecting enforcement, operations, modernization and taxpayer support services.
“The latest studies show that mostly enforcement dollars were reduced, and in the last go-round modernization resources were also cut,” said Comisky. “There was a voluntary reduction in force last month. Criminal agents that could help deal with noncompliance have been sent to the border. Some say we could lose as much as $1.6 trillion in revenue, although one view is that we can get enough from tariffs to make it all up.”
The current situation is that there are not enough resources for audits necessary to keep the system honest, while modernization is not being pursued.
There has also been a tremendous brain drain, according to Comisky: “The people that are left are less experienced. The appeals unit is reluctant to settle cases for fear of criticism. If they cut enforcement without modernizing, the agency can’t operate effectively.”
The reality is that cuts are being made across the board, according to Kelly Myers, a 30-year IRS veteran who now heads up Myers Consulting Group LLC.
“The cuts are not restricted by job or by office or to overhead-type individuals,” he said. “And not to outreach folks or compliance staff. It’s everybody. There will have to be a transition to a balance between how they execute their priority mission with the people they will have. Response times will be longer because they simply have fewer people. Filed returns with no exception on the return should come out OK. But if there is an exception, someone has to look at it and that will take longer to resolve. For example, 16 weeks will become 20 weeks. Likewise, amended returns have to be manually processed.”
Is this all by design? The effect has not been anticipated, according to Comisky. “The smartest, and those who can work elsewhere, are leaving now,” he explained. “Some of the big law firms believe that there will be no tax litigation for the next couple of years. Some are predicting that the feds will get the benefit of state audits. The sense is, if there is no enforcement, school’s out!”
Intuitively, Myers said he expects that all this means revenue will be down, but he’s not sure how much it will be down. “I’ve had exams that have been closed, shut down because of lack of staff. There are things the IRS would have asked questions about at an earlier time, which would have clarified issues, but they’re not asking questions anymore.”
“When there is less coverage, noncompliance will increase, since no one is looking over your shoulder,” he added. “Some things will not get done. As a former commissioner said some years ago, they won’t do more with less resources, they’ll do less with less resources.”
CFOs and other senior finance executives are feeling less optimistic about their business expansion plans as tariff worries increase in the U.S. and other parts of the world, according to a new survey.
The
“Strong early-in-the-year optimism around growth, IPOs, and M&As eroded sharply post-tariffs, with growth positivity alone dropping nearly 20 points,” wrote Brex president and CFO Ben Gammell. “Expansion plans have been replaced with calls for stronger risk management frameworks, and leaders are delaying major moves not out of caution, but out of strategic patience. They’re quickly recognizing that moving fast doesn’t always mean moving first.”
Two-thirds (67%) of the finance leaders polled rank mitigating geopolitical instability as the top external concern for 2025. Amid the whiplash over tariff policy, business outlooks have shifted, with positivity about fundraising declining 25 points from 87% to 62%. Employment rates have similarly fallen 24 points from 91% to 67%. Global talent and hiring is also down 20 points from 92% to 72%, while company growth prospects have decreased 18 points from 93% to 75%.
The percentage of leaders who are feeling “significantly more bullish” on the IPO market has dropped from 29% to 18%, while those who are feeling “moderately more bullish” fell from 56% to 48%. Meanwhile, the percentage of CFOs who are feeling “moderately more bearish” doubled from 6% to 18%.
M&A outlook followed a similar pattern, with the percentage of significantly more bullish respondents declining from 40% to 22%, and those who are “moderately more bearish” respondents doubled from 8% to 16%.
Companies feel under pressure to do more with less, and CFOs need to step into more strategic, cross-functional roles, with 95% of the respondents saying their role extends beyond traditional finance, including AI and sales. Among the respondents, 86% of their organizations have a chief accounting officer, and nearly half were hired in the past year. However, only about 50% of finance leaders believe they have real control over where the money goes.
CFOs are consolidating tools, accelerating payments, and proving the return on investment of artificial intelligence as they streamline operations and scale global finance, Three-fourths (75%) of the finance leaders polled indicated they are feeling pressure to prove AI’s ROI, and 87% of finance leaders said their vendors should offer more services so they can consolidate their tech stack. Some 70% of the respondents feel their tools and software are too complex, 73% believe their expense and accounting processes are too manual, and 69% say they have too many financial vendors.
Hourly earnings growth for employees at small businesses slowed this month to its lowest level since May 2021, according to a report Tuesday from payroll company Paychex, while hiring growth remained consistent with recent months.
The
“Hourly earnings just continues to slow,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex.
He noted that consumer confidence is also down, according to another report released Tuesday from the Conference Board that found its
Job growth ticked up slightly in April, gaining 0.27 percentage points to reach an index level of 100.02 on the Small Business Jobs Index component of the Paychex report. The index has averaged 99.99 over the past 12 months. Weekly hours worked growth (-0.17%) remained negative in April despite one-month annualized growth of 2.62%.
All four regional jobs indexes improved this month, led by a 0.81 percentage-point gain in the Midwest, which remains the top region for small business job growth for the 11th month in a row.
Ohio spiked 2.24 percentage points to an index level of 101.94 in April, ranking in first place among the states for the first time since Paychex began reporting in 2014, thanks to significant job growth gains in the trade, transportation and utilities sectors.
Minneapolis also reported strong job gains again in April, reaching an index level of 102.35, and topped the state rankings for the second month in a row.
The professional and business services sector gained 0.82 percentage points to reach a jobs index level of 100.36, marking the best one-month gain among industry sectors in April.
Fiorille hasn’t yet seen an impact from the Trump administration’s ramped up tariffs and deportations on small business payrolls, but has heard some anecdotal stories from clients.
“You’re definitely hearing a lot of stories about that, but we’re not really seeing that yet in the data,” he said. “That might be something that takes a little bit of time to work through when we might see that.”
He advises accountants to keep an eye on developments in Washington regarding tax and tariff policy as the tax reconciliation bill makes its way through Congress.
“Businesses are kind of frozen right now,” said Fiorille. “They’re waiting to see what happens with policy, and then they’ll take action. They’re holding onto employees, maybe not firing or laying them off and maybe doing things like reducing hours, or not hiring temp help or staffing firms.”
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