Proposed state small business tax credit may have caveat

The Bellingham Business Journal

The Washington state Senate passed Bill ESSB 5899 titled “Providing a business and occupation tax credit for qualified employment positions,” on March 10. The version of the bill it passed provides either a $4,000 or a $2,000 Business and Occupation (B&O) tax credit to employers, but the qualifications will present a problem for many small businesses.

According to the bill, to be eligible for the $4,000 tax credit, a business with less than 20 employees must provide the new hire with wages and benefits not less than $40,000 per year and provide a health care plan.

To be eligible for the $2,000 B&O tax credit, the small employer must pay the new hire between 150 percent of the minimum wage and $40,000 annually, and also provide a health care plan.

In addition, the new employee cannot have worked for the business as a freelancer or independent contractor “providing essentially the same work,” during the previous 12 months. The bill does not define the term “independent contractor,” however, so it is not clear if this will affect temporary-to-permanent hires.

The Washington Policy Center, an independent, non-partisan, research and education organization located in Seattle, Wash., noted on its blog that the bill excludes 40 percent of small employers who can’t afford to offer health insurance to their employees. Statewide, only 59 percent of businesses with between two and nine employees provide health insurance; and of those with 10 to 24 employees, only 73 percent provide it, according to the Washington Policy Center.

“This B&O tax credit certainly won’t harm economic growth, and the idea behind it is solid (if somewhat overly optimistic),” the policy center noted on its blog. “However, cutting off almost 40 percent of the very small business firms in the state from this benefit because they do not offer health insurance to their employees artificially curtails job growth that could have taken place based solely on the tax credit.”

The bill has not yet come up for a vote in the state House of Representatives, and may yet die in committee during the 2010 “special session” that begins March 15.

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