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HomeMy WebLinkAboutFIN 2017-07-05 Item 2A - Fees - Business License FeesCity of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Finance Committee FROM: Peggy McCarthy, Finance Director BY: Vicky Carlsen, Deputy Finance Director CC: Mayor Ekberg DATE: July 12, 2017 SUBJECT: Streamlining Business License Fee Calculation ISSUE Due to recent State legislation, the City will be required to partner with the State of Washington Department of Revenue Business License Services (BLS) for business license processing within the next few years. In order to ensure a smooth transition to the BLS system, it is important that the City's business license fee structure is better streamlined and easy to understand. The current method of using FTE (full -time equivalent) hours to calculate the business license fee is confusing and time consuming to applicants, resulting in significant staff time to correct calculation errors. The Administration recommends that the City change its structure to be on a per - employee basis in order to reduce confusion and better streamline the City's processes. BACKGROUND The State of Washington recently passed EHB 2005 requiring cities that issue business licenses partner with BLS and use its online system to obtain new or renewal business licenses. This bill was created to help simplify the process of licensing for businesses who apply for licenses from multiple jurisdictions. This bill requires cities to move to the State BLS system within the next five years.' The State would collect payment and process all applications and renewals for most jurisdictions. The City would be notified of pending applications and complete a formal review process prior to the State issuing the license. The City's current fee structure requires a calculation of employee hours times a multiplier ($0.034896) to arrive at the total license fee. The minimum fee for one full -time equivalent employee is currently $67, which is a combination of a $12 business license fee, plus a $55 revenue generating regulatory license (RGRL) fee. This complex calculation method causes frustration and confusion from business owners, and results in significant errors in the application process. Much of the confusion stems from how part time employees are calculated due to the multiplier described above. It appears that many employers cannot easily obtain information on the number of hours worked per employee. 1 This timeline may be funding dependent and the legislation is written so that if funding is not available to the Department of Revenue the timeline may slip accordingly. 1 INFORMATIONAL MEMO Page 2 In 2016, 2,040 general business licenses were issued. This does not include Adult Entertainer, Adult Manager, Amusement Device /Center, Peddler nor Cabaret licenses. Below is a chart detailing businesses and how many part-time employees were reported to the City. Number of Part- Time Employees Number of Businesses % 201 + 7 0.34 151 — 200 4 0.20 101 — 150 7 0.34 76 — 100 9 0.44 51 -75 24 1.18 21 — 50 70 3.43 11 - 20 77 3.77 6 -10 110 5.39 2 — 5 366 17.94 0 — 12 1,366 66.96 Total Issued 2,040 100.00 DISCUSSION Fee Structure The goal is to streamline the way the business license fee is calculated prior to moving to the State BLS system. If the fee is calculated using number of employees multiplied by a flat fee, the applicant could easily calculate the fee with little effort or error. There would be significantly less misreported hours or loss of revenue. The city would also benefit by having accurate statistics on the number of employees in Tukwila. These statistics are not currently available as the way the fee is calculated leaves room for error and /or omission on number of employees. Additionally, the State requires that the application and /or fee should be within the DOR's technical ability to administer, which may not be possible under the current method. Proposed Change to Fee Structure The City is proposing to change the fee structure to $70 for each full -time employee (defined as 30 hours or more each week), plus $50 for each part-time employee. The full -time rate is proposed to increase from $67 to $70 per employee, or approximately 5 %. This is equivalent to less than 1% increase per year since the business license fee was enacted in 2011. A reduced rate for part-time employees is suggested as a way to minimize the impact to those businesses with significant part-time staffing levels. RECOMMENDATION The Council is being asked to approve the ordinance and resolution and consider this item at the July 24, 2017 Committee of the Whole meeting and subsequent August 7, 2017 Regular Meeting. ATTACHMENTS - -Draft Ordinance - -Draft Resolution - -House Bill Report — EHB 2005 2 This number likely includes businesses who do have part time employees but who did not report them. W:12017 Info Memos \BusLjcRestructure.doc 2 RAFT AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, AMENDING VARIOUS ORDINANCES AS CODIFIED IN TUKWILA MUNICIPAL CODE CHAPTER 5.04, "LICENSES GENERALLY," TO REPLACE "FTE" WITH "EMPLOYEE" IN RELATION TO THE BUSINESS LICENSE FEE