Proposed state budget includes capital gains, B&O and REET tax increases
Yesterday, House Democrats unveiled a two-year state budget proposal that seeks $1.4B in new revenue, including a new 9.9% capital-gains tax, a 20% (and up) B&O tax increase for many businesses, and an increase in the real-estate excise tax (REET).
AGC is opposed to all of these tax increases.
The Democrats’ $52.8B proposed budget represents more than an $8B increase over the two-year budget approved in 2017.
Just last week, the state’s revenue forecast added another $861M to anticipated tax collections through the next biennium but, even with this windfall, the budget proposal calls for $1.4B in new taxes. Democratic Rep. Timm Ormsby, the chief budget writer for the House, said that while the forecast was good news, "it doesn't take away from the arithmetic problem that we came here with."
The main portion of the revenue plan seeks to levy a 9.9% capital-gains tax on earnings from the sale of stocks, bonds and other assets above $100K for individuals and $200K for those who file jointly. Opponents of a capital-gains tax say it’s a type of income tax illegal under state law; supporters call it an excise tax. The debate is certain to end up in court if the Legislature approves the tax.
Under the proposal, the tax would start being collected in the second year of the biennium, July 1, 2020, and is expected to bring in $780M that first year.
Republican Rep. Drew Stokesbary said that, even if the tax was upheld by the courts, it’s irresponsible for lawmakers to rely on it because of its volatility.
“If we have a recession coming up, it will be difficult to balance the budget if we’re dependent on capital gains as part of state revenues,” he said. “The fact of the matter is that we can fund all of our priorities without raising taxes.”
An additional $427M through mid-2021 comes from an increase in the B&O tax on a wide range of companies, including those involved in architectural, engineering and related services, as well as other service entities such as accountants and attorneys. The bill calls the increase a 20% “surcharge”, or an increase from 1.5 to 1.8%. In addition, a 33.3% surcharge would be imposed on companies with worldwide gross revenues of $25B, and even greater surcharge for larger firms.
A change to the real estate excise tax would bring in about $130M in the next two years. Under the REET provisions, for the sale of real property other than undeveloped land the tax would be 0.9% if the selling prices is less than $500K; 1.28% for properties from $500K to $1.5M; 2 percent for $1.5M to $7M; 3% if greater than $7M. The selling price thresholds would also be adjusted annually for inflation. Currently, the tax rate is 1.28% for all properties.
The Legislature will be holding hearings on these proposals this week. Plus, the Senate has yet to release its budget proposal.
For more information, contact AGC Chief Lobbyist Jerry VanderWood, 360.352.5000.