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Home My WebLink AboutCommittee of the Whole - 11 Oct 2021 - Agenda - Pdf CITY OF RENTON AGENDA - Committee of the Whole Meeting 6:00 PM - Monday, October 11, 2021 Videoconference 1. B&O TAX CHANGES a) Presentation Currently, due to the spread of COVID-19, all regularly-scheduled committee meetings will be held as necessary via video-conference. City Hall is closed to the public. If you would like to attend this week's meeting remotely, you can do so by going to https://us02web.zoom.us/j/86753290028?pwd=M2pOc09HWWNrY05uVnlIWnpGS1E4UT09 Zoom Meeting ID: 867 5329 0028, Passcode: 881839 You can call through Zoom at (253) 215-8782 and use the Meeting ID. B&OTAX UPDATESOCTOBER 11, 2021AGENDA ITEM #1. a) COUNCIL RETREAT OVERVIEW•During council retreat several revenue options were presented including:•B&O tax thresholds•B&O tax rate adjustment•B&O tax cap increase•Based on council feedback, staff has prepared further analysis on potential adjustments which we will present today.AGENDA ITEM #1. a) LONG RANGE FORECAST OVERVIEWAGENDA ITEM #1. a) HOW WE COMPAREQuarterly AnnualBellevue (425) 452-6851 0.001496 0.001496 0.001496 0.001496 $170,000Burien (206) 241-4647 0.001 0.001 0.001 0.001 $200,000Everett (425) 257-8610 0.001 0.001 0.001 0.001 $5,000 $20,000Issaquah (425) 837-3054 0.0012 0.0012 0.0015 0.0012 $25,000 $100,000Kent (253) 856-6266 0.00046 0.00046 0.00152 0.002 $62,500 $250,000Renton (425) 430-6400 0.00085 0.00050 0.00085 0.00085 $500,000Seattle (206) 684-8484 0.00222 0.00222 0.00427 0.00222 $100,000Tacoma (253) 591-5252 0.00110 0.00153 0.004 0.00102 $250,000Local business & occupation (B&O) tax rates^Effective January 1, 2021City Phone # ManufacturingrateRetail rate Services rate WholesalerateThreshold*Note- Kent and Bellevue also have a square footage taxAGENDA ITEM #1. a) LICENSED BUSINESS BY TYPEType Total Percentage Primary ClassificationRetail & Construction 3,564 43.8% Retail/WholesaleServices 2,278 28.0% Service and OtherHealth Care and Social Assistance 649 8.0% Service and OtherManufacturing 256 3.1% ManufacturingFinance and Insurance 183 2.2% Service and OtherWholesale 330 4.1% WholesaleTransportation and Warehousing 139 1.7% Service and OtherArts, Entertainment and Recreation 1121.4% Retail/Wholesale/Retail ServicesReal Estate and Rental and Leasing 631 7.7% Retail ServicesGrand Total 8,142 1 AGENDA ITEM #1. a) CURRENT TAX BASE•Approximately 1200 (15%) businesses currently paying tax (remainder below threshold)•60% (720) of all businesses paying tax report at least some retail activity •Top 50 retailers make up 70% of all retailing B&O taxes collected•Retailing B&O tax makes up approximately 13% of taxes collected in a year (40% of all licensed businesses primary classification is retailing)•Nearly 90% of B&O taxes collected are reported on a quarterly reporting frequency with approximately 80% of tax revenues collected between Q1 and Q3 of a typical yearAGENDA ITEM #1. a) B&OTAX ORDINANCE ADJUSTMENT OPTIONS1.Lower tax threshold 2.Increase tax rates3.Increase maximum tax cap4.Combination of options aboveAGENDA ITEM #1. a) LOWER THRESHOLD•Approximately 1200 businesses currently paying tax•Additional 500-600 taxpayers by lowering threshold to $250,000•Anticipated net revenue increase of $150,000•Increased administrative burden with additional filers, likely additional refunds, additional delinquencies. Revenue increase may be offset by administrative costs. •Currently highest threshold at $500,000, lowering may impact smaller businesses and reduce Renton’s business startup/relocation encouragement•Renton is one of the highest business license fees for businesses at or below $250,000, lowering the threshold may impact new small businesses from opening or continuing operations•Threshold cannot be removed entirely per state statutes1AGENDA ITEM #1. a) INCREASING TAX RATES2Non-Retail Current .00085 .00095 .001 .00125Revenue Increase $0 $600,000 $900,000 $2,400,000Rate % Increase 0% 