The Senate Ways and Means Committee approved the bill Thursday by a 25-0 vote. Under the bill, grants addressing the impacts of conditions that result in an emergency proclamation by the governor or the U.S. president would be exempt from the state's business and occupation tax, public utilities tax and retail sales tax.
The bill would apply to grants such as the Paycheck Protection Program loans under the Coronavirus Aid, Relief and Economic Security Act
.It was important to get the bill passed early so the state Department of Revenue would be able to adjust its tax regulations in time for businesses filing their taxes this winter and spring, the committee chairwoman, Sen. Christine Rolfes, D-Bainbridge Island, told Law360. The bill will be brought to the Senate floor during the week beginning Feb. 8, Rolfes said.
"It's a commonsense measure, and I was expecting it to be approved unanimously," Rolfes said. "I hope that will be the case when it is on the Senate floor."
The bill's provisions would be retroactive to last Feb. 29, when Democratic Gov. Jay Inslee declared an emergency for the pandemic. Government grants would otherwise generally be taxed as gross income under current Washington law, according to Michael Bailey, a Department of Revenue representative, who spoke at a Jan. 14 public hearing for the bill.
The bill was amended in the House Committee on Finance to remove an automatic 10-year expiration date and to provide for exemptions to tax preference performance information requirements. Rep. Amy Walen, D-Kirkland, a sponsor of the bill, previously said the amendment was meant to reinforce that the bill is not a tax preference and is instead a clarification to the department that coronavirus grant funds are not taxable.
The House of Representatives passed the amended bill by a 98-0 vote on Jan. 22.
Sen. Lynda Wilson, R-Vancouver, ranking member on the Senate Ways and Means Committee, said in the Thursday session that the bill would benefit many small retailers struggling to deal with the pandemic's economic effects.
"Any time we have an opportunity to reduce taxes, we're happy to do it," Wilson said.
According to a legislative analysis of the bill, up to 100,000 taxpayers could be eligible for the tax relief it provides. The bill is sponsored by a bipartisan group of House representatives, with 13 Democratic and four Republican sponsors.
According to a fiscal analysis of the bill by the Department of Revenue, it is difficult to determine what percentage of loans that businesses received for pandemic relief would be forgiven; only amounts actually forgiven would be exempt, according to the analysis. Should all loans be forgiven, the state could lose up to $210 million in fiscal year 2022, the department's analysis said.
--Editing by Neil Cohen.
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