The debate over DuPont's business and occupation tax

The debate in DuPont over business and occupation (B&O) tax reform took an interesting twist during the council?s first budget workshop on October 16.

Several council members vocalized their concern about the Mayor Grayum?s Budget B proposal to add a square footage tax of $0.05 per square foot of the building, generating about $300,000.

The mayor?s Budget B assumes that voters reject the proposed property tax increase. In addition to the square footage tax, Budget B would also increase water and storm water utility tax rates.

Even with these proposed revenue increases, Budget B eliminates four firefighter positions and one police officer position, eliminates the West Pierce Fire and Rescue contract, and the TruGreen maintenance contract.

Councilman John Ehrenreich was the first to say he was having a hard time supporting the B&O tax reform in the event voters reject the proposed property tax increase on November 6.

?I?m asking myself, are we going to raise taxes on businesses for services that the voters aren?t willing to pay for if they vote no on the levy,? said Ehrenreich.

Councilman Mike Courts agreed with Ehrenreich?s concerns and added, ?It?s an attitude of ?I still want someone else to pay for this, but not me.??

The idea of including a square footage classification within the city?s B&O tax is based on the community finance committee?s message that in order to solve the city?s financial problems, everyone has to contribute.

Currently, many businesses pay no B&O tax because of the way the city code is written despite engaging in substantial business activity within the city limits. DuPont city officials confirmed earlier this year that some of DuPont?s largest businesses ? State Farm, Intel, Dania, Pier One and others ? do not pay any B&O tax to the city, or if they do it?s a very small amount.

It begs the question: If a city B&O tax is designed to generate revenue from business activity inside the city, shouldn?t a business?s B&O tax be roughly proportional to the level of this business activity.

The B&O tax is a gross receipts tax, which does not allow any deduction for expenses. Currently, the city has eight classifications for the B&O tax: extractor or extractor for hire, manufacturer, wholesale sales, retail sales, retail services, printing and publishing, processing for hire and other.

All of these classifications are taxed at the same rate of 0.1 percent. The DuPont City Council has the authority to raise this rate to 0.2 percent. Anything higher requires voter approval.

Some Washington cities, such as Bellevue, have a square footage classification as part of their B&O tax code to tax business activities where an office, warehouse, distribution center, or similar facility in the city does not generate revenue taxable under a gross receipts tax.

The City of Bellevue imposes a square footage tax based on a quarterly 23 cents per square feet tax rate. Recently, the City of Kent adopted its own B&O tax that includes a square footage classification to raise an estimated $5 million annually specifically for street repairs. The Kent City Council took the approach of assessing the square footage of a business at 12 cents per square foot annually for warehouses, and 4 cents per square foot for other businesses that are larger than 500 square feet. The article in the online paper KentReporter stated that a business must pay the higher of the gross receipts or square footage tax. You can read the entire article linked here.

Originally adopted in October?1976, DuPont?s current B&O tax was repealed in 2008 and replaced by the state?s current model ordinance for local B&O taxes.

Over the summer, the debate over B&O square footage took center stage during Mayor Grayum?s meetings with local businesses. It should be noted that attendance at these meetings were low, and the businesses that would be directly affected by a potential B&O square footage failed to show up.

Grayum wanted feedback on several ideas, which included proposals to double the city B&O tax rate to 0.2 percent as recommended by the community finance committee, adopt a square footage B&O tax classification, and implement other business license reforms.

They mayor received mixed recommendations from the businesses that attended. He ultimately recommended that the city look at business license reforms, develop an economic development plan that would?strengthen?the local economy and help diversify DuPont?s tax base, and establish a square footage B&O tax for businesses not currently paying B&O to fund the implementation of the economic development plan.

Susan Seuss with the Economic Development Board for Tacoma Pierce County attended Mayor Grayum?s business meetings, and has presented at several council meetings to discuss economic development in DuPont.

A significant concern for the mayor and council is to avoid making changes to the city?s tax code that scares away developers. Seuss recommended that the city avoid doubling DuPont?s B&O tax rate.

?If you make any reforms, be clear about why you?re making them. You already have a B&O tax in place. If you modify it, make sure there are clear reasons on why the change is being made. Businesses like predictability,? said Seuss.

Seuss did suggest that if the city could repeal the B&O tax, it could be a huge advantage for the city in attracting developers. Given the current financial situation, that isn?t a likely scenario. The city receives approximately $200,000 annually from B&O taxes. Taking that revenue away would only increase the city?s budget deficit.

Source: http://www.southpugetsoundnews.com/news/the-debate-over-duponts-business-and-occupation-tax/

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