The Suzzallo Library at University of Washington. (Getty Images)
A battle is brewing in the Washington Legislature over a Democratic bill that would hike a tax on large technology companies to raise more money for higher education, including student financial aid.
The “advanced computing surcharge” applies to firms with global revenue above $25 billion — think Microsoft and Amazon. But the amount each taxpayer owes is limited to $9 million a year.
House Bill 1839 would eliminate that cap. It’s a move that could more than triple the collections seen from the surcharge in each of the past three years, pushing up revenue by around $200 million annually, according to estimates attached to the legislation.
The surcharge stems from a package of higher education programs lawmakers approved in 2019 that included the Washington College Grant — touted by supporters as one of the most generous state tuition assistance programs in the nation for low- and middle-income students.
Proponents of uncapping the tax say it could strengthen the grant program and provide a needed boost for other higher education spending.
“It’s just getting rid of an arbitrary and unnecessary giveaway to some of the biggest technology companies in the world,” said Carolyn Brotherton, who works on tax issues for the progressive Economic Opportunity Institute.
“Higher education is one of the first things on the chopping block every time there’s a revenue shortfall,” she added.
‘Broader problems’
But even backers of the legislation acknowledge it could be a tough sell this year as lawmakers deal with a multibillion-dollar budget deficit that may pull Democrats in the direction of more general tax increases, rather than ones where revenue is dedicated to specific programs.
Still, supporters of the bill say it is a serious proposal. Rep. April Berg, D-Mill Creek, chairs the House Finance Committee and is a co-sponsor. “It’s a real discussion,” she said after the committee held a hearing on the bill last week. “It’s absolutely still in play.”
Business groups are already staking out opposition. Republicans, too.
Senate Minority Leader John Braun, R-Centralia, described the bill as “counterproductive” and an “attack” on one of the state’s key business sectors. He and other GOP lawmakers paint the proposal as one in a slate of misguided tax ideas from Democrats.
Democrats hold majorities in both chambers of the Legislature and have been contemplating options for new or higher taxes since late last year. They need to write a budget in the weeks ahead that solves a shortfall estimated to be $12 billion to $15 billion over four years.
For now, they say their attention is focused on finding savings and leaders have not thrown their weight behind specific tax bills.
But Senate Majority Leader Jamie Pedersen, D-Seattle, cast doubt last week on whether raising the advanced computing surcharge to fund higher education would be the right move.
“I think we have broader problems than higher ed,” he said. “So probably, as we think about tackling revenue, we’re going to be looking for bigger and broader solutions.”
A list of tax ideas that surfaced in December after a Democratic policy retreat included a proposal to remove the cap.
“Companies are not thrilled about the overall tax conversation right now,” the bill’s lead sponsor, Rep. Julia Reed, D-Seattle, told the Standard after testifying on the bill in the House Finance Committee. “If this was a normal year, and we were talking just about the ACS surcharge and not about that plus other ideas, maybe they would be a little bit more excited.”
Reed said she felt confident since her bill got a hearing, but added that it will have to be considered in the context of the overall revenue package Democrats put together. She said that if the tax increase were to win approval, it could allow for expanding eligibility for full awards under the college grant program.
“It will generate meaningful revenue and allow us to achieve some of our goals that we’ve been working towards for a long time,” she said.
Between fiscal years 2021 and 2024, collections of the surcharge totaled between $55 million and $68 million annually, according to figures from the state’s Department of Revenue. But which companies have been paying the tax is not clear.
‘Not welcoming’
The advanced computing surcharge was one of the taxes adopted to support the Workforce Education Investment Act, a 2019 law focused on strengthening student financial aid and better-preparing students for careers in science and technology fields and other in-demand professions.
In 2020, lawmakers reworked the package of taxes that support the law, partly due to concerns revenue would be inadequate to cover the cost of the grant program. It was at this time that the advanced computing surcharge took on its current form as a 1.22% tax with a $9 million cap. Pedersen sponsored this bill to retool the taxes.
Notably, Microsoft was a key supporter of the Workforce Education Investment Act. A spokesperson for Microsoft said Tuesday that the company had no comment on the bill to uncap the advanced computing surcharge.
Rose Feliciano, executive director in the Northwest for TechNet, a group that represents other large technology companies, including Amazon and Meta, said during testimony that the current funding structure for the Workforce Education Investment Act works as is. And she emphasized that it was established with involvement from companies that are paying the taxes.
She said these businesses were not consulted before the legislation to uncap the surcharge was introduced this year. Feliciano added that some of those companies are now cutting jobs. “This would send a signal that Washington is not welcoming to these industries,” she said.
The Association of Washington Business is also against the bill. Emily Wittman, a government affairs director for the association, said that the state has been falling short of its goals of increasing how many people attain college degrees and other post-secondary credentials.
Part of the thinking behind the 2019 law was that companies would have a more highly trained and qualified workforce in Washington to hire. “Our businesses, especially those who are being taxed, are not currently seeing the benefit,” Wittman said.
She also noted that only about a third of the nearly $1 billion in revenue every two fiscal years from all of the taxes underpinning the Workforce Education Investment Act is going to the college grant program and suggested lawmakers could shift around existing funds if they want to prioritize student aid.
Groups representing college students from around the state are among those backing the bill.
Terrell Stalworth, legislative liaison for Associated Students of Tacoma Community College, told lawmakers that the state’s financial aid program helped make college accessible for him. “A student can’t stay in school if they can’t pay the rent, and students shouldn’t have to choose between food or an education,” he said. “Financial aid helps solve these issues.”