STRUCTURE; PROVIDING FOR SEVERABILITY; AND ESTABLISHING AN EFFECTIVE DATE. WHEREAS, the City has analyzed current business license fees; and WHEREAS, the City has received multiple public comments that the existing business license and revenue generating regulatory license (RGRL) fee calculation based on full -time equivalent (FTE) can be difficult to calculate correctly; and WHEREAS, calculating the fee by "Employee" rather than FTE will simplify the fee calculation process for the public and City staff; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY ORDAINS AS FOLLOWS: Section 1. TMC Section 5.04.010 Amended. Ordinance Nos. 2496 §1, 2381 §1, 2356 §1, 2333 §1 and 2315 §1 (part), as codified at Tukwila Municipal Code (TMC) Section 5.04.010, Subparagraph 10, are hereby amended to read as follows: 5.04.010 Definitions time -ofd W: Word Processing \Ordinances \Review business license fee structure strike -thru 7 -12 -17 :bjs Page 1 of 5 3 4410. "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 employed at any business who performs any part of their duties within the City of Tukwila; and ab. Any person who is on the business's payroll, and includes all full -time, part-time, and temporary employees or workers; and bc. Self employed persons, sole proprietors, eOwners, officers, managers, and partners; and ed. Any other person who performs work, services or labor at the business including, but not limited to, family members, regardless of whether they receive a wage from the business. Employee is a unit of measure used to determine business license and Revenue Generating Regulatory License (RGRL) fees. Section 2. TMC Section 5.04.020 Amended. Ordinance Nos. 2496 §2, 2425 §1, 2381 §3, 2356 §2, 2333 §3 and 2315 §1 (part), as codified at TMC Section 5.04.020, are hereby amended to read as follows: 5.04.020 Applications and fees required A. Application Required. Any person desiring to establish or conduct any business enterprise or undertaking within the corporate limits of the City shall first apply to the Finance Department for a license to conduct such business. The application shall be upon a form furnished by the Finance Department on which the applicant shall state the company name and address; the nature of the business activity or activities in which he /she desires to engage; the place where the business will be conducted; the number of employees, whether full or part-time, on the payroll as of January 1, or, if a new business, the number to be employed on the opening date; the Washington State Unified Business Identifier (UBI) number; and other information pertaining to the business as required by the City. Owners of residential rental property are not subject to the application requirements in this chapter but shall adhere to the application requirements in TMC Chapter 5.06. B. Fee — General. 1. The application must be accompanied by the appropriate application fee in accordance with the fee schedule adopted by resolution of the City Council. The license fee for the annual license (Combined Business License fee) issued under this chapter shall be calculated determined = - _ _ - - - • _ _ . - - based on the total number of employees, and be comprised of a Business License fee, plus a Revenue Generating Regulatory License (RGRL) fee, calculated in accordance with the fee schedule adopted by resolution of the City Council. W: Word Processing \Ordinances \Review business license fee structure strike -thru 7 -12 -17 :bjs 4 Page 2 of 5 2. It will be the responsibility of the business to determine the total number of FTE employees and, if required, demonstrate to the satisfaction of the Finance Director that the calculation information pertaining to the Combined Business License fee are is accurate. Businesses without a full year of operating history shall estimate the number of FTE employees that will be employed in a 12 -month period. C. Minimum Fee. There shall be an annual minimum fee for a Combined Business License, comprised of a Business License fee and an RGRL fee, in accordance with the fee schedule adopted by resolution of the City Council. An entity subject to exemption pursuant to TMC Section 5.04.090 may not pay a Combined Business License fee. 1. A business with less than $12,000.00 of annual gross receipts shall pay the minimum license fee. 2. An entity engaging in some activities or functions that are exempt from the combined Annual Business License fee and some that are not exempt shall pay an Annual Business License fee based on the number of FTE employees involved in the functions or activities that are not exempt. 3. An individual person operating more than one business as a sole proprietorship within the corporate limits of the City shall pay only one RGRL fee per year, at an amount equal to the highest RGRL fee for any one of that individual's businesses. This section shall not apply if any one of the businesses owned by the sole proprietor has three or more FTE employees. 4. If a business has more than one location within the corporate limits of the City, the Combined Business License fee for each location shall be no less than the minimum fee required under this chapter. 