11.7% 17.6% 47%Retail Current.0005 .00055 .0006 .00075Revenue Increase $0 $150,000 $300,000 $700,000Rate % Increase 0% 10% 20% 50% AGENDA ITEM #1. a) INCREASING MAXIMUM TAX CAP•Currently 2021 tax cap amount is set to $4.83 Million adjusted annually by inflation•Only city in Washington to have a maximum tax amount•Impact of increasing maximum tax•Council can choose to increase or eliminate tax cap generating additional tax revenues•In optimal economic conditions eliminating the tax cap could generate an additional $10-$15Million in tax revenue per year•Current economic conditions could limit this to $1-5Million of tax revenue per year.3AGENDA ITEM #1. a) INCREASING MAXIMUM TAX CAP3Tax Cap Increase Increase $1M per year 5 year phase outIncrease $1.5M per year 5 year phase outIncrease $2M per year 5 year phase outAdditional revenue first year$1,000,000 $1,500,000 $2,000,000Percentage Increase 20% 31% 42% AGENDA ITEM #1. a) COMBINATION OF TAX ADJUSTMENTS•Based on analysis of each potential tax modification as a standalone change it will likely be beneficial to make various changes to ensure the City’s long term financial position and to equitably apply tax changes to a broad base of taxpayers. •The next several slides present combinations of changes that can be made, and the long-term impact of each change. 4AGENDA ITEM #1. a) LONG RANGE IMPACT REVENUES VS EXPENDITURES490951001051101151201251301352019 2020 2021 2022 2023 2024 2025 2026 2027Operating Revenues vs expendituresBaseline RevenueExpendituresCap 2M, .001 and .006 rates.00095 and .00055 Rates2M Cap per year2M Cap .00125 and .00075RatesAGENDA ITEM #1. a) LONG RANGE IMPACT ON FUND BALANCE4-40-30-20-1001020304050602019 2020 2021 2022 2023 2024 2025 2026 2027Ending Fund BalanceBaseline Ending Fund BalanceCap 2M, .001 and .006 rates.00095 and .00055 Rates2M Cap per year2M Cap .00125 and .00075RatesAGENDA ITEM #1. a) STAFF RECOMMENDATION•Adopt multiple tax ordinance changes below:•Increase Cap $2M per year with 5 year phase out•Increase Non-Retailing rate to .001•Increase Retailing rate to .0006•Do not change threshold•Implement tax cap change in 2022 effective 1/1/2022•Implement new tax rates in 2023 effective 1/1/2023•Remove inflationary limitation from B&O tax codeAGENDA ITEM #1. a) STAFF RECOMMENDATION IMPACT ON BUSINESSES•Impact on businesses will vary, two examples below for illustrative purposes•Service Business (Law Firm) with $1M in Renton taxable receipts•Retail Business (Restaurant) with $1m in Renton taxable receiptsRENTON B&O TAX DUEOLD RATES $850.00NEW RATES $1,000.00DIFFERENCE $150.00RENTON B&O TAX DUEOLD RATES $500.00NEW RATES $600.00DIFFERENCE $100.00 AGENDA ITEM #1. a) STAFF RECOMMENDATION IMPACT ON B&OTAX BUDGETYear No Changes MadePercentage of Total revenuesStaff RecommendationPercentage of Total Revenues2022 $9,500,000 8.9% $12,460,000 11.3%2023 $9,690,000 8.9% $14,949,200 13.1%2024 $9,884,000 9.0% $17,248,000 14.6%2025 $10,081,000 9.0% $17,593,000 14.6%2026 $10,283,000 9.0% $17,945,000 14.6%2027 $10,489,000 9.0% $18,304,000 14.7% AGENDA ITEM #1. a) LONG RANGE FORECAST WITH STAFF RECOMMENDATIONAGENDA ITEM #1. a) PROPOSED TIMELINE OF IMPLEMENTATIONOctober 2021Committee of the Whole PresentationNovember 2021Ordinance First ReadingNovember 2021Ordinance Second ReadingNovember 2021Outreach on New Rates and CapJanuary 1, 2022New Cap Effective DateMarch 2022Presentation to Chamber of CommerceSummer 2022 Final Outreach on Rate ChangesJanuary 2023New Rates Effective DateAGENDA ITEM #1. a) COUNCIL ACTION•Committee of the whole presentation for consideration: October 11, 2021•Draft ordinance to council: November 8th, 2021•Ordinance first reading: November 15th, 2021•Ordinance second reading and adoption: November29th, 2021AGENDA ITEM #1. a) QUESTIONS?AGENDA ITEM #1. a) STAFF CONTACT•Nate Malone – Budget & Accounting Manager•nmalone@rentonwa.gov•Kari Roller – Finance Administrator•kroller@rentonwa.gov•Kristin Trivelas – Fiscal Services Director•ktrivelas@rentonwa.govAGENDA ITEM #1. a)