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HomeMy WebLinkAboutFS 2011-19-01 Item 2E - Update - Revenue Generating Regulatory License (RGRL) and Business Licensing i lA, f Ci ty of Tukwila WO Jim Haggerton, Mayor 90... INFORMATIONAL MEMORANDUM TO: Mayor Haggerton Finance and Safety Committee FROM: Shawn Hunstock, Finance Director DATE: January 13, 2011 SUBJECT: Discussion of Business License and RGRL Issues ISSUE Since implementation of the new business license fee amounts and the new Revenue Generating Regulatory License (RGRL) fee, the Finance department and others have had considerable feedback about the new fees themselves, and implementation of the new online process. Council requested a review of the issues and concerns that have been raised by businesses, which are summarized below. BACKGROUND The Finance department began distribution of 2011 business license renewals, incorporating the new RGRL fee, on December 7, 2010. Almost immediately we started receiving calls, emails and letters regarding the new fees, how they were calculated, why they were adopted, etc. The discussion below is an overview of the major issues we have encountered since December 7 and an example of the responses we and others have provided. DISCUSSION The issues that have been raised since December 7 include the following major areas: e Lack of notification or outreach on the part of the City. e Confusion about the fee calculation methodology. e Technical issues with online renewal /application process. e Confusion and /or questions regarding the renewal forms. Lack of understanding of the comprehensive approach Council and the Mayor took in addressing the budget crisis and the decisions that were reached. Confusion about the application of the RGRL fee to specific situations, such as multiple businesses and /or rental properties owned by the same individual. Each of these issues will be discussed in more detail below. 139 INFORMATIONAL MEMO Page 2 Lack of Notification or Outreach by the City The Finance department and others have had a large volume of calls from businesses expressing concern over a perceived lack of notice or outreach on the part of the City. We have used these calls as an opportunity to remind business owners that they can keep themselves updated on Council agenda items by visiting the City's website, reviewing published public notices, visiting City Hall to review the agenda, etc. We have reviewed the process used by Council and the Mayor beginning with outreach to businesses in April 2010 by the Mayor and continuing with seventeen different meetings during which the RGRL was discussed. In addition to the published public notices for many of those meetings, we also reminded businesses of the Hazelnut and Tukwila Reporter articles on the topic as well as the inserts with background information on the RGRL included in the October 2010 utility bills for all businesses in the City. Confusion about Fee Calculation Methodology According to the RGRL ordinance, businesses have the option of calculating the fee based on number of full -time equivalent employees (FTE), or based on number of hours worked as reported to the Department of Labor and Industries (L &I). We have had several customers indicate they do not know how to calculate a full -time equivalent employee, and they do not have immediate access to the quarterly L &I reports to calculate the fee based on worker hours. Many such situations were resolved by Finance staff spending time with the customer on the phone or at the front counter walking them through the two fee calculation options and answering their questions throughout the process. Initially we had a vast majority (at least 75 of renewal notices come back with no RGRL included in the calculation or the payment. This required staff to contact these businesses with a call and /or letter letting them know of the incorrect payment. The proportion of renewal notices coming in without an RGRL, or with an incorrect calculation, is now down to less than 50 I believe this is due to the amount of time staff has spent with business owners on the phone and at the front counter answering their questions. Technical Issues with Online Renewal /Application Process There was a delay in the typical schedule for getting renewal notices sent out for 2011 primarily due to technical issues encountered with the new EDEN software product and its online component. Our goal was to have the renewal notices out by mid November. Due to the technical issues and testing of the fixes, renewal notices did not go out until December 7th, We felt that we had tested the system sufficiently and all issues were addressed by EDEN at the time that renewal notices went out. Once businesses received the notices and tried to renew (or apply) online, other software problems were identified. We had to take the online system down for several days in December to give EDEN time to fix the problems and testing of those fixes. Below are some of the technical problems that were encountered. 