Washington Gov. Gregoire signs tax package hitting bottled water, soda, beer, candy and more

Washington governor signs package of tax hikes

OLYMPIA, Wash. — Calling it a “sensible and modest” solution to Washington’s historic budget crisis, Gov. Chris Gregoire on Friday approved a revenue package that nets roughly $780 million to avoid deeper cuts in education, health care and human services.

Consumers will pay more for a basketful of convenience-store favorites: Soda, bottled water, major-brand beer, candy and cigarettes. Service businesses will send the state a larger share of their gross sales, from attorneys and lobbyists to hairdressers and janitors.

Out-of-state companies also were targeted for more revenue, either by recalculating how taxes are charged or shrinking certain exemptions in response to court rulings. A collection of smaller loopholes and other exemptions also were closed or downsized.

The taxes on soda, beer, bottled water and service business are temporary, lasting through June 2013. The service-business and tobacco taxes take effect effect May 1, while others take effect on staggered dates later in the year.

Gregoire, a second-term Democrat, said the tax package was a reasonable response to the estimated $2.8 billion budget deficit that the Democrat-controlled Legislature confronted in its recently concluded special session.

“I believe in the people of the state of Washington. I’m asking them to stand up and do what’s right on a temporary basis to see us through this worst time,” she said.

Without more revenue, the recession-hammered state general fund could have been forced to drop spending on programs such as hospice care, all-day kindergarten or health coverage aimed at the working poor, Gregoire said.

Republicans lawmakers, who believe the tax package will give them a boost in the November election, replied that Democrats simply didn’t cut enough from state spending in the wake of the Great Recession.

“Legislators must learn from history — you cannot tax and spend your way out of a recession, but you can dig the hole deeper with bad policies,” said Sen. Janea Holmquist, R-Moses Lake.

This year’s budget was a tune-up of the main two-year state budget, which lasts through mid-2011. Democrats solved a roughly $9 billion deficit in the two-year budget in 2009 without raising taxes.

The rest of this year’s budget deficit was patched with a combination of spending cuts, federal aid and one-time accounting maneuvers, such as draining off-budget accounts.

The tax package is generally broken into two pieces: A tobacco tax that adds $1 to the price of a pack of cigarettes and a larger bill that rounds up all the other tax hikes.

The tax on soda bottlers would add 2 cents to every 12-ounce container, but exempt bottlers under $10 million in volume. The higher beer tax adds 50 cents per gallon — a 28 cent-increase on a six-pack. Microbrews would be exempt, aimed at helping Washington state companies.

The service-business levy temporarily raises the business-and-occupation tax, which firms pay on their gross receipts, from 1.5 percent to 1.8 percent. Hospitals and scientific researchers are exempt.

A small-business tax credit also would be permanently doubled, to $70 per month.

Candy and gum also would be subject to the state’s 6.5 percent sales tax, with a tax credit tied to jobs for candy manufacturers with employees in the state. Bottled water would also be subject to the sales tax.

The plan also removes or modifies some tax exemptions, including reversing a court ruling that extended tax breaks to certain out-of-state sales companies.

The package also draws about $25 million from the state convention center and lottery. It would be offset by about $12 million in reduced tax collections called for in separate legislation.

Gregoire acknowledged the complaints of some smaller, local soda bottlers that their present business structure might not allow them to take full advantage of the $10 million exemption. She pledged to work with lawmakers to correct that wrinkle next year if necessary.

Gregoire also weighed in on a recently filed initiative that seeks to impose an income tax on individuals making more than $200,000 per year, or couples making more than $400,000.

Gregoire said she would sign the initiative petition and that suspects she’ll wind up supporting it at the polls, since Initiative 1077 promises more money for education.

“It’s going to be a good debate, and let’s get at the debate,” Gregoire said.

On the Net:

Washington state Legislature, www.leg.wa.gov

Gov. Chris Gregoire, www.governor.wa.gov