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Kent-based company criticizes city's B&O tax
A local recreational vehicle company has a load of complaints with the city of Kent's new business and occupation (B&O) tax.
The criticisms include the fast implementation of the tax, how the funds are spent and the heavy financial impact on businesses.
Brenda Campbell, controller for Poulsbo RV along Military Road on the West Hill, shared her company's story about the B&O tax on gross receipts the city implemented in January to raise an estimated $3.2 million this year and as much as $5 million in future years to help repair city streets.
"The nuts and bolts people like us in the accounting office and office managers is different from the City Council sitting down and saying, 'yes pass this, we need the revenue,'" Campbell said during an interview last week at her office near Interstate 5. "I understand the roads need to be fixed and the money needs to come from somewhere. Kent's credit rating has taken a hit, I get that. But it was all reactive, nothing was proactive.
"It didn't feel like there was a firm hand in place and that they thought it through completely how is this going to happen and how are we going to roll it out to people and answer the phone when we have questions. I got a busy signal when I tried calling in."
City officials, in partnership with the Kent Chamber of Commerce and Kent Downtown Partnership, held a workshop on the B&O tax Thursday. The free workshop was designed to help businesses understand the city’s B&O tax reporting responsibilities as well as ask questions that apply to specific businesses.
"I would have thought those workshops would have come before they put it in place rather than in the middle of it," Campbell said.
Michelle Wilmot, city spokeswoman, said the council's adoption of the new tax in October gave city staff little time to organize any workshops prior to the tax's implementation.
"The ordinance was not adopted until October and the B&O auditors were not on board until March and April," said Wilmot, who added the recruitment to hire two new auditors started in January.
"They (the council members) snuck this in," Campbell said. "They went from passing it in October to instituting it in January, which is really fast."
Wilmot said many businesses have told the city they like working with the city's website about the B&O tax and that it has taken some less than 10 minutes to file. She added the city followed the state's B&O model for the ordinance, which staff believed would help make it easier for businesses to file because they already pay that tax. The city also looked at the cities of Seattle and Bellevue B&O ordinances for guidance.
"We didn't anticipate there would be this level of confusion," Wilmot said.
The council adopted the tax on the gross revenue of businesses as part of its three-step approach they agreed on last July to fund park and street repairs. The other parts included a property tax levy lid lift that voters soundly defeated on the November ballot and the hiring of a consultant to find ways to cut $2 million from the city's budget. There is no sunset clause on the B&O tax, meaning it's here to stay unless a future council removes it. The Chamber wanted a sunset clause of six years.
The council passed the new tax to include $300,000 of the revenue to pay for two auditors to oversee the program. That auditing budget includes $226,468 in salary and benefits to the two auditors; $19,576 in computer and telephone services; $47,756 for tools, equipment and software; $5,200 for dues, membership fees, travel and training; and $1,000 for office supplies, Wilmot said.
"I want to know money is going to fix roads," Campbell said. "When you do something and telling a business you're going to hurt their bottom line, the money we give you better be used on what you told us it was for and then prove it to us. And don't spend $300,000 a year on (two) auditors."
Campbell also didn't like the council's decision on June 4 to use $2 million in B&O revenue to help pay for the $7 million Southeast 256th Street widening project. Council members approved a plan to repay the B&O fund over the next several years when enough money comes into the city through its Transportation Impact Fee (TIF). That fee is charged to new developments and preexisting structures with a major change in use.
"That sends up red flags," said Campbell, who has worked for three years at Poulsbo RV. "I'm a controller. When I see them do moves like that, they're taking money from the left pocket to right pocket and it doesn't affect the bottom line. I wonder who is managing the money and how we know money we pay in B&O tax is going straight to roads."
Councilwoman Dana Ralph said at a Public Works Committee discussion of the B&O tax on Monday that the council does need to make sure the funds are used for street repairs. So far, only the plans for asphalt paving along Central Avenue have been delayed because of the diversion of funds to Southeast 256th Street.
"We have a massive maintenance issue," Ralph said about city staff reports that $10 million annually is needed to fix streets. "My concern is the intent of the B&O is for (asphalt) overlay and maintenance. That's been our conversation all the way through and it's important not to lose sight of that. As long as I'm here, that's what we're trying to do with this."
Public Works Director Tim LaPorte responded to Ralph that city crews are using the B&O revenue this summer for asphalt overlay projects along West Meeker Street near 64th Avenue South as well as along 64th Avenue South near South 228th Street. The tax brought in $614,000 in the first quarter.
"I was down on Meeker and they paved it and it's nice," Campbell said. "We do a lot of business in Kent. We bank here. Our employees go to Kent Station. We know roads are bad and need to be fixed. I just don't think (a tax on) gross sales on a business is the right answer."
Poulsbo RV has 88 employees at its flagship store that's operated in Kent since 1999. The company paid $4,000 to the city in the first quarter for the B&O tax, Campbell said. She expects that to increase to $6,000 to $8,000 in future quarters as business picks up the rest of the year.
Kent exempts the first $62,500 of gross receipts each quarter. But Campbell said that's one sale for the company as prices range from $30,000 trailers to $280,000 motor homes.
"For it to be based on gross instead of net it has nothing to do with income," she said. "It doesn't take into account the utility (sewer, water) taxes we pay to Kent. We pay twice as much for utilities at this location than either of our other (four) locations and this facility is similar to our Snohomish County store."
Poulsbo RV has locations in Auburn, Fife, Everett and Mount Vernon. None of those cities charge a B&O tax. The company also pays the state B&O tax, which cost $33,000 for the Kent location for the first quarter of this year.
"We pay Kent sales tax already," Campbell said. "We paid $168,000 in the first quarter to the city of Kent through the state Department of Revenue for its 3 percent sales tax."
Campbell prefers to see the city make more cuts rather than finding more ways to raise revenue.
"They should run the city like a business," she said. "There are hard decisions to make. We made them. We got hit as hard as any city. Nobody was buying anything. We're just getting back to business. Last year was still hard. This year is great so far. We had a great winter here and winter is usually a tough period for us."
If Poulsbo RV decides city taxes are too high, it might look down the road at leaving Kent.
"For us to do business here, it (the B&O tax) puts the store in a $5,000 to $8,000 disadvantage to other stores and puts the city at a disadvantage to other cities," Campbell said. "Our Everett store is big enough to be a flagship store. It (moving) depends on how this works out. If within six years we don't see movement, it has to be a consideration."
Ben Wolters, city economic and community development director, said it's still early in the implementation of the tax so he hasn't heard much about companies planning to move out of Kent.
"We've had a couple of businesses voice the opinion that they might leave Kent," Wolters said during a phone interview. "Overall, most opinions we hear is they are accepting it as a necessity and trying to understand how the tax applies to their business."
Poulsbo RV survived the recession through closing locations, salary cutbacks and layoffs. Now the company's trying to bounce back.
"We're trying to grow business so we can make more here and go spend it," Campbell said. "But why don't we go down to Fife? Fife doesn't have it (a B&O tax). Fife is very dealership friendly, both the representatives and the city. Kent, not so much at the moment."
Wolters said Kent added the B&O tax because property taxes and sales taxes no longer bring in as much revenue to provide city services. He said he expects other South King County cities will add a B&O tax in the future because of similar financial shortfalls. He added the city of Renton has had an employee head tax for years but that hasn't kept businesses out of Renton.
"After the first year or so we'll have a better handle on whether businesses will stay put, change practices or move," Wolters said. "We haven't heard any widespread outcry."