House bill requires city to change business tax structure

City officials are looking into how HB 2005 will affect the way businesses pay B&O and head taxes.

Business owners in Renton may soon have to change how they apply for licenses and pay their taxes .

City officials are looking into how a state bill passed this year will affect the way businesses pay Business and Occupation (B&O) taxes and per employee business taxes (head tax).

House Bill 2005, which went in effect on July 23, sought to improve “the business climate in this state by simplifying the administration of municipal general business licenses.”

Currently in Renton, businesses that have a gross revenue of $1.5 million or more pay a B&O tax, and businesses who make less than that pay head tax. Businesses that fall under the exception (for example small businesses that have one or two employees) need to only pay the licensing fee.

There are nearly 6,000 businesses registered within the city of Renton. About 7.5 percent pay B&O tax, 30 percent pay head tax and the remaining pay for licensing.

Financial Service Manager Kari Roller updated the City Council at a Sept. 25 Committee of the Whole regarding the challenges the bill poses to the city.

The bill requires the city to join one of two portals that will help administer taxes and licenses.

One option is a state business license system that is administered by the Washington Department of Revenue. This online portal helps with licensing but does not allow businesses to pay city-administered taxes.

The other option is FileLocal, a system sponsored by the cities of Seattle, Bellevue, Everett, Tacoma and Lake Forest Park. The system allows for businesses to pay licensing fees and city-administered taxes.

Roller said officials are looking into both options to see which is the most feasible for the city. She also said they do not yet know how much either system will cost.

The state is requiring all cities have a system running by July 2020, which Roller said is a tight deadline. Once officials come back to City Council with their analysis and recommendations, and the council votes on an option, it will take the city about a year to switch to the new system.

Both options are a challenge, especially since Renton is one of the few cities in the state that requires a head tax, Roller said.

It is unclear how much either system will allow the city to customize it without significant costs.

“We’re also looking at trying to provide revenue-neutral change — not increase taxes necessarily, we’re trying to make sure we’re in compliance with the programs we’re allowed to use,” she told the council.

She also said it is the city’s priority to minimize the impact to small businesses.

“(We want to) make sure it has minimal or no impact… to small businesses because it’s hard for them to absorb some of these changes.”

Officials will come back to the City Council on Nov. 6 with analysis and recommendations on how to move forward. The council is expected to vote on the issue later this year.

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