HB 1320
In CommitteeHouse
Business & occupation tax
Modifying business and occupation tax rates to fund programs and services to benefit Washingtonians.
This status may be delayed. See Action History below for the latest updates.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill raises several Business & Occupation (B&O) tax rates—including for retailers, manufacturers, and real estate brokers—while creating or extending targeted lower rates for specific industries like semiconductors, agriculture, timber, and aerospace. It adds reporting and compliance requirements, and includes conditions and clawbacks for preferential rates to ensure economic benefits align with job creation and retention in Washington.
- Increases the standard B&O tax rate for retailers from 0.471% to 0.5181% (and to 0.5324% for certain exempt sales), effective January 1, 2027.
- Raises the B&O tax rate for manufacturers from 0.484% to 0.5324%, effective January 1, 2027.
- Creates a preferential 0.3025% tax rate for semiconductor manufacturing/processing, with a clawback provision requiring repayment of 50% of the benefit if employment falls below 90% of a three-year average.
- Maintains a preferential 0.1518% rate for certain agricultural processing (e.g., wheat to flour, seafood, dairy, wood biomass fuel), with new reporting and recordkeeping requirements and a scheduled start date of July 1, 2035 for seafood and dairy.
- Extends the 0.31944% timber and wood products tax rate through June 30, 2045, with reporting requirements for non-small harvesters.
- Adds a new 1.65% tax rate for real estate brokerage services, effective January 1, 2027.
- Imposes a 0.26% surcharge on contests of chance (deposited into the problem gambling account), effective January 1, 2025, for businesses with over $50,000 annual income from such activities.
- Revises the aerospace tax rate structure, including a conditional 0.3927% rate (subject to international trade agreement and apprenticeship benchmarks) and a 0.5324% rate for commercial airplane manufacturers and tooling, with a sunset of July 1, 2040 unless final assembly leaves Washington earlier.
Who is affected
- Agricultural processors and food manufacturers — Businesses that extract raw agricultural products (like wheat, barley, soybeans, canola, sunflower seeds) or seafood, dairy, fruits, or vegetables and process them for sale; they benefit from a lower tax rate (0.1518%) on those activities.
- Semiconductor manufacturers and processors — Companies that manufacture or process semiconductors or semiconductor materials in Washington may qualify for a reduced tax rate (0.3025%), but must meet employment thresholds or risk repaying half the tax benefit if employment falls below 90% of a three-year average.
- Aerospace manufacturers and suppliers — Aerospace companies (especially large commercial airplane manufacturers and related suppliers) may qualify for a reduced B&O tax rate (0.3927% or 0.5324%) depending on international trade agreements, apprenticeship utilization, and whether final assembly remains in Washington.
- Retailers, digital service providers, and real estate brokers — Retailers, digital service providers, and real estate brokers face higher B&O tax rates (e.g., 0.5181%–0.5324% for retail, 1.65% for real estate brokerage), while some small or specialized businesses (e.g., travel agents, stevedores, hospitals) retain lower rates.
- Timber and wood product industry — Timber and wood product businesses (harvesters, manufacturers, wholesalers) see a tiered tax rate (0.31944% starting in 2027) that applies through 2045, with reporting requirements for larger operations.
Pro/Con Analysis
Potential Benefits (5)
A dedicated portion (13% from 2027 onward) of revenue from the general business B&O tax (1.65% rate) is deposited into the Workforce Education Investment Account, which funds state financial aid for college and apprenticeship programs—directly supporting low- and middle-income Washingtonians seeking postsecondary credentials.
EducationPeopleRef: Sec. 17 (RCW 82.04.290(2)(c))The preferential 0.1518% B&O rate for wheat-to-flour, soybean-to-oil, and similar agricultural processing activities provides meaningful tax relief to regional food processors (e.g., grain elevators, flour mills, canneries), helping them remain price-competitive and retain local jobs in rural communities.
Business & EmploymentPeopleRef: Sec. 8 (RCW 82.04.260(1)(a))The exemption from B&O tax for child care providers serving children under 13 (or under 19 with verified special needs) until 2035 directly reduces operating costs for small, family-run child care businesses—many of which are woman- or minority-owned—and helps stabilize access to affordable early learning in underserved areas.
