Tacoma City Council is expected to vote today on 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 before city council 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.

The ordinance received its first reading during the city council meeting Nov. 23.

“We have been working on this at the committee level since earlier this year, even prior to our retreat,” said Mayor Strickland during the meeting. “I’m very pleased to see us move this piece of legislation along. I know that during these budget times when we’re trying to cling to every single dollar we have in city funds, I think it’s very courageous for this council to agree to do something like this that will help our small business community.”

It’s good news for small business owners, but it leaves 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, scheduled to be adopted Dec. 7.

The B&O tax issue was discussed at length during city council’s study session Sept. 14.

During that meeting Mayor Strickland said the city could see some revenue gains if small businesses decide to open in Tacoma because of the change in legislation. 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 $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 final reading of the ordinance followed by a vote will occur during Tacoma City Council’s meeting Tues., Nov. 30 at 5 p.m. in the Tacoma Municipal Building, 747 Market St. It will be streamed live at http://www.tvtacoma.com and broadcast live on TV Tacoma.

– – – – – – – – – – – – – – – – – – –

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

Change to B&O tax policy reaches City Council Nov. 23 (11/15/10) — http://www.tacomadailyindex.com/portals-code/list.cgi?paper=88&cat=23&id=1874756&more=0

City considers B&O tax break for small business owners (09/14/10) — http://www.tacomadailyindex.com/portals-code/list.cgi?paper=88&cat=23&id=1838481&more=0

Mayor Strickland discusses Tacoma’s B&O tax (09/15/10) — http://www.tacomadailyindex.com/portals-code/list.cgi?paper=88&cat=23&id=1839304&more=0