I don't understand how a state income tax on individual income is going to put Star Rentals out of business. The tax applies only to your personal individual income in excess of $200,000. Any money left in the business would not be taxed.

P.S. If you are paying an effective tax rate of 50% on your income in the USA, it's time to fire your accountant and/or financial planner.

"An income tax would raise some money and satisfy some powerful constituencies, but that is money taken out of the private economy. My company is an example of how there would be many fewer jobs created as a result."

Come on, what you are really saying is that it takes money out of your own pocket. If you hire more people, their wages are part of the "private economy". It also means that your profit margin decreases just a little bit. If you keep your income at $199,999.99 a year you won't have to pay any state income tax. You can bring your income down a little by paying more in wages or reinvesting in your business - both good things. The wages you pay to your workers is money that is being used to buy goods and services around the community, and a higher percentage of it is likely being circulated in the economy than if it were sitting in your investment accounts or buying large ticket items for your home.

The income tax should spur business investment, not suppress it. By investing more and more into your business and your workers you can reduce your tax liability.

Be honest - you are more worried about paying a few percentage points of any income you have over $16,666 per month than you are about business investment and jobs. You know how you can reduce that tax liability by investing in your business and providing jobs.

Cry me a river, Rabel.

The article implies that they are being taxed as a sub-chapter S corporation. If so the company's profits are taxed on the family's personal income tax return, whether they are taken out of the company as income or reinvested. Money the government takes as new taxes is money the company can't reinvest in employees or products.

But if the company profits are reinvested in the company or the workers then the overall amount of profits goes down, gluhn. Those are expenses that reduce overall profit. Reinvest before the government has a chance to take out taxes.

While Mr. Rable is so upset by I-1098's potential increase of his personal income taxes (but only if it exceeds $200k), he is ignoring the fact that I-1098 would reduce property taxes by 20% and eliminate the B&O; tax on 375,000 small businesses (80% of all the tax paying businesses in WA). That doesn't sound like a drag on our economy or small business to me. In fact, I'd argue that his business could come out way ahead with 1098. Some of what Mr. Rable may have to pay in income taxes he'd get back in lower property taxes. Of course, he could always lower sean98125's excellent advice and lower his salary to a reasonable amount (below $200k) and be a net winner.

Y'all need to understand how small business is taxed. It absolutely amazes me how very few people understand this. This is important! I also own a small business. Every S Corp or LLC (and almost every small business is one of these structures) pays no business income taxes. The earnings flow to the owners and they pay personal income tax on these amounts. They must pay tax on it EVEN IF THE CASH IS LEFT IN THE BUSINESS. So, any investment into the business is always with aftertax dollars.

To Sean: Any money left in the business IS taxed. Get your facts straight.

To sean98125: You can't just keep your income to 199,999. Your income is your share of the company profits, whatever the amount is. You don't get an actual salary. Furthermore, you have absolutely no idea how small business people think. They do not put the money into investment accounts or "buy large ticket items for your home." Entrepreneurs and small businesses invest almost every last dime into their businesses. It is the best investment they can possibly make. Much better than the stock market. Heck, they have CONTROL over this investment. Most entrepreneurs put everything they have into their companies. How do I know this? I have worked with entrepreneurs for over 30 years.

You can't leave money in a business without being taxed on it. If I want to hire 3 people next year and I set aside the money to pay their salaries, I must pay TAX on this amount. This is a critical part of this discussion. If taxes go up working capital goes down period.

I find it interesting that everyone comments as if they know how a business is taxed and you have no clue. Obviously, none of you are business owners. Get a clue! I have had my own business for 27 years and I have done my own taxes for 27 years. I know the rules. If you don't know, ask someone who owns a small business!

And property taxes will only go down 4%. Once again, get your facts straight.

I agree with Mr. Rabel on all points. Well said, John.

Can't LLCs opt to be taxed like a C Corp or an S Corp, depending on what works best for the owners?

No. And the reason they do not want to be C Corps, like most large companies, is that then they will be taxed twice on the earnings.

Without comment on I-1098, I wanted clarify one aspect of the taxation issue brought up by taube.

While the state B&O; tax does apply to gross receipts, the federal taxes do not. He is correct in saying, "If I want to hire 3 people next year and I set aside the money to pay their salaries, I must pay TAX on this amount."

