The Washington Tax System

People in Washington complain bitterly about the tax system.  Businesses dislike the business and occupations tax on gross receipts (instead of income) and, because we do not have an income tax here, we rely so much on sales taxes which ends up being a regressive system.

This article from the weekend’s Seattle Times discusses the “Ford Pinto” tax system that we have but it also describes the political realities of trying to change it.

The other problem that the article describes is one that I face every day with clients.  That is that because real tax reform is almost politically impossible, they have patched it together over the years.  The result is a tax system that is, at best, confusing and difficult to understand (even for us tax lawyers) and, at worst, a death trap for business owners.  There reason is that audits go back four to seven years and if you make a mistake, particularly by not charging sales tax when you are supposed to do so, you multiply the sales times almost 10% plus interest and penalties.

From a tax policy perspective, I am more of an agnostic.  As long as the tax burden is in line with other states with similar economic bases and as long as the core government services can be funded, I have less of an interest in which tax scheme is chosen.  What I do have a problem with is a tax system that is so difficult to understand and filled with so many traps that well-intentioned, hard working business owners get hit with substantial tax assessments that they will never be able to pay.

The best protection against this problem is prevention.  The Department of Revenue does offer information, classes and other resources for new business owners.  And, of course, you can always discuss the potential tax implications of a new business, product or service with your tax lawyer or CPA.