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Legislative Fix for Complex Workforce Education Surcharge Passed


In 2019, the Washington State legislature passed a complex surcharge that applied to businesses primarily engaged in several specific industries. We covered this legislation in a prior blast, which was set to go into effect this year and would have raised the Service rate to 1.8% for most taxpayers.

As passed, the legislation had significant complexity, ambiguity and aggressive language requiring a higher burden of proof for taxpayers to prevail against the DOR. Several business advocacy groups worked with legislators to address technical issues with implementation and reduce the complexity of the tax which is especially difficult for small businesses to comply with (as well as the DOR).

Legislation is always a compromise, however several significant technical issues were fixed with this bill including:

  • Businesses no longer need to determine if they are predominantly engaged in any of several listed activities – the original bill contained ten pages of impacted activities and industry descriptions!
  • The problematic language stating that the DOR’s determination that a person is subject to the tax is presumed correct unless refuted under a clear, cogent, and convincing standard was removed. If left in place this would be a higher burden of proof than under current standards.
  • Changes to specified advanced computing businesses which are beyond the scope of this blast. Specified advanced computing businesses generally engage in software or hardware development and have worldwide affiliated group revenues exceeding $25 billion.

Revised Workforce Education Surcharge

The original language on the use of the tax revenue to support higher education funding and enhanced access remains largely unchanged. The new funding structure, which is effective April 1, 2020 is:

  • The Service and Other Activities rate increases to 1.75% for most businesses except for:
  • The prior 1.5% Service rate applies to:
    • Small businesses whose taxable Service revenues are below $1 million (all affiliated entity’s revenues are combined for purposes of this test) in the previous calendar year
    • Certain hospitals
  • Select advanced computing businesses are subject to 2.72% rate capped at $9 million for the affiliated group

The legislation allows the DOR to require businesses reporting under the lower rate to disclose the identities of all affiliated entities for audit compliance. Specified advanced computing businesses are subject to similar requirements. However despite the new requirements to disclose affiliated groups, transactions between affiliated entities are taxable in the same manner as between unrelated parties.

For more information on this surcharge, contact Rachel Roberson, Tax Senior Manager, at 425.454.7990 or


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