Many Washington businesses have had to survive a slew of crises during the COVID-19 pandemic, from government shutdown orders to customers staying away from some stores, to drop-offs in entire industry sectors.

But businesses surviving on government aid have had another vexing headache: the possibility of paying taxes on the relief dollars they received.

“That’s a horrible surprise for any business,” said Rep. Amy Walen, D-Kirkland.

Now, Walen and others are sponsoring a bill to fix that with a proposal that could provide a measure of relief for as many as 100,000 taxpayers across the state.

House Bill 1095 is one of several proposals by lawmakers and Gov. Jay Inslee intended to help businesses amid the governor’s emergency restrictions on commerce to slow the spread of the virus.

The bill provides exemptions for the Business & Occupation tax, as well as taxes on public utilities and retail sales that would apply to qualifying grants received since Feb. 29 of last year, the day Inslee declared an emergency for the pandemic.


The bill would be retroactive to that date — and would also apply to government grants given under future emergency proclamations, said Walen.

The bill — which is co-sponsored by 16 other lawmakers, including several Republicans — got a public hearing Tuesday in the House Finance Committee.

During Tuesday’s public hearing, Walen called the legislation “a symbolic message to our business community that we support and love them.”

The legislation would apply to government aid, such as the federal money distributed by Inslee’s office as small-business grants, as well as loans through the federal government’s Paycheck Protection Program, which can be ultimately forgiven.

“Because government grant funds are generally considered gross income, they would be subjected to taxation under current law,” Michael Bailey of the state Department of Revenue told lawmakers in the hearing.

Public utility taxes are also calculated by gross income, according to a legislative analysis of the bill.


That analysis estimated that as many as 100,000 taxpayers could get relief if the bill passes.

It’s hard to know how much revenue that might cost the state. But if all loans and grants were forgiven, the number could be as high as $209 million, according to a fiscal analysis of the bill.

Walen, however, said she considers the legislation a clarification of existing law, rather, rather than a new exemption.

Rep. Matt Boehnke, R-Kennewick and co-sponsor of the bill, called the effort to help businesses a way “to get them back going.”

But Boehnke, like other Republicans, is frustrated that the governor’s strict public-health restrictions continue to take a toll on small businesses.

“The businesses want to stay open, they’re doing all they can to protect customers,” he said. “Because they want to stay in business.”


In the meantime, to start attracting new businesses, Boehnke is sponsoring House Bill 1170, an effort intended to create manufacturing jobs in Washington.

Among other things, that bill would explore whether it’s feasible to create both a state manufacturing office and a state office on research and development to help boost those types of jobs. The bill has drawn several Democratic co-sponsors.

Meanwhile on Thursday, a special Senate committee released a report spelling out broad guidelines for the state’s recovery from the pandemic.

The 12-page report from the bipartisan Special Committee on Economic Recovery — which was formed as the COVID-19 outbreak took hold — includes a number of suggestions on business recovery.

As of Sept. 15, close to 5,000 businesses closed at some point during the pandemic, according to the report, with almost 60% indicating they had closed for good.

That report recommends easing the burden of unemployment-insurance taxes, boosting funding from programs that encourage entrepreneurship and expanding business recruitment and retention.


“There was a lot of sense that we don’t have a strong economic development strategy, because we haven’t had to in this state,” said Sen. David Frockt, D-Seattle, who pointed to the state’s powerhouse industries like technology and aviation.

“We need to be more aggressive in business recruitment,” added Frockt, one of the special committee members. “When was the last time we heard about a company being recruited to move here?”

There are other ideas to help kick-start economic recovery amid the pandemic.

Rep. Drew MacEwen, R-Union, has drafted bills to help businesses by creating a temporary suspension of some Business & Occupation taxes, giving a pandemic-related tax credit for businesses assessed those taxes, and delaying payments on permits for liquor licenses.

In his new state budget plan released last month, Inslee proposed among other things an effort to expand capital-construction projects to create new jobs.