Not sure how Bill Gates, Sr (yes Microsoft founder’s Dad) figured this would be a good thing. Best math I’ve seen against it is from the owners of a reasonably large apartment complex.
- 680 Units with average rent of $1300
- Total Gross Income (fully rented) of $884,000
- Total expenses (Mortgage, utilities, maintenance, insurance) of $816,000
- Net Profit of $68,000 before I-1098 (shared by 5 people)
- Adjusted gross income of $884,000
- Excise tax deduction of $400,000 (couples, LLC, LLP, and some S-Corps)
- Taxable Income of $484,000
- Tax due at 5% of $24,200
- Actual net profit of corporation is $43,800
- IRS taxes likely due on $68,000; although that won’t be known until the courts give a decision. Can we say double taxation?
Because I-1098 is an Excise Tax and not an Income Tax it may not be recognized by the IRS as a valid deductible expense.
Something else I see as a failure here… Article VII, Section 1 of the Washington State Constitution as amended in 2006 states:
“The power of taxation shall never be suspended, surrendered or contracted away. All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word “property” as used herein shall mean and include everything, whether tangible or intangible, subject to ownership. All real estate shall constitute one class: Provided, That the legislature may tax mines and mineral resources and lands devoted to reforestation by either a yield tax or an ad valorem tax at such rate as it may fix, or by both. Such property as the legislature may by general laws provide shall be exempt from taxation. Property of the United States and of the state, counties, school districts and other municipal corporations, and credits secured by property actually taxed in this state, not exceeding in value the value of such property, shall be exempt from taxation. The legislature shall have power, by appropriate legislation, to exempt personal property to the amount of fifteen thousand ($15,000.00) dollars for each head of a family liable to assessment and taxation under the provisions of the laws of this state of which the individual is the actual bona fide owner.”
While I agree that income is tangible, I don’t believe that it qualifies as “property.” As such applying an excise tax to it would constitute an unconstitutional tax. In addition we see that Article VII clearly states that “All taxes shall be uniform upon the same class of property,” which tells me that if I-1098 is to pass Constitutional muster then everyone at all income levels will have to pay, that is of course assuming the courts agree that income is property and can therefore be subjected to an excise tax.
Something else to keep in mind, this is an INITIATIVE which can be changed with a simple majority vote of the legislature in 2 years to have a higher tax rate, lower exemption rates, and hit more people harder. The legislature has changed virtually every tax based initiative that has passed in recent history, examples below:
- Lottery (voted for education funds) goes to General Fund. It is illegal to use Washington General Fund for education.
- Car Tabs – Are you paying $30? Not that I really like Tim Eyman, he’s gotten a bit carried away and most of his initiatives have been modified; if not all of them.
- Stadiums… don’t even get me started.
- Sound Transit? Link Light Rail? Both radically over budget and under delivered and under used because they are not convenient. And both bleeding more tax dollars…
- Tax healthy food, but candy bars with grain flour are ok? Granola bars with chocolate chips are taxed, Snickers bars aren’t.
- I-1098 includes language requiring a vote of the people to approve changes made by the legislature, but the legislature has successfully removed this requirement from other initiatives without a vote of the people; and with the approval of the courts in the past.
Ok, I’m done ranting for today. I say No to I-1098.