5. The Combined Business License fee for a business required to be licensed under this chapter and not located within the City's corporate limits shall be calculated determined by multiplying the appropriate Business License fee by the number of FTE employees working within the City's corporate limits, in accordance with the fee schedule adopted by resolution of the City Council. but iln no event shall the Combined Business License fee be less than the minimum fee set forth in this chapter. If the number of FTE employees is not known at the time of application or renewal of the license, the business shall estimate the maximum number of FTE employees they anticipate working within the City's corporate limits at any time during for the 12 -month period subject to licensure. 6. Businesses doing business in the City that have no employees physically working within the City's corporate limits shall pay the minimum fee required under this chapter. W: Word Processing \Ordinances\Review business license fee structure strike -thru 7 -12 -17 :bjs Page 3 of 5 5 7. Businesses or organizations eligible for a temporary business license pursuant to TMC Section 5.04.010 will be required to pay the minimum fee under this chapter. This section shall not apply if the applicant is applying for a license related to his /her participation at a City- sponsored event or as part of an event held at the Tukwila Community Center. If the applicant is applying for a license related to his /her participation at a City- sponsored event or as part of an event held at the Tukwila Community Center, the applicant is required to complete all application requirements and approvals required by the City's Parks and Recreation Department. D. New Businesses. The Combined Business License fee for a new business shall be based on the estimated number of FTE employees that will work in Tukwila for a 12 -month period. If, during the first license year for a new business, the City determines the actual number of employees is significantly different than the estimated number identified by the business owner, the amount of the Combined. Business License fee will be recalculated for the new business. If the revised Combined Business License fee is higher than the original Combined Business License fee paid by the business owner for the first license year, the business owner must pay the difference to the City within 30 days after written notice of the amount owed is sent to the business owner by the City. E. Over - reporting of Employees Hours. In the event the business owner miscounted the number of FTE employees hews by an error factor of more than 15% and paid an excess Combined Business License fee as a result, a business may request that the City refund the overpayment. The request must be made in writing to the Finance Department, and the City must receive the request and all supporting documentation no later than 60 days after the end of the calendar year in which the error was made. If the City is satisfied the business owner paid an excess Combined Business License fee, the City will refund the excess amount paid to the business owner. F. Under - reporting of Employees ts. If, at the time of license renewal, the City determines the business owner under - reported the number of FTE employees hews for the preceding year by an error factor of more than 15 %, the business shall pay the balance of the corrected Combined Business License fee (calculated as the difference between the paid Combined Business license fee and the corrected Combined Business License 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 and in collecting the balance due.. The Finance Director shall mail written notice of the balance due to the business owner, and the business shall pay the balance due to the City within 30 days of the date the written notice is mailed by the City. If the City does not receive timely payment, an additional penalty shall be added, based upon the schedule for late payments set forth in this chapter. W: Word ProcessinglOrdinances\Review business license fee structure strike -thru 7 -12 -17 :bjs 6 Page 4 of 5 G. Payment by Draft or Check. Payment made by draft or check shall not be deemed a payment of the Combined Business License 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 Combined Business License fee unless and until the check or draft is honored. Any person who submits a Combined Business License 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. Section 3. Corrections by City Clerk or Code Reviser. Upon approval of the City Attorney, the City Clerk and the code reviser are authorized to make necessary corrections to this ordinance, including the correction of clerical errors; references to other local, state or federal laws, codes, rules, or regulations; or ordinance numbering and section /subsection numbering. Section 4. 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 5. 