City of Kent plans minor changes to B&O tax

Kent city officials plan to make a number of minor changes next year in the city’s new business and occupation (B&O) tax, including the exemption of homeowners associations that are now required to pay the tax on gross receipts of its dues.

The city also requires all businesses to file even if a company’s gross receipts are under the $62,500 exemption per quarter.

“This is a new tax,” said Tom Brubaker, city interim chief administrative officer, at a July 16 City Council workshop about the tax. “People come to us and wonder why they have to file when they do not owe any tax. But we need a data base for all the businesses that exist in Kent. We feel we need to keep the tax as is this year and then bring it back for adjustments after one year.”

The council adopted the tax last year to raise funds to repair streets. The tax became effective Jan. 1.

City officials have heard a number of complaints from issues not necessarily addressed in the ordinance.

“Homeowners associations are now required to pay on their dues,” said City Finance Director Bob Nachlinger. “Almost all of our sister cities give homeowners associations an exemption.”

Nachlinger said none of the changes would cost the city much revenue.

“There are a number of little cleanup items we need to do and none mean a lot of dollars to the city,” he said.

In fact, Nachlinger said the city has now taken in $911,000 for the first quarter as a number of businesses filed late but eventually paid the first-quarter tax. City officials project at least $3.2 million in revenue from the tax this year.

The council could vote to change the B&O tax ordinance at any time to clear up exemptions and filing requirements, but seemed to agree it would be best to wait after the first year to vote on all of the changes at once.

David Galazin, assistant city attorney, told the council it could make changes retroactive if it passes a new ordinance early next year.

Other changes could include giving home-based businesses that do not owe any taxes a non-filing status and allow some businesses to pay annually rather than quarterly.

“We need to collect data and assess it,” Councilman Bill Boyce said. “Bottom line is no one likes to pay the tax but we need to make it as easy as possible.”

City officials have run workshops about paying the tax and plan to host more workshops. Companies can also pay the tax online on the city’s website at kentwa.gov.

“It’s a challenge to the business community and we’re open to suggestions,” Brubaker said.

The city will waive late fees for businesses that missed the first-quarter payments if they pay by July 31, Nachlinger said. And businesses that already paid a late-filing fee can get a refund.

The city also adopted a square footage tax as part of its B&O tax to capture revenue from businesses that conduct a lot of activity in Kent and place a large demand on city infrastructure (traffic on roads) without generating gross receipts taxable by the city.

Representatives of what are called third-party liquidators warehouses asked the city in June to reduce the square footage tax charged to about a dozen warehouses because the warehouses store products for other companies and therefore have low revenue. The companies claimed the square footage tax has caused a major impact to the businesses.

The council didn’t take any action to reduce the square footage tax for third-party warehouses because it is designed to cost more than the B&O tax to help cover the truck traffic created by the warehouses.

“The traffic at those warehouses is no different,” Councilwoman Dana Ralph said.

The council, however, will look at additional information gathered by city staff after meeting with warehouse representatives before making a decision about how to tax the third-party warehouses.

Nachlinger said he would update the council in August about the amount of second-quarter revenue from the tax. Businesses must make those payments by July 31.