Business & EmploymentPeopleRef: Sec. 18 (RCW 82.04.2905(2))The 0.26% surcharge on contests of chance (e.g., bingo, raffles) generates dedicated revenue for the Problem Gambling Account, supporting prevention, treatment, and recovery services—benefiting communities disproportionately affected by gambling-related harms.
Public SafetyPeopleRef: Sec. 15 (RCW 82.04.285(2))The 0.1518% B&O rate for warehousing and reselling prescription drugs helps reduce costs for nonprofit and public health providers (e.g., community health centers, Indian Health Service clinics), supporting affordable access to essential medications in low-income communities.
HealthcarePeopleRef: Sec. 12 (RCW 82.04.272(2))
Potential Concerns (5)
The semiconductor tax preference includes a clawback provision requiring repayment of 50% of the benefit if employment falls below 90% of a three-year average, but the threshold is set high (90%) and the three-year lookback period allows firms to absorb short-term job losses without penalty, reducing enforcement effectiveness and allowing large firms to retain benefits even during modest downturns.
Business & EmploymentIndustryRef: Sec. 3 & 4 (RCW 82.04.2404 & 82.04.241)The aerospace preferential rate (0.3927%) is contingent on meeting international trade agreement conditions and apprenticeship utilization thresholds, but the definition of 'significant commercial airplane manufacturer' requires at least 50,000 full-time employees in Washington—effectively limiting eligibility to Boeing and its direct suppliers, excluding smaller aerospace firms and workers in supporting industries.
Business & EmploymentIndustryRef: Sec. 11 (RCW 82.04.260(11)(e) and 82.04.2602)The retail B&O tax increase to 0.5324% for exempt sales (e.g., groceries, clothing, prescription drugs) will be passed through to consumers via higher prices, disproportionately affecting low- and middle-income households that spend a larger share of income on these essentials.
HousingIndustryRef: Sec. 5 (RCW 82.04.250(2))The preferential 0.31944% rate for FAA Part 145 certificated repair stations (e.g., aircraft maintenance facilities) lacks a clawback or performance condition, allowing large aerospace service providers to retain the benefit without any measurable job or wage requirements, unlike the semiconductor provision.
Business & EmploymentIndustryRef: Sec. 5 (RCW 82.04.250(3)(a))The $1M gross income threshold for the reduced 1.5% B&O rate (instead of 1.75–2.1%) is not indexed for inflation and includes an affiliate aggregation rule that excludes many small and mid-sized service businesses—effectively benefiting only the smallest firms while larger sole proprietors and micro-businesses (e.g., consultants, freelancers) pay higher rates despite modest profits.
FinancialIndustryRef: Sec. 17 (RCW 82.04.290(2)(a)(ii)(B))
Who Is Most Affected
Large semiconductor manufacturers (e.g., Intel, Micron) and their suppliers benefit significantly from the preferential 0.3025% rate and annual reporting requirement, but must meet employment thresholds or repay half the benefit—making outcomes mixed: positive if jobs grow, negative if they contract.
Aerospace firms (especially Boeing and major suppliers) benefit from the conditional 0.3927% rate and extended 2040/2045 sunset, but only if international trade disputes are resolved and apprenticeship benchmarks met—making outcomes highly contingent and potentially negative if conditions fail.
Small agricultural processors (e.g., wheat-to-flour mills, seafood canneries) benefit from the 0.1518% rate and long-term certainty, but must meet strict recordkeeping and export conditions—net positive for compliant, export-oriented firms, negative for those unable to document outbound shipments.
Retailers, digital service providers, and real estate brokers face higher B&O rates (0.5181–1.65%), which are likely passed to consumers or tenants—net negative for small retailers and independent brokers, while large chains and real estate firms absorb costs more easily.
Timber and wood product businesses benefit from the extended 0.31944% rate through 2045, but larger harvesters must file annual performance reports—net positive for established firms, neutral for small harvesters exempt from reporting.