Most recently, the Washington Policy Center's Part I: Characteristics of a Responsible Business Tax System, has become available. This is their opening shot (Part I of III promised), that begins realistically enough as an introduction to the Washington B&O tax set in a context of what a tax is and is supposed to do.
This opening paper by the Washington Policy Center was eerily similar to an integral part of the final report by Tacoma's Service Tax Task Force report about reforming Tacoma's revenue system. Your Chamber had a representative participate in this review of Tacoma's tax system. A significant recommendation to the City Council was that Tacoma's (portion) of the B&O tax be nixed as it is an impediment to economic development of the City.
Recently, the City Council's Government Performance and Finance Committee surfaced the issue of the Tacoma B&O tax, partly in the context of the Russell Investment retention effort, but also from a desire to grow the economy (and tax base) of the City.
As abhorrent as many businesses find the B&O tax, it is easy to understand the dilemma the City finds itself: desiring to be more business-friendly engendering development and jobs vs. retaining funding necessary for city services. As an example, the City's 07/08 budget anticipates $81,551,200 in revenues from the business tax, which is 20% of their revenue source. That's a budget cut that is not easy to absorb.
Tacoma's history with the B&O has been that of the good intentioned and the greedy. Tacoma was grandfathered into its higher-than-state-allowed rates. But, it has never increased rates even more as the grandfather clause allows, according to Mayor Baarsma. The City had been on a ramp-down process for the B&O from 1999 to 2002, when its continued reduction was halted. But, it raised the B&O floor to $70,000 in 2001. (If the floor had been indexed to inflation, it would now be $83,247.)
Complicating B&O reductions beyond the international services tax initiative is the state's mandate of the apportionment of taxes back to jurisdictions (a sharing of sales tax to jurisdictions where goods or services are delivered).
Committee Chair Mike Lonergan and Councilmember Julie Anderson were outspoken in their desires to improve the economic climate of the community by addressing the burdens of the B&O tax system, although positive attitudes on the issue were heard from other councilmembers.
Ryan Petty, Director of the Tacoma Economic Development Department, Alan Harvey, a member of the former STTF and Gary Brackett, your blogger and also a member of the STTF, were asked to share viewpoints about the B&O and its reduction. Petty recommended the Council look to industrial targets consistent with the City's strategic development plan, and to tailor incentives consistently. Alan Harvey spoke only briefly about the compliance issues associated with the B&O tax in recognition of the unfairness of this taxing methodology. Brackett supported Petty's comments on focusing on strategic goals with its taxing policies. Specifically, Brackett noted that reductions in a B&O tax could be accomplished by:
- focusing on strategic objectives
- raising the floor overall
- setting a maximum payment
- relating to employment sizes
- overall reductions among all payers
As with the City's initiative with the international financial services elimination, getting rid of the B&O can be done over time, rather than aggravate budgetary challenges with significant revenue reductions.
All this discussion comes as the objective of the City Council is to provide sufficient revenue for the needs and desires of the City's citizens is best accomplished by growing the tax pie or keeping a significant portion of what exists now. For a discussion of what tax burden Washington's businesses carry, with implications for their economic competitiveness, see the new 6th annual report by the Washington Alliance for a Competitive Economy.