Issue heats up as Vancouver’s city council shifts gears in boosting funds from business
The rigging will soon wear out if Vancouver finds any more options to possibly increase funding from business to run up the flagpole, because so far no one is saluting what has been raised. What will happen with the latest proposal to resurrect the business and occupation tax is anybody’s guess.
In April, after rejecting the latest of numerous business license surcharge proposals, the council doubted it would pursue that option again. But less than two months later, another surcharge proposal was back in front of city council. Following feedback from businesses at a public hearing in June, the council once again rejected the proposal but sounded optimistic a workable solution was near. In another twist, the surcharge option was recently scrapped and city staff recommended the council consider the B&O tax. The move increases funding from business from $3 million under previous proposals to $12 million under the B&O tax.
"The city attempted to step back and look more broadly," said City Chief Financial Officer Lloyd Tyler.
Tyler said the $3 million that could have been raised by a surcharge was at the low end of the needed funding for transportation and did not represent a long-term solution to the city’s funding requirements. Additionally, the surcharge was one part of a three-part initiative to fund transportation and public safety.
Other elements of the package included an increase in the sales tax from 7.7 percent to 7.9 percent last year and asking voters to approve a property tax increase. It was originally thought that the city would seek the property tax increase this fall, but it was decided to postpone the property tax piece because of the library bond issue planned for the ballot. As a result, it could be until 2008 before a property tax increase, if approved by voters, would generate revenue for the city.
The B&O tax offers a long-term solution and provides greater funding for transportation and police and fire while eliminating the need to raise property taxes.
The Greater Vancouver Chamber of Commerce has worked with the city to elicit feedback from the business community and craft funding options, but it has been outspoken against implementing a B&O tax.
"It’s a regressive tax," said outgoing GVCC president John McKibbin. "You can end up paying a lot with a slim margin of profit."
The GVCC board voted unanimously to oppose the B&O proposal. A survey of members showed little support for the tax as well. About 87 percent of 139 respondents disagreed with reinstating the B&O tax.
The city had a B&O tax for 39 years before it was phased out from 1993 to 2002. The proposal being considered by the city council calls for phasing the tax back in over four years beginning in 2007. A single rate would be charged to busi-nesses.
The first year businesses would pay $1.10 per $1,000 of gross receipts, raising an estimated $8.8 million. By 2010, businesses would pay $1.50 per $1,000 of gross receipts, raising an estimated $12 million. The B&O rate would then increase at the rate of inflation, but could not exceed the state limit of $2 per $1,000 of gross receipts. Businesses with annual revenue less than $50,000 would be exempt.
In 1992, Vancouver had three different B&O tax rates. Manufacturers paid 22 cents per $1,000, service businesses paid $2.20 and all others paid $1.10. Of the 40 cities in the state with a B&O tax today, 25 have a single-rate structure.
At complete phase-in, a business with revenue of $50,000 would pay $75; a $500,000 business would pay $750; a $1 million business would pay $1,500; a $5 million business would pay $7,500 and a $25 million business would pay $37,500.
A 2001 study prepared for the city of Kirkland by ECONorthwest provided Vancouver with hypothetical scenarios for various businesses. According to the study, a furniture store with annual revenue of $1.1 million would pay $1,650 at the $1.50 rate in 2010. A restaurant with annual revenue of $2.6 million would pay $3,900. An engineering firm with revenue of $6.4 million would pay $9,600, and a big box retail store with $90.8 million in revenue would pay $136,200.
McKibbin said the B&O tax is not in line with the city’s open for business stance.
"Large business paying tens of thousands of dollars is not attractive for recruitment," he said.
The impact depends on the type of business, but the profits of a business with a high sales volume and low profit margin are impacted more.
The city is expected to move ahead with the proposal with a first reading at its Aug. 7 council meeting. The council will then have its first opportunity to vote on the ordinance following a public hearing on Aug. 21.
