UPDATE: Senate panel approves $890 million tax package

The Senate Ways and Means Committee finally approved its package of tax increases totaling $890 million this evening. Republicans were unanimous in their opposition.

The final package backed away from repealing a sales-tax exemption on the value of used-car trade-ins. But it would add a temporary business-and-occupations surcharge on services and extend the sales tax to bottled water sales.

The vote sets up a possible floor vote on the package Saturday, according to Senate Majority Leader Lisa Brown.

One of the approved tax bills is Senate Bill 6874, which adds $1 per pack to the tax on cigarettes and raises almost $86 million. The other, Substitute Senate Bill 6143, raises almost $805 million by repealing numerous tax exemptions and enacting a temporary, three-year sales tax increase of three-tenths of 1 percent.

The tax bills are part of majority Democrats' tactic to close a $2.8 billion operations-budget shortfall through new revenues, more than $800 million in cuts, plus federal money and transfers of money from other funds.

The size of the overall Senate tax package grew smaller after Democrats, under pressure from lobbyists, removed a provision that repealed the sales-tax exemption for the value of used-car trade-ins. That eliminated an estimated $92 million in potential revenues.

The services tax is expected to raise $170 million, boosting the rate to 1.75 percent on service businesses that now pay 1.5 percent tax on gross receipts. The water tax raises $30 million.

UPDATE: The services tax affects everything from accountants, lawyers and medical practitioners to car washes, dating services, disk jockeys and janitorial work. The list of services is here.

The vote on the tax-exemptions bill was 12-10 with Democratic Sens. Rodney Tom of Medina and Steve Hobbs of Lake Stevens voting against.

The tax-exemptions package still contains a controversial repeal of the tax break given to the TransAlta coal plant near Centralia. The tax exemption became a heated point of contention as the Ways and Means Committee moved to approve the tax packages. Republicans including Sen. Dale Brandland of Bellingham argued for reconsidering the move.

Democratic Sen. Phil Rockefeller of Kitsap County said TransAlta is shifting from coal to natural gas and the repealed exemption can spur the Canadian firm to "move forward a little more aggressively and with more of a sense of urgency."

But Republican Sen. Joseph Zarelli of Ridgefield said this sends a message to out of state firms "they cannot trust us" after making tax agreements with Washington. He said the state risks losing jobs that far outweigh the $10 million gained from cutting off the coal tax break, but an amendment to save the tax-exemption failed on a 12-to-10 vote.

Sen. Mike Carrell, R-Lakewood, predicted the tax on cigarettes would drive more people to smuggle or buy their smokes from across state lines. But Sen. Tom said the state subsidizes smoking and the health-care costs it costs by not taxing tobacco even more.

In the House, lawmakers are voting this evening on an operating budget.