Last week, I wrote about a proposed payroll expense tax bill. Other bills have been pre-filed so far that would increase state or local business and occupation (B&O) taxes.

County B&O Taxes

HB 2097 would allow county legislative authorities to impose B&O taxes effective Jan. 1, 2027. The maximum county B&O tax rate would be 0.002 (regardless of industry). However, the rate could be increased if approved by voters.

The bill largely follows the rules for the municipal B&O tax (RCW 35.102). However, section 2 of HB 2097 appears to allow the county B&O tax to apply to natural gas, unlike the city version.

HB 2097 would allow a credit against the county tax for city B&O taxes paid. The Municipal Research and Services Center has a good overview of municipal B&O taxes, and the Association of Washington Cities has a list of local B&O tax rates. (Note that the list does not reflect the B&O tax changes approved by Seattle voters in November.)

Taxation of Interest on Loans for Residential Property

Under current law (RCW 82.04.4292), there is a deduction from B&O tax for “interest received on investments or loans primarily secured by first mortgages or trust deeds on nontransient residential properties” if a bank or other financial business is located in 10 or fewer states. Interest on such loans is subject to the service and other activities B&O rate if the loan originator is located in more than 10 states (RCW 82.04.29005).

As passed by the Legislature this year, ESSB 5794 would have repealed both RCW 82.04.4292 and RCW 82.04.29005, but the provisions were vetoed by Gov. Ferguson. Now, HB 2089 would amend RCW 82.04.29005 to impose the service and other activities B&O rate on such interest for all loan originators. The deduction would remain law, but it is not available for persons subject to tax under RCW 82.04.29005. (Although the intent section of HB 2089 states, “This act aligns the state definition of a ‘community bank’ with the federal definition”—which is a bank with $10 billion or fewer in assets—HB 2089 would not do that.)

HB 2089 would require the state to estimate the increased revenue due to the effective elimination of the deduction and then transfer that amount from the general fund–state (GFS) to the wildfire response, forest restoration, and community resilience account each year. The wildfire account was created in 2021, as part of 2SHB 1168.

2SHB 1168 noted, “The legislature intends to provide $125,000,000 per biennium over the next four biennia for a total of $500,000,000.” So far, the Legislature has appropriated or transferred $341.1 million from the GFS to the wildfire account, even though there is no dedicated funding source. A Legislature cannot bind a future Legislature, but—demonstrating the Legislature’s commitment to this program—it transferred $20 million to the account in the 2025–27 budget, despite the substantial shortfall. The Department of Natural Resources did not request any additional funding for the account as part of its 2026 supplemental budget request. Nevertheless, HB 2089 would create a dedicated funding source and revenues to the account would soon exceed the planned $500 million.

Removal of the Advanced Computing Surcharge Cap

HB 2098 would remove the B&O workforce education investment surcharge cap.

The workforce education investment surcharge (RCW 82.04.299) is imposed on advanced computing businesses. Currently, the advanced computing surcharge is 1.22% and the combined surcharge paid by members of an affiliated group is capped at $9 million a year. However, beginning Jan. 1, 2026, the rate will increase to 7.5% and the cap will increase to $75 million a year. (These changes were part of ESHB 2081, which was part of the historically large tax package adopted earlier this year.)

HB 2098 would remove the cap entirely. It would also increase the income limits for the Washington College Grant and reduce tuition for resident undergraduates by 10% each year from SY 2027–28 through SY 2029–30.