But, it is only the fact that he wants to carry the income from one year to the next that creates the taxable event. If he decided to hire those three people this year, those costs would count as a business expense and you wouldn't pay taxes on an equal amount of income. (I am not a tax guy so I don't know if LLCs or S Corps have income averaging or carry over possibilities -- I suspect they don't).

Taube notes, "If taxes go up working capital goes down period." Generally true. And the same is true if other expenses increase, income decreases or the capital markets dry up. (I suppose some owners might choose to keep their pre-tax income the same; in those cases working capital would remain the same).

If Business owners (aka Republicans) were serious about tax reform they'd look at a Value Added Tax instead of the B&O; tax. The B&O; tax is one of the most illogical tax schemes that has been dreamed up.

First, the B&O; makes it very difficult for new business creation. Any new business will have high initial expenditures to purchase equipment or inventory. But there is no allowance for that with the B&O; tax. The gross receipts at the end of the year are taxed which makes it very difficult for new business starts.

What is even more illogical is that since the B&O; tax applies to gross receipts there is a pyramid scheme effect. The pyramiding occurs since the cost of all inputs to a products are fulled taxed as part of the businesses gross receipts. In manufacturing, this scheme means that each subcomponent as it is incorporated into a higher assembly is fully taxed at the subtier supplier and then again is fully taxed at a higher value when it is sold as an assembly.

For aircraft manufacturing, the multiplier is about 5.3 times. For food industries, it is 6.7. This layering of taxation thus provides strong incentives for vertically integrated companies. It also means though that small "mom & pop" operations just can't compete with lower out-of-state and off-shore manufacturers.

The 2002 Gates report to the Washington State Legislature has all the details. See http://dor.wa.gov/content/aboutus/statisticsandreports/wataxstudy/final_report.htm

(I had an interesting conversation on the B&0 tax with my wife who is an LLC. She needed to fill out her B&O; tax form. The B&O; tax form is on-line and there are multiple questions to answer. She states that as one goes through the questions that it becomes apparent that all the exceptions and allowances are targeted to give tax relief to Boeing. Just though you'd like to know.)

Pythagoras--what planet or red state do you live on/in? Trying to equate business ownership with political affiliation is ridiculous. There are so many "democrat" business owners in this city, they outnumber "republican" by almost the same number of registered voters. Do you think Obama would actually talk to "republican" business owners, like the Grand Central Bakery? I have never taken Howard Schultz as a republican (although I don't sit down with him when he fills out his ballot). All those game companies in Pioneer Square are republican? All those web/software companies in Fremont and Ballard are republican? All those restaurant/bar owners on capitol hill? Sure can't tell by the political makeup of the city or county council or the legislators from King County. Very ignorant statement. Stop living in the past.

And, yes, many "republicans" are looking at VAT but they don't control the legislature--democrats do. Maybe you should talk to them. Many small business owners would gladly take a fair and reliable corp income tax over the B&O; but it IS Boeing and the other large companies that have learned to deal/with live with the B&O.;

1098 won't make any of this better until spending is put under control. At this point, we need to prioritize K-12 and higher ed, public safety and infrastructure. social services should not be extended to adults without children-period.

there should be an additional tag by the comments besides inappropriate, "idiotic"

I agree with fgruben. Let's get a tag for "idiotic"!!

seattledeadhead
The reason that I wrote "Republicans" is because it is the large business organizations, such as the Business Roundtable and Chamber of Commerce, that need to provide the impetus for tax reform. It are these organizations which more often than not are supporting Republican candidates. So the legislature may be controlled by the Democrats but they cannot move forward without both business and bi-partisan support. It is only through bi-partisan action that one would avoid the inevitable Tim Eyman initiative backlash that would occur.

Such bi-partisan support cannot occur though because the current group of Republican legislators seem to be unable to compromise on any action on reform. Instead they respond as you do which is that reform cannot occur until "spending is put under control".

fair enough. but when taxes keep getting raised, compliance is difficult, regulations keep multiplying, businesses are not trustful that a new tax system with its attendant uncertainty will be either fair or able to be complied with. and, spending is out of control. it has grown much faster than state gdp, or other measures. don't disagree that the larger business orgs are more republican in their political leanings but you used the words "business owners", not business orgs.

gee taupe, how about a button for "mindless follower", too?

fgruben--is that how you characterize everyone who disagrees with your liberal orthodoxy? how juvenile.

pythagoras--you do understand the nature of the b&o; quite well--props for that-most do not.