Carnation votes on B&O tax
October 2, 2008 · Updated 2:10 PM
CARNATION - The Carnation City Council was expected to vote Tuesday on the final approval of a business-and-occupation (B&O) tax to be imposed on all businesses within the city.
The Valley Record went to press before the council's meeting Tuesday night.
Council members decided to create the tax to help fund additional police support, sewer development, street improvements, beautification of the business corridor and other services.
"As we plan our next year's budget, our revenue is less than our needs or our usual spending," said Mayor Bob Patterson on the reason a B&O tax is being considered. "In other words, unless we find additional funding sources, we will be short. Your revenue has to grow alongside your costs."
He explained that city officials feel they need to try to establish a broader tax base, which would generate money for city improvements, which in turn would attract more businesses to Carnation.
The Carnation staff has been planning, studying and developing the B&O tax for six months, and the city held two hearings for the business community to have input on the ordinance. The ordinance passed as a first reading during the April 24 City Council meeting. The tax, if the ordinance passed on Tuesday, will be due each quarter, on Jan. 31, April 30, July 31 and Oct. 31. It will apply to retail, service, manufacturing and wholesaling, and will begin July 1.
Of the state's 287 cities, 35 impose a B&O tax, including North Bend, Snoqualmie, Issaquah, Seattle and Bellevue. These cities use B&O tax revenues for their general fund, which pays for police and fire protection, streets and traffic services, parks and recreation, community development and other city operations.
There are exemptions to the tax, including non-profit organizations, clubs or corporations that are in existence to support organized sports, charity, activities related to public schools and municipal corporation-related activities, such as police and fire department reserves. Also exempt from the tax are gross income or proceeds from liquor and motor vehicle fuels.
Businesses that gross less than $10,000 a quarter will not have to pay the tax, and those with gross quarterly earnings of $10,000.01 to $15,000 will pay $10. The majority of the city's more than 150 businesses will be exempt. The tax percentage for businesses that gross more than $15,000 per quarter will be 0.175 for manufacturing, 0.165 for wholesale, 0.150 for the service category and 0.125 for retail. For example, a retail business with gross sales of $20,000 in one quarter would multiply that by 0.125 percent, for a B&O tax amount of $25.
"It really takes $1 million to really be a significant amount," said Rich Gould, director of finance for Carnation. Individual business owners can find out what category they are in by looking at their state tax form.
Although the exact amount of money the new tax will generate is unknown at this time, Patterson said that relative to the budget, it won't be that much.
"We don't see it as a savior at this time, but we need it as the city grows. It will provide us with a broader tax base, so we need to implement it now," Patterson said. However, state cities that imposed the B&O tax collected more than $181 million from it in 1997, and the money accounted for an average of 12 percent of each city's budget, according to a report by the Municipal Research and Services Center of Washington.
Although city officials see the tax as beneficial, some of Carnation's business owners are not pleased with it.
"The economy has changed since the City Council started talking about this. Businesses are hurting, and a B&O tax would hurt us even worse," said Eric Torrison, a Carnation business owner. "If the city really needs the funds, the city should justify it to the voters through a levy instead of making a small number of family-owned businesses pay out of already meager profits.
"It seems to me that if you want to attract new businesses, you don't do it by slapping a tax on them," he added. "It seems the businesses we want are ones that generate high sales-tax revenue, but the more sales-tax revenue they generate, the more B&O tax they'll have to pay, so they won't come here in the first place. So we're repelling the very businesses we want to attract."
Still, city officials say additional funding is needed in order to accomplish future goals.
"We realize that this will be a burden on some businesses but our goal, or our aim, is to do what's best for the city and we're looking long-range. So we would be sympathetic to some individual businesses, but we do need to broaden our tax base and be able to get more revenue. And we need a sewer, and that costs money," Patterson said.