With construction deemed largely non-essential, there will be a hit to state revenues

By: Emily Makings
1:54 pm
March 26, 2020

When Gov. Inslee ordered Washington residents to stay home beginning March 25, he exempted essential businesses. The Puget Sound Business Journal (PSBJ) reported that the list of essential businesses left the construction industry unsure as to whether it is included or not.

Yesterday, Gov. Inslee clarified: “In general, commercial and residential construction is not authorized.” Exceptions include construction related to essential activities, construction for public purposes (like publicly financed low-income housing), and construction to prevent damage or unsafe conditions.

The Washington State Department of Transportation has announced that it will stop “most state construction work for at least two weeks.”

According to the PSBJ, Dave D’Hondt of the Associated General Contractors of Washington “called the governor’s action ‘drastic compared to other states,’ pointing to California and Oregon where construction work is exempted from stay-home orders.”

Of course, the stay at home order—with so much economic activity put on hold—will have a negative impact on state revenues. The hold on construction will have a disproportionately negative impact: in Washington, construction labor is subject to the state sales tax.

As we wrote in 2007, “Thus a dollar of earnings in the construction sector is fully taxed when it is earned as well as partially taxed when it is spent. This suggests that earnings from the construction sector should have a larger impact on sales and use tax revenue than other earnings.”

Categories: Budget , Categories , Economy , Tax Policy.