14 0 W12011 Info Memos \BusinessLicense _RGRL_Issues.doc INFORMATIONAL MEMO Page 3 Customers calculating and paying the business license fee only (no RGRL). Existing businesses creating a new application rather than processing as a renewal. Fee payment portion of the software went down for some time. Business name or address mismatch when trying to set up a new account. The business name or address entered by the business owner had to exactly match the name and address that was in EDEN and printed on the renewal form. All of the issues identified above have either been fixed, or we have temporarily put a workaround in place. For the first item listed above, the system now requires a minimum RGRL fee of $55, even if the customer puts nothing in the fee calculation area. If the RGRL is not applicable because the business has less than $12,000 per year in gross receipts, we are asking those businesses to either mail in the license payment and renewal form, stating they earn less than $12,000 annually, or come to City Hall for processing. Questions Regarding the Renewal Form As mentioned above, we have had a very large number of renewal forms come in with no RGRL fee calculated or paid. Either the customer does not see the RGRL fee calculation section, they don't follow it because they are confused, or they don't want to pay it. One of the causes of confusion on the part of business owners has to do with the layout of the renewal form itself. We are limited in the changes we could make to the EDEN "canned" report when developing the renewal form. We attempted to include as much direction and instructions as we could within the system limitations we had. Some of the terms, such as "EE" or "FTE" were not defined on the renewal form and thus created additional confusion for those trying to complete the form. Although the renewal forms went out for 2011 already, we are working on improving the existing forms for now, and looking for other ways potentially outside of EDEN to create a better form that is easier for business owners to understand. Lack of Understanding of Budget Decisions Made by Council and Mayor Finance department staff and others have received many comments to the effect of the City "just raised fees" and did nothing else to deal with the budget crisis. Since we started receiving those comments in early December, we have worked from a prepared script that outlines many of the decisions made by Council and the Mayor. Several of those items from the script are outlined below: e Eliminated one position in the Mayor's Office e Eliminated one position in the City Clerk's Office Eliminated two positions in the Community Development Department and reduced two employees from full time to half time Eliminated one position in the Municipal Court Eliminated three positions in the Public Works Department and reduced one position from full time to half time Eliminated six positions in the Parks and Recreation Department Eliminated three positions in the Police Department W:12011 Info Memos\ BusinessLicense_RGRL_Issues.doc 141 INFORMATIONAL MEMO Page 4 Eliminated one position in the Fire Department and reduced one position from full time to three quarters time Eliminated one position in the Finance Department Froze salaries for all management employees and sought wage freeze agreements and other concessions from unions The Tukwila Professional Firefighters agreed to a wage freeze in 2011 even though their contract called for a 4 percent increase Reduced the City's annual contribution to our employees health care account by $1.225 million without reducing coverage Negotiated reductions in our legal and legislative representation contracts that will save the City $150,000 per year The items above included in the budget recently adopted by the City Council will reduce City expenditures in 2011,, 2012 and beyond by over $5 million per year. Although business owners are still not completely satisfied with the new business license and RGRL fees, several have expressed appreciation for knowing the additional steps the City took to address our budget crisis. We have consistently heard that our efforts mirror to a great extent the efforts business owners have taken to address their own financial situation. Confusion about the Application of the RGRL Fee to Specific Situations We have received many comments or complaints regarding the RGRL fee and how it applies to specific situations. Several examples are outlined below: Multiple businesses with one owner. We have had several business owners call and state that they are a sole proprietor with more than one business. This might be an individual with a home occupation who also owns one or more rental properties. Each business now is paying a business license fee (or rental license fee) plus an RGRL fee. Because the owner is the same for both businesses, they are essentially paying an RGRL fee for themselves more than once because each license has a minimum $55 RGRL fee associated with it. For instance, an individual with a home occupation plus a rental property would pay the $50 home occupation business license fee and the $55 minimum RGRL fee for their home business, plus pay a $50 rental housing license fee and another $55 minimum RGRL fee for the rental property. It should be noted that if the home occupation business earns less than $12,000 annually, then no RGRL fee would be due. The same goes for the rental property. No RGRL fee is due if the total annual rents received are less than $12,000. e Application of business license and RGRL fee to rental property owners of less than five units. This category of rental property owners (less than five units) never needed a business license in the past. With the adoption of the rental housing inspection and licensing program, the property owners now pay a $50 licensing fee per property. In addition to the license fee they are also paying the minimum $55 RGRL fee for each property. Some business owners and /or property owners are asking why they can't just pay one license fee and one RGRL fee. However, the application of the rental housing license and RGRL fees 1 4 2 W:12011 Info Memos\ BusinessLicense_RGRL_Issues.doc INFORMATIONAL MEMO Page 5 is consistent with that of the regular business license fee in that each location (or property) is assessed its own separate fee. The partnership may also need a regular business license fee, particularly if they are located in Tukwila. From the rental housing licensing perspective, each property is assessed a license fee and RGRL fee similar to how the regular business license fee applies to each business location. For properties that earn less than $12,000 annually in gross rents, no RGRL fee would be