Seattle P-I Asks 'Should State Tax "Intangible" Property' But Fails to Explore How it Could Hurt Economy

"Has the state's tax burden on homeowners become great enough to start looking at taxing 'intangible' property as well?"

That's how Larry Lange opened his May 22 article for the Seattle P-I website.

While Lange did note conservatives are not keen on the idea and Republicans have alternative ideas for Washington State tax reform, Lange failed to consider how taxing stocks, bonds, loans, trademarks and the like could discourage investment and economic growth.

Instead, the New Economy giants that have fueled the Evergreen State's were portrayed as unfairly sheltered from the state's tax burden:

Some have noticed that property ownerships became increasingly composed of "intangibles," part of what's called the "New Economy," though they're not taxed. With that growth, "our state has become a tax haven for millionaires," [state Sen. Maralyn] Chase [D-Shoreline] said.

 

"EBay, the biggest online auction company, is an example of a company made up of primarily intangible assets," said a 2008 report on the state's tax exemptions. "Property and equipment represented about 10 percent of (its) total assets. Goodwill and intangible assets made up about 34 percent of total assets. Customer lists made up the majority of the intangible assets. Most of the remainder of the assets were cash."

 

"There has also been growth in intangible personal property in firms like IBM with demonstrated increases in service revenue," the report said. "Another reason for the growth in intangible property is that companies have started to license patents, copyrights and trademarks that were developed as a secondary business. Some businesses may still earn money on licenses long after the physical company has ended."

 

While this was occurring, an increasing share of the state's property taxes, including those that support schools, were being paid by homeowners as home building boomed and values increased. Homeowners' share of property taxes rose to more than 68 percent in 2007 before dropping to 65 percent during the recession.

What's more, when critics of the bill were quoted, the critiques given were about the difficulties in taxing intangible property, not the anti-business signal it sends to investors:

Besides opposing new taxes, critics said intangibles such as trademarks and patents wouldn't be reliable tax sources because new innovations can displace earlier ones and decrease their value. Determining the worth of intangibles such as trademarks is not as straightforward as measuring the income they produce for a business.

 

"Tomorrow, somebody comes up with a new little switch that makes that old switch worthless," said Rep. Glenn Anderson, R-Fall City, Spring's election opponent. He has introduced legislation to abolish the business-and-occupations tax in favor of a flat corporate income tax without exemptions. Others question taxing intangible property values that may be elusive.

 

"Receivables means you don't have them yet," Orcutt said. "Why would we tax you on money you don't have?' Orcutt said even if a new tax were earmarked for schools lawmakers have shifted dedicated money to other uses in the past. If some peoples' incomes increase faster than their property tax bills, "I don't see that as a bad thing but there are liberal Democrats in Olympia" trying to use the fact to expand state programs and spending, he said.

 

The Revenue Department noted that receipts from the tax would be subject to the one percent property tax increase limitation, which could decrease the amount collected. And its 2008 tax exemption report also said "there would be a significant compliance problem, because intangibles are easily concealed or moved to other states."

A recent study by ChiefExecutive.net ranked Washington 34th in the Union in terms of a business-friendly tax and regulatory environment, a drop of 4 positions from its #30 rank in 2010.