HB 1785
In CommitteeHouse
Excessive executive comp.
Imposing a surcharge on publicly traded companies providing excessive executive compensation.
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 adds a surcharge to the Business and Occupation tax for publicly traded companies whose CEO pay is at least 50 times the median worker pay. The goal is to address income inequality and fund state programs. The surcharge ranges from 10% to 25% depending on how high the pay ratio is.
- A new 10% or 25% surcharge applies to the Business and Occupation (B&O) tax for publicly traded companies with an executive pay ratio of 50:1 or higher (CEO pay divided by median worker pay).
- The surcharge is 10% if the ratio is 50:1 to under 150:1, and 25% if the ratio is 150:1 or higher.
- The surcharge applies to taxes due in the calendar year after the year in which the high pay ratio occurred (e.g., 2026 taxes reflect 2025 pay ratios).
- If a company does not disclose its executive pay ratio to the U.S. Securities and Exchange Commission (SEC), it automatically faces the 25% surcharge.
- The Department of Revenue must report to the legislature by December 1, 2026, on whether the law should be extended to non-publicly traded companies.
- All surcharge revenue goes into the state general fund.
Who is affected
- Publicly traded companies with high executive-to-worker pay ratios — Publicly traded companies operating in Washington that have an executive pay ratio of 50:1 or higher must pay an additional surcharge on top of their existing business and occupation (B&O) taxes.
- Non-publicly traded subsidiaries of large parent companies — Subsidiaries of publicly traded parent companies may be subject to the surcharge if their parent company meets the pay ratio threshold and reports to the U.S. Securities and Exchange Commission.
- Washington residents who benefit from state programs funded by the surcharge — State government uses revenue from the surcharge to fund general programs that benefit all Washington residents, such as education, health care, or housing initiatives.
- Washington State Department of Revenue — The Department of Revenue must collect and report on the surcharge, and later assess whether the law should expand to cover more companies.
Pro/Con Analysis
Potential Benefits (5)
Revenue generated will flow into the state general fund, supporting broadly available public services—including education, behavioral health, and crime prevention—that benefit all Washingtonians, especially low- and middle-income households who rely most heavily on these services.
Public SafetyPeopleRef: Sec. 2(5), Sec. 3(5)By taxing excessive executive compensation relative to worker pay, the bill internalizes part of the social cost of extreme income inequality—potentially reducing reliance on public assistance programs that otherwise support underpaid workers.
FinancialPeopleRef: Sec. 1 (Findings), Sec. 2(1), Sec. 3(1)The surcharge may encourage companies to moderate executive pay and invest more in workforce compensation and retention—potentially raising median wages and reducing turnover costs across sectors.
Business & EmploymentPeopleRef: Sec. 1 (Findings), Sec. 2(1), Sec. 3(1)The legislative review mandate (by Dec. 1, 2026) on expanding the law to non-publicly traded firms creates a pathway to close loopholes and ensure broader coverage of large employers—though expansion is not guaranteed.
Local GovernmentPeopleRef: Sec. 4By highlighting the link between executive compensation and social outcomes (e.g., child poverty, educational attainment), the bill may catalyze further policy discussions and investments in human capital—though no direct education funding is specified.
EducationLean peopleRef: Sec. 1 (Findings)
Potential Concerns (5)
The surcharge may incentivize companies to reduce headcount or freeze wages—particularly among lower-paid workers—to lower the median compensation and avoid triggering the 50:1 threshold, especially for firms near the threshold.
Business & EmploymentLean industryRef: Sec. 2(1), Sec. 3(1)Companies that fail to disclose pay ratios to the SEC (e.g., due to privacy concerns or noncompliance) face a 25% surcharge regardless of actual pay ratio, creating an arbitrary penalty that disproportionately affects smaller firms with less robust compliance infrastructure.
Business & EmploymentIndustryRef: Sec. 2(3), Sec. 3(3)Subsidiaries of large parent companies may face double taxation or administrative burden if both parent and subsidiary are separately taxed under B&O, even though economic substance lies at the parent level—potentially distorting intra-company operations.
Business & EmploymentIndustryRef: Sec. 2(4), Sec. 3(4)The bill defines executive pay ratio using SEC-mandated disclosures, which exclude contractors, part-timers, and gig workers—skewing the ratio upward for firms that rely on flexible labor models, thereby penalizing companies that use such models more than those with traditional full-time workforces.
Business & EmploymentIndustryRef: Sec. 2(6), Sec. 3(6)The delayed application (taxes due in 2026 reflect 2025 ratios) creates a lag that may misalign the surcharge with current business conditions, potentially penalizing companies that have already improved pay equity, while rewarding those that temporarily inflated worker pay before the cutoff.
Business & EmploymentIndustryRef: Sec. 2(2), Sec. 3(2)
Who Is Most Affected
Large publicly traded corporations with high CEO-to-worker pay ratios (e.g., retail, tech, logistics) will face meaningful tax increases—potentially reducing after-tax profits, executive bonuses, or share buybacks. Firms with ratios just above 50:1 may adjust compensation to avoid the surcharge.
Workers at companies affected by the surcharge may benefit indirectly if firms respond by raising base wages or reducing pay disparities—but could also face hiring freezes or reduced hours if companies cut costs to offset the tax.
Low- and middle-income Washingtonians benefit from increased state revenue funding education, housing, and health programs—especially since general fund revenue is not means-tested and supports universal services.
The Department of Revenue gains new compliance responsibilities and reporting duties, but also gains authority to assess broader application of the law—potentially expanding its regulatory footprint.
Small and mid-sized businesses (including subsidiaries of large parents) may face administrative burdens and indirect competitive disadvantages if their parent company triggers the surcharge, even if their own operations are local and modest in scale.