Create a new and unwarranted tax break for many large businesses. Under the pending legislation, Kansas would be the first state in the nation to exempt what tax experts call “pass-through” income from an otherwise broad-based income tax. “Pass-through” income is income that — unlike most corporate income — is untaxed at the corporate level and passed through to the owners of a business entity, who normally then pay personal income taxes on it. Many pass-through businesses are very large, and a substantial share of the profit that would be tax-exempt under the governor’s proposal would be earned by large businesses, not small ones.
Most of the money the state uses to pay for services comes from state taxes. Washington’s major tax sources include the sales tax, the property tax, and a rather unique tax called the Business and Occupation (B&O) tax, which is a tax on gross receipts rather than on profit or income. Washington is one of seven states that does not levy a personal income tax.
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