The Senate on Wednesday passed H.B. 1095 by a 49-0 vote. Under the bill, the state's business and occupation tax, public utilities tax and retail sales tax would not apply to grants addressing the impacts of conditions resulting in an emergency proclamation by the governor or the U.S. president. This means grants such as the Paycheck Protection Program loans under the Coronavirus Aid, Relief and Economic Security Act
would not be subject to the taxes.Under the bill, qualifying grants could be received directly from a government entity or through a third party authorized by the government to distribute such grants. Additionally, qualifying grants may result when a private entity provides debt relief to a person and as a result receives direct financial benefit from a government entity, according to a Senate bill report.
The unanimous Senate vote was mirrored by the state House of Representatives, which passed the bill by a 98-0 vote on Jan. 22.
Democratic Gov. Jay Inslee is supportive of the legislation, Mike Faulk, spokesman for the governor, told Law360, adding that the office was waiting for the Legislature to transmit the bill.
"We think it is reasonable under the circumstances of an emergency to have government-funded assistance not be taxed when it is aimed at mitigating the impacts of the emergency," Faulk said.
Before that, 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 state Department of Revenue that coronavirus grant funds are not taxable.
The bill's provisions would be retroactive to Feb. 29, 2020, when 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.
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 analysis said.
Walen and Republican leadership from both chambers did not respond to requests for comment.
--Editing by Vincent Sherry.
Update: This article has been updated to include comment from an Inslee spokesman.
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