The Law as it Presently Exists

The sales tax is imposed on retail sales of most articles of personal property, digital products, and some services. The current state sales tax rate is 6.5 percent, though some local governments impose their own sales taxes that make the rate paid by purchasers higher.

The state business and occupation tax is imposed on the gross income of business activities conducted in Washington. The business and occupation tax rate varies by the type of business or occupation. Most manufacturing businesses are taxed at a rate of 0.484 percent of their gross income, but some manufacturers pay lower rates.

Burning fossil fuels (such as coal, oil, and natural gas) produces carbon dioxide, which can trap heat in the Earth's atmosphere. There is no state tax on carbon dioxide emissions in Washington.

The Effect of the Proposed Measure if Approved

This measure would create a new tax and reduce certain existing taxes. It would impose a new "carbon emission tax" that applies to the sale or use of certain fossil fuels and electricity generated from fossil fuels. It also would reduce the state sales tax rate, reduce the business and occupation tax rate on manufacturing, and fund a partial sales tax exemption for low-income families.

New Carbon Emission Tax

A new carbon emission tax would start July 1, 2017. It would apply when fossil fuels are burned in Washington. The tax would be collected by the first person or company in Washington who sells or burns the coal, oil, or other fossil fuel. The measure includes provisions to avoid double-taxing a fuel. For most fossil fuels, the tax rate would start at $15 per metric ton of carbon dioxide emitted. Then, the tax rate would rise to $25 per metric ton on July 1, 2018. After that, it would increase by 3.5 percent plus inflation each year until the tax rate reaches a maximum of $100 per metric ton, adjusted for inflation. The state Department of Revenue would adopt rules for calculating the amount of carbon dioxide emitted for each type of fuel and fuel use and for paying the tax. The carbon emission tax would apply to electricity producers, but only on the proportion of electricity produced using fossil fuels. It would not apply to electricity produced using hydroelectric dams, nuclear power, wind, or solar power. Certain industries that obtain electricity generated outside Washington also may be required to pay the tax.

The carbon emission tax would be phased in more slowly for some kinds of fuel used for specific purposes. These fuels include certain fuels used solely for agricultural purposes; fuel purchased for public transportation or by a private nonprofit transportation provider; fuel purchased by the Washington state ferry system for use in its ferries; and fuel purchased for school buses. For these fuels, the initial tax rate would be 5 percent of the tax rate imposed on other fuels. On July 1, 2019, the tax rate would increase to 10 percent of the tax rate imposed on other fuels. The rate would increase in 5 percent increments every two years after that until July 1, 2055, when it would be the same as the carbon emission tax rate imposed on other fuels.

Reductions in Existing Taxes

This measure also would reduce some taxes. On July 1, 2017, the state sales tax rate would be reduced from 6.5 percent to 6.0 percent. On July 1, 2018, it would be reduced again, to 5.5 percent. The state business and occupation tax rate for manufacturing would be reduced to 0.001 percent on July 1, 2017, from the current rate of 0.484 percent for most manufacturers.

Working Family Tax Exemption

Finally, the measure would expand and fund a working family tax exemption. That exemption would allow low-income taxpayers (those who qualify for the federal earned income tax credit) to receive a refund for some of the state sales taxes they paid during the year. In 2017, an eligible applicant would receive 15 percent of the federal earned income tax credit or $100, whichever is larger. Starting in 2018, the refund amount would be 25 percent of the federal earned income tax credit or $100, whichever is larger.

Other Provisions

The state would adopt rules needed to implement the measure. The measure also requires reports to the Governor and Legislature on how the measure is affecting state revenues. The reports would be submitted every year from 2017 through 2027, and every two years after that.