HB 2322, which is scheduled to be heard by the House Finance Committee tomorrow, aims “to increase employer-provided child care for employees.”

Under the bill, any business that receives a business & occupation (B&O) tax preference (the state’s terminology for exemptions, exclusions, deductions, deferrals, credits, and preferential tax rates) that is created, expanded, or extended on or after Jan. 1, 2025, would be required to provide child care for its employees. This requirement could be met by:

• Operating a child care center on-site.
• Reimbursing employees for at least 25% of their child care costs.
• Making an annual payment to the state’s fair start for kids account.

The annual payment option would apply if a taxpayer has at least one employee who earns a salary of at least $250,000. The payment would be 5% of total compensation for all employees with salaries of at least $250,000.

The child care requirement in HB 2322 would not apply to employers who are party to a collective bargaining agreement. Taxpayers would have to submit certificates of compliance to the state; if they don’t, they would have to pay 35% of the value of the tax preference claimed.

According to the fiscal note, the Department of Revenue “cannot determine the impacted taxpayers or the number of taxpayers impacted.”

A few points:

• The bill is not clear on how the state will determine if the child care requirement is met; the list of options in the bill is open-ended.
• The bill would apply to businesses of all sizes.
• I think that any business with at least one employee earning $250,000 would have to make the annual payments even if the business doesn’t have any employees who need child care.

The money from the annual payments would go to the fair start for kids account, which was established in 2021 in the fair start for kids act. The fair start for kids act included several child care and early learning enhancements, including expanding eligibility for Working Connections Child Care and increasing child care provider rates. As I wrote at the time, the bill was initially funded with federal COVID relief dollars, but the state intended to use capital gains tax revenues to fund the programs after the federal money dried up.

Capital gains tax revenues (up to $500 million a year) are deposited in the education legacy trust account (ELTA). The fair start for kids act allowed the ELTA to be used for early learning and child care programs (in addition to K–12 and higher education). Nevertheless, most of the funding for child care and early learning in the enacted 2023–25 budget came from the general fund–state. Further, no money has been deposited in the fair start for kids account so far.

Finally, we’ve written a lot about why our tax structure includes tax preferences for businesses (for example, in 2011, 2013, and 2014). As we wrote in 2013, “Tax preferences, to use the state’s terminology, are not unwarranted boons for business; rather, many serve to normalize Washington’s tax structure or correct market failures.” And, as we wrote in 2011, “A careful analysis of business tax preferences makes clear that the vast majority of them have been adopted to offset disincentives, reduce distortions, avoid ‘pyramiding,’ and create a level playing field for instate enterprises.”