On Wednesday, a bill sponsored by Sen. Mike Padden that would provide tax relief for Washington’s new small businesses was approved by the Senate Trade and Economic Development Committee.

“We know that the first three years are the most critical to a small business being able to survive,” said Padden, R-Spokane Valley. “Reforming the business-and-occupation tax is crucial to helping entrepreneurs through those difficult first years.”

Senate Bill 5339, as amended and approved by the committee, would create a deferral from the B&O tax for new small businesses. Under the bill, a qualifying new business would receive a tax deferral on 100 percent of its revenue in its first two years, and a deferral on 50 percent of its revenue in its third year. Repayment of the deferred taxes would begin in the fifth year of operation.

“Washington is producing fewer new businesses, and more of those businesses are failing, due in large part to the onerous burden created by the B&O tax, which is applied to a business’ gross receipts regardless of if that business even sees a net profit.

“A temporary deferral in that tax burden would increase the odds of a new business being successful,” Padden said.

Washington has historically ranked high in the number of new businesses created each year. But it has also been a perennial leader in the number of business failures. And most alarming to some, both of those numbers appear to moving in the wrong direction. In 2010, Washington ranked ninth in the number of start-ups and 11th in the number of closures. By 2012, the state ranked 12th in start-ups, while its ranking on closures climbed to the nation’s seventh-highest.

“Other states are doing a better job at fostering a positive business climate,” said Erin Shannon, director of the Center for Small Business at the nonpartisan Washington Policy Center. “Our state’s unfair B&O tax hits new businesses particularly hard; Senator Padden’s proposal provides much-needed relief for new businesses struggling to find their footing in a new market.”

SB 5339 now moves to the Senate Ways and Means Committee.