What a Tax March! My wife got interviewed for a local TV station and I was interviewed by a local newspaper reporter. Our sign disclosing our own federal income tax returns was a big hit.
For the non-Washington readers, Seattle’s Tax March had an expanded purpose to highlight the ridiculously upside-down tax policies in this state.  Washington, like a handful of other states, has no income tax and raises revenue only by other means: mainly property, sales, and business (B&O) taxes along with annual vehicle registration fees (which we call “car tabs”). Many probably assume that these fixed-percentage taxes that apply to everyone are automatically fair. Well, the two of us are a great counterexample for how the wealthy can avoid paying their fair share. Until I did all the math recently for 2016, I had no idea just how bad it was and how little we are contributing to the state’s tax base.
This post covers how to estimate your total state and local taxes as a percentage of your income. I will share our results next time. If you live in Washington, you should do the math and see how we compare.
How to Compute Property Taxes
If you own a home in Washington you should already know about county assessments, property tax bills, escrow payments, and all that. This section is devoted to renters who are unaware of how much property tax they are paying. It gets even tougher to estimate if you live in a large apartment building; how much of that giant tax bill comes out of your rent?
I am going to pick an apartment building in Northeast Seattle to use as an example: The Benton Court Apartments at 2257 NE 53rd St. Start by visiting the King County Assessor’s website, where you can look up the assessed value and property tax bill of any land “parcel.” If you live outside King, there should be similar online resources for your county. This particular apartment complex gave me some trouble because there are multiple street numbers and the property was actually listed at 2251 NE 53rd St, which I figured out by using the GIS parcel map viewer. Once I had the parcel number, I could get to the property dashboard. Click on “Property Tax Bill” in the bar near the top and you can see the building’s current, and prior year, tax bills. The total bill for 2016 was about $22,900. Note that the bill has gone up for 2017 by over $3,000, which just shows how much the market is booming here.
So how much would a resident of these apartments be effectively paying in property tax to live there? Just divide the total bill by the number of fair-market-rented units in the building. The property detail page on the assessor’s website says this building is an 18 unit apartment; if you live in a building where you happen to know that some units are not being rented on the open market, such as for the owner’s family or the residence of an on-site property manager, you would want to subtract those units from the total. In this case, let’s assume all 18 are rented out normally, so each resident pays $1270 per year in property taxes.
As a quick aside, note that residents of this building can expect the rent to increase by $16 per month this year (difference in total taxes divided by 18 divided by 12) just so the building owner can break even on the higher property taxes. Residents can also estimate their obligations under any proposed tax levies. This building has a $2.65 million assessed value. Suppose a levy is on the ballot that would cost $0.30 per $1,000 of assessed value. Well, that will add almost $800 to the property tax bill (2650 times $0.30), or $4 per unit per month. Knowing how to do this math is critical for apartment renters who may not realize how much property taxes on some buildings are rising. 
How to Compute Gas Taxes
Washington’s current gas tax is pretty high at about $0.50 per gallon. I have no idea how many gallons of gasoline I purchased last year and you probably do not either, but one can estimate the total cost of that fuel and the per-gallon cost. The tax is about 15 to 20 percent of the fuel price, so take your total gas spending and multiply by (1 – 1 / 1.15) to estimate the amount paid in tax.
How to Compute Sales Taxes
Adding up every single thing for which one paid Washington sales tax is near impossible. I have an easier method to estimate the burden of the sales tax: take your total income, and subtract every major use of that income that did not have sales tax collected. Here’s a list, which is probably incomplete but catches everything I could think of for my situation:
- Mortgage payments
- Other taxes: payroll, federal income, car tabs, property taxes (actually paid, not the ones paid through rent), tolls, other fees
- Groceries (Unprepared food is not subject to sales tax. Some grocery items are, like pre-made deli/cafe items, toiletries, cleaners, over-the-counter medications, etc. but if you do not buy a lot of these, you can assume that most of your grocery spending last year was not taxed. If you buy a lot of these items, estimate what portion of your grocery budget went to them and only subtract the rest of the budget.)
- Gasoline (taxes for that are separate, above)
- Prescription drugs
- Electric utilities
- Internet connectivity (as far as I can tell, Comcast did not collect sales tax on my Internet bill)
- Health insurance premiums
- Charity contributions
- After-tax retirement contributions, such as to a Roth IRA or Roth 401(k). Traditional pre-tax contributions should already be excluded from your income.
- Savings and investments that added to your net worth (i.e. money that was not spent)
- Any spending on items out-of-state. This includes vacations. You may have paid other states’ sales tax, but Washington never collected taxes based on that money. If there was a Washington income tax, on the other hand, the state would have collected something.
A simple example: suppose you earned $60,000 in 2016 and can rule out $40,000 of that from sales taxes. You are left with $20,000 of spending that includes the tax. The formula for computing the amount of sales taxes paid is $20,000 x (1 – 1 / (1 + rate)) where “rate” is the sales tax rate as a decimal. If you do most of your spending in Seattle like me, use 0.095 (9.5 percent). Plugging that in: $20,000 x (1 – 1 / 1.095) = $1,740.
A Note On User Fees
Some money the state collects goes entirely toward providing the service that was purchased. I am choosing to exclude these costs because they (generally) do not contribute revenue to a major government function like most taxes do. What to include or exclude is understandably something others might see differently. I am ignoring:
- ORCA Card (transit) charges
- Various taxes and fees embedded in the cost of airfare
- The Discover Pass and Sno Park Pass
- Vehicle emissions inspection fees
I include tolls, however, since I am including gas taxes and road maintenance is so commingled with general funds. If this is a user fee, then some itemized parts of car tab fees and property tax levies could be considered user fees, too, and things would get really complex.
The next post will show our results and I will explain why our state taxes were so low as a percentage of our income.