due as this is a specific exemption in the RGRL ordinance. We expect the next renewal cycle in December 2011 to go much better. We will have a better idea of the workload to expect, the technical issues will all be resolved by then, and we will spend whatever time is necessary to make the forms and online software as understandable by business owners as possible. While we still might have feedback about the amount of the fees, the questions then should not again concern how the fee is calculated or why it was implemented by the City. RECOMMENDATION This item is for informational purposes only, as requested by City Council. Next steps, if any, can be decided by the Finance Safety Committee or referred to Committee of the Whole for discussion. ATTACHMENTS Ordinance 2297, Revenue Generating Regulatory Licenses W:\2011 Info Memos\ BusinessLicense_RGRL_Issues.doc 143 i A4 C tiVytR o r ig �z 190$ fr C Tukwila Washington Ordinance No. AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, ESTABLISHING NEW REGULATIONS REGARDING REVENUE GENERATING REGULATORY LICENSES TO BE CODIFIED AT TUKWILA MUNICIPAL CODE CHAPTER 5.62, "REVENUE GENERATING REGULATORY LICENSES PROVIDING FOR SEVERABILITY; AND ESTABLISHING AN EFFECTIVE DATE. WHEREAS, the City Council recognizes the City of Tukwila is in need of additional revenue sources in order to address a dramatic decline in recent sales tax collections; and WHEREAS, the City Council and Mayor are in the process of implementing permanent reductions to the General Fund operating budget; and WHEREAS, such expenditure reductions are not sufficient to fully account for the recent decline in revenue, the City Council has determined it is in the best interest of Tukwila citizens and businesses to provide long -term financial stability, rather than continuing to use one -time cost savings measures, to address unplanned economic challenges the City might be faced with in the future; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY ORDAINS AS FOLLOWS: Section 1. Regulations Established. Tukwila Municipal Code Chapter 5.62, "Revenue Generating Regulatory Licenses," is hereby established to read as follows: CHAPTER 5.62 REVENUE GENERATING REGULATORY LICENSES Sections: 5.62.010 Regulatory Licenses 5.62.020 Revenue Generating Regulatory License Fee (RGRL) 5.62.030 Determination of number of employees for RGRL 5.62.040 Exemptions 5.62.050 Penalties 5.62.010 Regulatory licenses. A business that holds a current valid City of Tukwila regulatory license under another chapter of this code must also file the general business license application form, pay the general business license fee and pay the revenue generating regulatory license fee (RGRL) pursuant to this chapter. The fee levied in this chapter shall be additional to any license fee or tax imposed or levied under the law or any other ordinance of the City except as expressly provided herein. 5.62.020 Revenue generating regulatory license fee (RGRL). A. General. In addition to the business license fee, the highest applicable RGRL in this section shall be paid for the annual license issued under this chapter. W Word Processing Revenue Generating Regulatory License SH:mrh Page 1 of 5 145 1. A business with less than $12,000.00 of average annual gross receipts shall be exempt from any RGRL. 2. For the purposes of this section and in determining the applicable RGRL, the term "employee" means and includes each of the following persons who are not required by the City to have his /her /its own separate City of Tukwila business license: a. Any person who is on the business's payroll, and includes all full -time, part -time, and temporary employees or workers; and b. Self- employed persons, sole proprietors, owners, officers, managers, and partners; and c. Any other person who performs work, services or labor at the business, including an independent contractor who is not required to have a separate City of Tukwila business license. 3. An entity that is entirely exempt from paying the business license fee shall be exempt from any RGRL. 4. An entity with some activities or functions that are exempt from the business license fee and some that are not exempt shall pay an RGRL based on the number of its employees that are involved in the functions or activities that are not exempt. B. Amount of RGRL. 1. Revenue Generating Regulatory License (RGRL) Fee Method. Except as otherwise provided by this chapter, every person engaging in business within the City shall pay an RGRL based upon the number of employee hours worked in Tukwila during the previous year. Annual employee hours are calculated based on the sum of the 4 quarterly reports submitted to the Washington State Department of Labor and Industries (L &I) for the previous year. It will be the responsibility of the employer to determine the number of hours worked within the City from these reports. Businesses that did not file quarterly reports with the Washington State Department of Labor and Industries shall determine the number of hours worked within the City and demonstrate, if required, to the satisfaction of the Finance Director or his /her designee, that the number of employee hours worked is correct. 