- Associated Press - Tuesday, March 31, 2015

OLYMPIA, Wash. (AP) - In a crowded House Finance Committee meeting Tuesday, lobbyists, students and users of Washington’s social services debated Democrats’ plan to help fund the next state budget with $1.5 billion in new revenues, including a capital gains tax.

The hearing was the first chance for public comment on the revenue plan. Besides making Washington the 42nd state to tax capital gains, it would also reduce or eliminate a series of exemptions to the state’s business tax and increase the number of transactions in which sales tax is charged.

Although the capital-gains tax wouldn’t kick in until tax bills from 2016 year come due, it projects to become the largest piece of the assorted revenue proposals in HB 2224 in future years. It would tax money made on the sale of assets that grew in value, such as stocks, bonds and real estate, at a 5 percent rate.

Much of the attention on the Democratic budget proposal has fallen on this aspect of the package, which would be a new tax for the state and is also part of Gov. Jay Inslee’s revenue proposal. Its backers say its taxes on financial-market transactions would help rectify the state’s regressive tax structure by taxing rich people more than poor ones.

Sonya Campion, whose husband founded Zumiez clothing and now runs a foundation focused on wilderness and homeless causes, said the capital-gains tax will mainly affect only 30,000 Washington residents, including them, and that it won’t cause them to leave.

“My husband and I live in Washington state because of the quality of life,” Campion said, “not because the tax structure benefits the top 1 percent of earners.”

Bruce Beckett, government-affairs director of the Washington Restaurant Association, said the capital-gains tax will penalize restaurateurs who build a successful enterprise in a low-profit-margin industry and sell as a retirement strategy.

“That’s a very different scenario than, if you will, taxing just the rich or some of the other comments on this bill,” Beckett said.

The plan’s lead sponsor, Finance Committee chair Rep. Reuven Carlyle, said after the hearing the capital-gains tax would be imposed at a rate comparable to what’s charged in conservative states like Alabama, Mississippi and Utah.

“The idea that this is somehow targeting folks who have restaurants or some particular industry is simply not true,” Carlyle said.

Of the revenue bill’s other nine changes to the state’s tax setup, all nine came in for criticism.

An Expedia representative spoke up against changing travel agents’ reduced business tax rate. The manager of the Everett facility of San Francisco-based McKesson Corp., which delivers 85 percent of Washington’s prescription drugs, said removing the preferential tax rate for prescription drug resellers would drastically affect his numbers.

Jim Connelly, owner of Lodi Bottled Water in Chewelah, said removing bottled water’s tax exemption would directly hurt his sales, as has happened in previous intervals when bottled water was taxed.

“I’ve seen it basically from womb to tomb,” Connelly said. “When it went away, consumers responded and our business grew. When sales tax was brought back in my, business shrunk to the tune of about 10 percent.”

The revenue bill is not yet scheduled for a committee vote.

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