Kent gets $614,000 from B&O tax revenue in first quarter

The city of Kent’s new business and occupation tax (B&O) brought in $614,000 for the first quarter of this year.

City staff estimated the new tax would bring in an estimated $5 million per year when the City Council adopted the tax last year to raise money for street repairs. At the current rate, the tax would raise about $2.5 million for the year.

“It does raise an eyebrow,” Councilman Bill Boyce said about the first-quarter report released at a May 21 council workshop. “But we will not really know for a year where we are at. The first few months does not really show where we are. Our goal is $5 million. By the fourth quarter we’ll have a good idea.”

City Finance Director Bob Nachlinger said at a Public Works Committee meeting on Monday that the $614,000 actually exceeded his projections for the new tax. He expects the revenue figure to grow by about $150,000 per quarter the rest of the year to easily cover the planned expenditures of $500,000 this summer on street repairs. Labor costs of $300,000 for two city auditors also comes out of the B&O revenue.

City staff has revised its revenue projection to $3.2 million for this year. The council on Tuesday approved a plan to use B&O revenue to help pay for the Southeast 256th Street project.

The revenue for the first quarter included $223,000 from the gross receipts tax and $391,000 from the square footage tax component from the 563 tax returns filed with the city. The city has 5,041 businesses with city business licenses, according to city documents. That number includes 2,840 commercial business licenses; 1,051 contractor licenses; 631 home occupation licenses; and 519 other business license types.

Councilwoman Jamie Perry told staff she would like to see non-compliance numbers as part of the next quarterly report from the City Finance Department.

The city 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 without generating gross receipts taxable by Kent.

The city has lost sales tax revenue over the last five years since the streamlined sales tax measured passed by the Legislature in 2008 changed the state from an origin-based system for local retail sales tax to a destination-based system. That cost Kent a lot of tax money with so many businesses in the city that ship or deliver goods to other areas of the state. The sales tax is now collected where the buyer purchases merchandise rather than where the product shipped from.

City officials are using the square footage tax to try to cover some of that lost revenue, although the state does give the city streamlined sales tax mitigation funds to help cover the lost revenue.

“The square footage tax is a way to gauge track traffic,” said Council President Dennis Higgins.

The city’s implementation of the B&O tax hasn’t been simple by any means. Higgins said he receives email complaints about the time it takes to fill out the forms.

“We don’t claim to have hit a home run on the first shot,” said assistant city attorney David Galazin, who added revisions could be made.

Council members also heard from businessman Tom Dooley, who spoke on behalf of what are called third-party warehouses, and asked the city to reduce the square footage tax charged to about 15 warehouses. He said the warehouses store products for other companies and therefore has low revenue but the square footage tax has caused a major impact to the businesses.

“We understand the tax is needed for roads but we want a more equitable tax,” said Dooley, who asked the tax to be reduced from three cents to one cent per square foot.

Dooley said he would appreciate any decision sooner rather than later. Council members didn’t indicate when they might change any rates for third-party warehouses.