2. The annual RGRL fee shall be calculated by multiplying the minimum fee, as defined in subsection (F) of this section, by the number of full- time equivalent employees that worked in Tukwila. The approved fee per full -time employee is $0.028646 (which represents a RGRL multiplier of $0.028646 per employee hour worked), as may be adjusted herein. Employers without a full year history would need to estimate the number of employee hours that will be worked in the current calendar year. 3. If a business has more than one location in Tukwila, the annual business license fee calculation must include a minimum fee for each location and the RGRL for annual employee hours at all locations. C. Alternative FIE Method. A business may choose to calculate its annual RGRL fee by multiplying the minimum fee by the number of its employees. The number of employees shall be based on the sum of the employees in the 4 quarterly reports submitted to the Washington State Department of Labor and Industries (L &I) for the previous year divided by four. It will be the responsibility of the employer to determine the number of employees working within the City from these reports. Businesses that did not file quarterly reports with the Washington State Department of Labor and Industries shall determine the number of employees working in the City and demonstrate, if required, to the satisfaction of the Finance Director or his /her designee, that the number of employees is correct. Employers without a full year history would need to estimate the number of employees that will work in the City for the current calendar year. W. Word Processing Revenue Generating Regulatory License SH:mrh 07 /15/2010 Page 2 of 5 146 D. Once the FTE methodology has been selected, it must be used for future renewals. 1. Businesses with more than one location in the City of Tukwila must use the same method of calculation for all locations. E. For businesses with employees who work less than 1,920 hours per year (the work hour figure used by the Washington Department of Labor and Industries) the total number of hours worked by all such employees during the 4 quarters of the previous year shall be added together and divided by 1,920 to determine the FTE equivalency. F. It will be the responsibility of the business to determine the total number of FTEs (or equivalency) and demonstrate if required, to the satisfaction of the Finance Director or his /her designee that the calculation is accurate, G. The RGRL fee for a business required to be Iicensed under this chapter and not located within the City's corporate limits shall be calculated by multiplying the minimum fee by the number of employee hours worked within the City, but in no event shall the license fee be less than the minimum fee set forth in this chapter. If the number of employee hours worked is not known at the time of renewal, the business shall estimate the maximum number of employee hours they anticipate using in Tukwila during the year. H. Businesses doing business in the City that have no employees physically working within the City shall pay the minimum fee required under this chapter. I. The minimum fee under this chapter shall be $55.00, and may be amended from time to time. J. Payment made by draft or check shall not be deemed a payment of the RGRL fee unless and until the same has been honored in the usual course of business, nor shall acceptance of any such check or draft operate as a quittance or discharge of the fee unless and until the check or draft is honored. Any person who submits a RGRL fee payment by check to the City pursuant to the provisions of this chapter shall be assessed an NSF fee set by the Finance Director if the check is returned unpaid by a bank or other financial institution for insufficient funds in the account or for any other reason. 5.62.030 Determination of number of employees for RGRL. For the purposes of this section, "employee" shall be defined as in Section 5.62.020. A. Standard Rule. In determining the amount of RGRL fee to be paid for the upcoming license year, the number of employees shall be the current number of employees or the number of employees on the last regular working day of each of the last twelve months divided by twelve, whichever is higher. Each person who comes under the definition of "employee" shall be counted as one employee, even if the person works part -time. B. Alternative Method "FTE A business may choose to calculate the number of employees for the purpose of the RGRL fee according to the following alternative method based on the number of employee hours worked for the business during the previous year: 1. The business must notify the City of its choice to use the FTE method. It will be the responsibility of the business to determine the number of hours worked for the business, taking into account the information submitted to L &I in the last 4 quarterly reports. The business must demonstrate, to the satisfaction of the Finance Director, that the alternative calculation is accurate. The director may require the business to submit copies of its L &I reports. 2. Each employee who worked more than 1,920 hours during the previous year (including paid time off) shall be counted as one employee. If a person such as an W: Word Processing Revenue Generating Regulatory License SH:mrh 07/15/2010 Page 3 of 5 147 owner or partner devotes more than 1,920 hours per year to the business, that person must be counted as one employee for RGRL purposes. 3. Where there are employees who work less than 1,920 hours per year, the total number of hours worked by all such employees during the previous year shall be added together and divided by 1,920. A fraction of one -half or over shall be rounded up. Hours worked by persons who are defined as employees for RGRL purposes must be included in the calculation even if the business is not required to report to L &I concerning such persons. 