Lowry frees 140,000 small businesses from filing annual state tax returns

SPOKANE -- Nearly 140,000 small entrepreneurs will no longer have to file Washington state tax returns under a bill Gov. Mike Lowry signed into law today here.

"It makes no sense to require small businesses in our state to file paperwork for no purpose," Lowry said. "Nor does it make any sense for the government to process it."

Under House Bill 2789, more than a third of the state's registered businesses will no longer have to file tax returns unless they gross more than $24,000 per year.

While the number of taxpayers affected is vast, the revenue they generate for the state is negligible, since at least 84,000 of them qualify for a small business tax credit enacted in 1994. The balance of the 140,000 are registered but report no business activity at all.

Lowry requested the legislation after state Department of Revenue employees suggested it as a way to streamline government while reducing the paperwork burden on small businesses. Many businesses have had to file returns even though they owed no taxes after figuring the small business tax credit. Others filed returns and mistakenly remitted taxes even though they owed none, and still others failed to file returns at all, requiring the department to do follow-ups that netted no tax revenue.

"This is true regulatory reform," Lowry said. "We are doing everything we can to make Washington the best state in the union in which to live, work and do business."

By setting the reporting threshold at $24,000, the department can notify many small businesses to stop filing returns until their income exceeds that amount. Businesses that gross at least $12,000 per year must continue to register with the state, as do businesses that require specialized licenses. The registration and reporting limits do not affect retailers, who must collect and remit sales taxes to the state. However, the Department of Revenue is examining ways to simplify reporting for small retailers.

The new law also frees public utilities, including small water districts, taxicabs and small truckers, from registering unless their gross income exceeds $12,000 per year, and raises the threshold for filing returns to $24,000 per year. Public utilities previously had to register no matter how much gross income they generated and had to file tax returns if they generated more than $6,000 annually. The new law will eliminate public utility tax liability for 1,100 taxpayers.

The $24,000 threshold also eliminates business and occupation tax liability for about 3,000 small service firms that generate less than $24,000 annually in gross income but still make too much to qualify fully for the small business tax credit.

The state agency said it expects to make up the estimated $700,000 annual revenue loss as a result of this legislation by redirecting its resources toward ensuring compliance by larger taxpayers. The state currently has more than 410,000 registered business taxpayers.

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For more information, contact the Governor's Communications Office at 360-753-6790.