Change to B&O tax policy reaches City Council Nov. 23

Tacoma City Council is expected Nov. 23 to hear the first reading of an ordinance that would modify a nearly-60-year-old law that has governed how City Hall collects revenue through its Business and Occupation (B&O) tax.

According to the city’s tax and license division, if you are a business owner who earns $75,000 or more in gross revenue this year, you are required to pay the tax (last year, the figure was $72,500). The ordinance request submitted to the City Clerk’s office Oct. 21 ( ) would raise the annual gross income threshold from $75,000 to $250,000 beginning in 2011. If Council changes the ordinance, approximately 4,900 business owners who fall below that threshold would essentially receive a break on their B&O tax bill, according to Tacoma Mayor Marilyn Strickland. Mayor Strickland is co-sponsoring the ordinance with Deputy Mayor Jake Fey, Councilmember Ryan Mello, and Councilmember Marty Campbell. City Council’s Government and Performance Finance Committee approved a ‘do pass’ recommendation of the ordinance earlier this year. If approved, notices advising business owners of the change would be mailed Dec. 15, and the change would be implemented Jan. 1, 2011.

It might be great news for small business owners, but it would leave the city with what is projected to be approximately $1.4 million in lost revenue next year as a result of the change. The revenue reduction has been factored into the proposed 2011-2012 biennial budget.

The issue was discussed at length during Council’s study session Sept. 14.

“This supports small businesses and is a long-term strategy to make Tacoma a desirable place to do business,” said Tacoma Mayor Marilyn Strickland, who presented a plan to change the tax policy. “It sends a positive message about Tacoma’s business climate and encourages entrepreneurs in Tacoma.”

She added that the city could see some revenue gains if small businesses decide to open in Tacoma because of the B&O tax change. And for businesses that were once below the $250,000 threshold but go on to exceed it, the mayor would like to see them eased back into the system: businesses earning $251,000 to $259,000 would pay 10 per cent of the B&O tax due; $260,000 to $269,000 would pay 20 per cent; $270,000 to $279,000 would pay 30 per cent; $280,000 to $289,000 would pay 55 per cent; $290,000 to $299,000 would pay 75 per cent; and businesses earning $300,000 or more would pay 100 per cent.

She also noted that setting Tacoma’s B&O tax threshold at $250,000 would make it more competitive than thresholds in Everett ($20,000), Olympia ($20,000), Bellingham ($20,000), Bremerton ($60,000), Seattle ($80,000), and Bellevue ($125,000).

For years, many people in the business community have complained Tacoma has been dogged by the B&O tax. Nearby cities such as Fircrest, Lakewood, and Fife, which don’t have B&O tax ordinances, have benefited from Tacoma’s extra fee on business owners.

According to the city’s tax and license division, revenue collected from the B&O tax comprises almost 20 per cent of the city’s general fund budget. The city collected approximately $42 million in revenue through B&O taxes in 2007; approximately $44 million in 2008; and approximately $40 million in 2009. The money is used to pay for a variety of services such as street repairs, libraries, and emergency services such as police departments and fire departments.

Raising the threshold is an idea that has received much attention this year from City Council’s Government Performance and Finance Committee. In addition to the $250,000 threshold, the committee examined the possibility of gross income thresholds of $500,000 and $750,000. According to a July 1 memo from Tacoma’s tax and license manager to the committee, raising the threshold to $500,000 would benefit 5,800 businesses, but result in approximately $2.8 million in lost revenue in 2011; raising the threshold to $750,000 would benefit 6,250 businesses, but result in approximately $3.8 million in lost revenue in 2011.

The ordinance will be read during the Tacoma City Council meeting Tues., Nov. 23 at 5 p.m. in the Tacoma Municipal Building, 747 Market St. and streamed live at and broadcast live on TV Tacoma.

– – – – – – – – – – – – – – – – – – –

For earlier Tacoma Daily Index coverage, click on the following links:

City considers B&O tax break for small business owners (09/14/10) —

Mayor Strickland discusses Tacoma’s B&O tax (09/15/10) —