4. The results from subsection B.2 of this section plus subsection B.3 of this section shall be the total number of employees used to determine the amount of the RGRL. C. New Businesses. The RGRL fee for a business that did not submit reports for each of the last 4 quarters to L &I shall be based on the estimated number of employees of that business. The business shall provide its estimate of the average number of employees for the upcoming year. The City will determine the number of employees that will be used in calculating the amount of the RGRL. If, during the license year, the City determines the actual number of employees is significantly different than estimated, the amount of the RGRL fee will be recalculated for the new business. If the revised RGRL fee is higher, the business must pay the difference within thirty days after notification. D. Over Reporting Number of Employees. A business may request that the City refund RGRL overpaid on the basis that the business miscounted the number of employees by an error factor of more than 15 The request must be in writing and the City must receive the request and all supporting documentation no later than 60 days after the end of the licensee's fiscal year in which the error was made. If the City is satisfied the licensee paid an excess RGRL, the City will refund the excess RGRL paid by the licensee. E. Under Reporting of Employees. If the City determines the number of employees was under reported at the time of application or renewal by an error factor of more than 15 the business shall pay the balance of the applicable RGRL fee together with a penalty of 20% of such balance due. The business shall also reimburse the City for any accounting, legal, or administrative expenses incurred by the City in determining the under reporting or in collecting the additional amounts. The Finance Director shall mail written notice of the amount to be paid and the business shall pay said amount to the City within 30 days. If the City does not receive timely payment, an additional penalty shall be added, applying the schedule for late payments in this chapter. 5.62.040 Exemptions. A. Exemptions. The following entities may claim an exemption from the license fee, but if exempt under this subsection such entities shall still register under this chapter: 1. Certain Organizations Exempt from Federal Income Tax. An organization that files with the city a copy of its current IRS 501(c)(3) exemption certificate issued by the Internal Revenue Service. 2. A governmental entity that engages solely in the exercise of governmental functions. Activities which are not exclusively governmental such as some of the activities of a hospital or medical clinic, are not exempt under this chapter. 3. A nonprofit business operated exclusively for a religious purpose, upon furnishing proof to the finance director of its nonprofit status. For the purposes of this chapter, the activities that are not part of the core religious functions are not exempt. W Word Processing Revenue Generating Regulatory License SH:mrh 07/15/2010 Page 4 of 5 148 4. Civic groups, service clubs, and social organizations that are riot engaged in any profession, trade, or occupation, but are organized to provide civic, service, or social activities in the City. a. Examples of such organizations include but are not limited to: Soroptomists; Kiwanis; Lions' Rotary; American Legion; children's and adults athletic leagues and similar types of groups, clubs or organizations. 5.62.050 Penalties A. Monetary Penalty. Failure to pay the RGRL fee within 20 days after the day on which it is due and payable pursuant to TMC Section 5.62.020 shall render the business subject to a penalty of 5% of the amount of RGRL fee for the first month of the delinquency and an additional penalty of 5% for each succeeding month of delinquency, but not exceeding a total penalty of 25% of the amount of such RGRL fee, plus any accounting, legal or administrative expenses incurred by the City. No business license for the current period shall be granted until the delinquent fees, together with penalties, have been paid in full. The Finance Director or his /her designee is authorized, but not obligated, to waive all or any portion of the penalties and interest provided herein in the event the Director or his /her designee determines that the late payment was the result of excusable neglect or extreme hardship. B. Collection. Any RGRL fee due and unpaid under this chapter, and all penalties thereon, shall constitute a debt to the City and may be collected in court proceedings in the same manner as any other debt in like amount, which remedy shall be in addition to any and all other existing remedies. C. Revocation of License. The Finance Director may revoke any business license issued pursuant to this chapter to any business or other person who is in default in any payment of any RGRL fee hereunder, or who shall fail to comply with any of the provisions of this chapter. Notice of such revocation shall be mailed to the license holder by the Finance Director, and on and after the date thereof any such business who continues to engage in business shall be deemed to be operating without a license and shall be subject to any and all penalties herein provided. D. There shall be a penalty of not less than $50.00 to reinstate any business license revoked through nonpayment of the RGRL fee. Section 2. Severability. If any section, subsection, paragraph, sentence, clause or phrase of this ordinance or its application to any person or situation should be held to be invalid or unconstitutional for any reason by a court of competent jurisdiction, such invalidity or unconstitutionality shall not affect the validity or constitutionality of the remaining portions of this ordinance or its application to any other person or situation. Section 3. Effective Date. This ordinance or a summary thereof shall be published in the official newspaper of the City, and shall take effect and be in full force and effect five days after passage and publication as provided by law. PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this if r day of 1 ti (c.4 2010, ATTEST AUTHENTICATED: Fit4 Hagger ayor Christy O'lherty, CMC Filed with the City Clerk: 9-1 -f- /0 APPROVED FORM BY: Passed by the City Council: r) y 1/7 Published: Effective Date: '1 —„)-'l— l0 ffi(of the Ci 4 1"""0 ney Ordinance Number: 2"-q W. Word Processing Revenue Generating Regulatory License SH:mrh 07 /13/2010 Page 5 of 5 149 1 n