Sides trying to make flawed tax workable | Guest op

By Andrea Keikkala
For the Kent Reporter

On Tuesday, the city of Kent passed a business & occupation (B&O) or square footage tax after months of deliberation with the business community.

The Kent City Council and the Kent Chamber of Commerce businesses originally began a conversation in the late summer to discuss the considerable need for street maintenance funds to fix our rapidly deteriorating streets.

The approach by the city was framed as an emergency with the threat of road closures. A list of critical street maintenance projects was presented by a citizens committee and various funding sources were identified. Those sources included a levy, which will be voted on by the public this November to fund street maintenance and imperative park infrastructure, city efficiencies of $2 million and a business tax of $4-6 million.

The chamber reviewed all business tax options available with our government affairs team, board of directors and large, Kent-based businesses. The need for a B&O or square footage tax was apparent and the will of the council to impose this tax was overwhelming.

The chamber had no choice but to advocate for and build caveats into the B&O or square footage tax that would protect the business community and still fund our crucial transportation infrastructure

The Kent Chamber’s key components, to make this fundamentally flawed tax on a business’s gross revenue palatable for the business community, was passed Tuesday night and included:

• Adoption of a targeted collection amount of $5 million annually. From this revenue stream $4.7 million is designated to street maintenance projects, which are specifically outlined in the citizens committee proposal and $300,000 for administrative costs. Because the exact calculation of collection is unknown, any additional revenue collected from the B&O or square footage tax is directed to the Capital Improvement Program. It will take council action to designate additional funds.

• The first $250,000 in a business’s annual gross revenue is exempt.

• The funds collected from a B&O or square footage tax must be designated for road maintenance and be included as a line item in the future budgets of the city. The Kent Chamber’s intention is to make certain that such taxes be designated for street maintenance and to hold the city of Kent accountable for the spending of these funds.

The chamber’s request for the six-year sunset clause was not included, with council members concerned about the recent downgrade in the bond rating. Many council members cited that having a sustainable funding source would boost the bond rating.

The Kent Chamber recognizes the rationale by many of the council members regarding the sunset clause and will continue to push the issue of a closure for the B&O or square footage tax during future budget cycles.

The rates of the B&O or square footage tax are as followed:

• Manufacturing: 0.00046 with provision for exemptions on research and development under federal contracts.

• Retail: 0.00046

• Service: 0.00152

• Wholesale: 0.00152

Who’s exempt?

Nonprofit organizations, health maintenance organizations, health care service contractors, certified health plans, public utilities, investments – dividends from subsidiary corporations, international banking facilities, insurance business, farmers-agriculture, athletic exhibitions, racing, ride sharing, employees, amounts derived from sale of real estate, mortgage brokers’ third-party provider services trust accounts, amounts derived from manufacturing, selling or distributing motor vehicle fuel, amounts derived from liquor and the sale or distribution of liquor, casual and isolated sales, accommodation sales, taxes collected as trust funds, and United States/Washington State governmental entities will be exempt from the tax.

The first $250,000 in gross revenue is exempt.

The square footage tax will be assessed at $0.12 annually on warehouses and $0.04 annually on all other businesses. The businesses will pay the higher of the B&O tax or a square footage tax, but not both.

Of the 39 cities in the state of Washington that impose a B&O or square footage tax the city of Kent’s new ordinance sets levels well below the average. While this is a fundamentally flawed tax that the Kent Chamber of Commerce is opposed to, we want to thank the City Council for the open and active dialog, consideration and implementation of our caveats and the many hours of careful consideration in regard to our economic vitality.

Many council members showed great leadership and ability to work closely with both sides, taking the time to understand the impacts of this tax on our business community. It was through this dialog that we were able to establish the specific problems with our street maintenance, bring the business community together with city officials and designate the funds of a B&O or square footage tax to address them.

Andrea Keikkala is executive director of the Kent Chamber of Commerce. Reach her at 253-854-1770 or www.kentchamber.com.