B&O Tax

Transparent Statement:
The B&O tax is goofy, but the alternative is a corporate income tax.

As far as I know, Washington State is unique with its B&O tax, which taxes companies based on revenue instead of profit. Most states just tax corporate income.

At first glance, it seems incredibly unfair to tax revenue instead of profit since different types of companies have different types of profit margins. The B&O attempts to balance for this by charging different rates based on the business type. This is an imperfect approach, at best.

The alternative is to tax all businesses based on profit, just like the IRS and most states. This would be simpler for companies, although I do not have the necessary data to determine whether it would lead to more or less tax revenue for the State.

As a business person, I do not hate the B&O tax as much as I probably should. That is because the majority of companies are small businesses employing 10 or less people. As any accountant knows, it is far easier to manipulate your profit than your revenue. Only large companies with significant legal resources can figure out how to manipulate their revenue. (I am not trying to attack Microsoft, Amazon or other companies here. They set up their companies in accordance with the law, even if you disagree that the law should allow such structures.)

You can argue that if you do not tax corporate revenue, then the resulting profit would eventually be taxed at the individual level. The problem is that Washington State does not tax personal income.

I am willing to explore scrapping the B&O tax in favor of a corporate and personal income tax. I am certain the numbers can be worked out such that the State will not experience a drop in overall tax revenue. For companies, it will mean less paperwork — after all, they need to file income taxes with the IRS anyway. For the government, it will mean no more carving out special B&O exemptions for designated industries (or individual businesses).