Bipartisan Tax Structure Work Group recommends improvements to Washington state’s taxes

After four years of study and community engagement, the Tax Structure Work Group has released its recommendations for improving Washington state’s taxes .

The bipartisan group of legislators and policymakers provided a recommendation to the Legislature to replace the state’s business and occupation tax (B&O tax) with a margin tax. In addition, the TSWG recommended that local governments have the ability to change the 1% property tax limit factor to a new factor tied to population growth and inflation.

“Thank you to the thousands of Washington residents and business owners who shared their feedback on how to improve the state’s tax structure,” said State Sen. Noel Frame, a Seattle Democrat who co-chaired the work group. “The recommendations from the work croup are the result of a thoughtful and bipartisan process to make much-needed changes to Washington’s taxes.”

The Washington State Legislature convened the Washington State Tax Structure Work Group to examine the state’s current tax structure, which has been in place for almost 100 years. The proposed margin tax and the change to the property tax limit factor at the local level are intended to make the state’s taxes more transparent, stable, fair and adequate.

“We greatly appreciate the valuable input received from the public in considering a variety of ideas for the full Legislature to consider during its 2023 session,” said State Sen. Keith Wagoner, a Republican from Sedro Woolley, who served as work group co-chair. “While not everyone will agree with the final recommendations, I personally want to thank my fellow work group members for working in a bipartisan and collaborative manner and to commend the Department of Revenue for their hard work.”

Margin tax
Previous economic studies found that the B&O tax can disadvantage small, start-up, and low-margin companies. To address these issues, the work group recommended replacing the B&O tax with a modified gross receipts tax called a “margin tax.” Under this proposal, a business starts with their gross receipts and then subtracts the greater of four possible deductions:

•          Cost of goods sold,

•          Compensation paid,

•          A fixed percentage of gross receipts (e.g., 30%), or

•          A flat amount (e.g., $1 million).

The remaining “margin” is then taxed at a single rate among taxpayers. Per the legislative proviso ESSB 5693, proposals from the Tax Structure Work Group must be revenue neutral.

Property Tax Limit Factor

Current law annually limits taxing districts’ property tax levy increases to the levy growth limit, often referred to as the “101% levy limit” or the “1% growth limit” plus any increase in levy capacity for various add-ons like new construction. During outreach, local governments expressed concerns about their inability to raise revenue in line with inflation and other costs. This proposal revises the definition of “limit factor” at the local level to mean 100% plus population change and inflation, but not to exceed 103%. This proposal does not apply to state property tax levies.

Full details regarding the proposed margin tax and property tax limit factor are on the TSWG website. A table that provides comparisons between Washington’s B&O tax, Texas’s Franchise Tax, and the Margin Tax proposal is available here.

Find more information about the workgroup at

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