B&O Taxes: Renton, Kent and Issaquah

B&O Taxes Graphic: credit Lara McNulty, Dec 2014

While cities eye the Business & Occupation tax to protect budgets, businesses and your Association continue to weigh-in with concerns and reservations.

On November 3rd the Renton City Council moved forward with the formal adoption of ordinance 5734 creating a new B&O tax in the City. Prior to adoption, the B&O tax proposal was modified in a way that could be bad news for smaller businesses, including real estate brokerages.

Renton says that without a B&O tax it’s looking at a projected $3.3 million hole in the City’s next biennial budget. City leaders say that budget hole is due in part to the 1% limit on property tax increases absent voter approval of any increase that’s larger than 1%.

To address the budget hole, the City originally considered a tax of 0.1% on business receipts exceeding $5 million annually. That new B&O tax would likely have raised $5.7 million to close the $3.3 million budget hole, as well as provided a surplus that could cushion budget challenges in future years.

Not surprisingly, some of the bigger companies in Renton had reservations about that approach. In response, on October 6th the City “broadened” the tax proposal by cutting the proposed tax rate in half (to 0.05% on all retail businesses and 0.085% on all other activities), but also lowered to $1.5 million the threshold for triggering the imposition of the City’s new B&O tax.

Press reports from Sound Publishing indicate, “City officials have previously said that since the recession began in 2008, the city has cut $28.7 million out of its budget, including $7.7 million in the current biennium, but that any further cuts would create a visible impact to service levels in the city.”

Iwen Wang, the City’s Administrative Service Administrator, said the new lower tax rate and lower threshold that broadened the tax base are still expected to pull-in close to $5.7 million annually, just like the original proposal was expected to do. Wang said the City would also propose to eliminate the head tax for businesses that will pay the B&O tax. In addition, the city would add a new business tax credit for new businesses with 50 or more employees, which would be set at $1,000 per employee for the first three years of operation.

Elsewhere, in Kent, some leaders inside City Hall continue to talk about the possibility of increasing the B&O tax in that City, despite the fact that there do not currently appear to be the votes on the City Council to pass such a measure. Of additional concern is a suggestion from inside City Hall that instead of using the B&O tax revenues collected in Kent to address the transportation funding emergency that was used to justify the imposition of a B&O tax in the first place, the funds should be diverted instead to the general fund.

In Issaquah, the Chamber of Commerce has finally weighed-in on the B&O tax issue in that city after prodding from local Issaquah REALTORS® to do so.