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 beginning with applications for a 2018 City business license. PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this day of , 2017. ATTEST /AUTHENTICATED: Christy O'Flaherty, MMC, City Clerk APPROVED AS TO FORM BY: Rachel B. Turpin, City Attorney Allan Ekberg, Mayor Filed with the City Clerk: Passed by the City Council: Published: Effective Date: Ordinance Number: W: Word Processing \Ordinances\Review business license fee structure strike -thru 7 -12 -17 :bjs Page 5 of 5 7 R .r ., FT A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, REPEALING RESOLUTION NO. 1875 AND ADOPTING A REVISED BUSINESS LICENSE FEE SCHEDULE. WHEREAS, the City has analyzed current business license fees; and WHEREAS, the City has received multiple public comments that the existing business license and revenue generating regulatory license (RGRL) fee calculation based on full -time equivalent (FTE) can be difficult to calculate correctly; and WHEREAS, calculating the fee by "Employee" rather than FTE will simplify the calculation process for the public and City staff; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY RESOLVES AS FOLLOWS: Section 1. Repealer. Resolution No. 1875 is hereby repealed. Section 2. Fee Schedule. Business license fees will be charged according to the following schedule beginning with applications for a 2018 City business license. W: \Word Processing \Resolutions \Business license fee schedule revised strike -thru 7 -12 -17 VC:bjs (continued...) Page 1 of 5 9 ANNUAL BUSINESS LICENSE FEE SCHEDULE Standard license fee: ,4 Business License Fee $12 per part-time employee* plus $12 full -time equivalent employee FTE* per equals Business License Fee plus Revenue Generating Regulatory License (RGRL) Fee plus $38 per part-time employee* plus $55 $58 per full -time equivalent-employee FTE* equals RGRL Fee equals Combined License Fee (Business License Fee + RGRL Fee = Combined License Fee) equals The Combined License Fee amount will vary based on the combination of part -time and full -time employees employed by the business. For example, a business with one part -time employee (and no other employees) will pay a Combined License Fee of $50. A business with one full -time employee (and no other employees) will pay a Combined License Fee of $70. Minimum Combined License Fee $50.00 * Employee is defined at Tukwila Municipal Code Section 5.04.010(10), copied below. A "part-time employee" is an employee working 29 or less hours per week. A "full -time employee" is an employee working 30 or more hours per week. W: \Word Processing \Resolutions\Business license fee schedule revised strike -thru 7 -12 -17 VC:bjs 10 Page 2 of 5 Minimum-Fee Mu 440er x 0.03489 $ e Fr e. ee $ee tup-te-1,0TOa• managers and employees including-family mcmbcrc both full and part time. Hours worked includes paid time off. - . time equivalent (FTE) annual employee work hours. • The minimum fee for any license is $67.00, which is the fee for up to 1,920 hours worked in a calendar year. *Tukwila Municipal Code Section 5.04.010(10): 10. "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 employed at any business who performs any part of their duties within the City of Tukwila; and b. Any person who is on the business's payroll, and includes all full -time, part- time, and temporary employees or workers; and c. Owners, officers, managers, and partners; and d. Any other person who performs work, services or labor at the business including, but not limited to, family members, regardless of whether they receive a wage from the business. Other annual license fees: Adult.Cabaret establishment $500.00 + Combined License Fee (per above calculation) Adult Cabaret entertainer $75.00 + Combined License Fee {per above calculation) Adult Cabaret manager $75.00 W: \Word Processing \Resolutions \Business license fee schedule revised strike -thru 7 -12 -17 • VC:bjs Page 3 of 5 11 Adult Entertainment Cabaret establishment $500.00 + Combined License Fee (per above calculation) Adult Entertainment Cabaret entertainer $75.00 + Combined License Fee (per above calculation) Adult Entertainment Cabaret manager $75.00 Amusement Center $500.00 + Combined License Fee (per above calculation) Amusement device fee $50.00 per device + Combined License Fee (per above calculation) Amusement device removal fee $50.00 per device Amusement device storage fee $10.00 per device per day Appeal Fee $250.00 Cabaret establishment $300.00 + Combined License Fee (per above calculation) Contractor based outside of Tukwila Same as Combined License Fee (per above calculation) Panoram premises $100.00 Panoram device $50.00 per device Panoram operator $725.00 Penalty for late acquisition of business license (operating a business without a valid license) If received or postmarked within 0 to 30 days of operation = 5% of license fee If received or postmarked within 31 to 60 days of operation = 10% of license fee If received or postmarked within 61 to 90 days of operation = 15% of license fee If received or postmarked within 91 to 120 days of operation = 20% of license fee If received or postmarked at 121 days of operation or longer = maximum of 25% of license fee Penalty for late renewal of business license If received or postmarked Feb. 1 through Feb. 28 = 15% of license fee If received or postmarked March 1 through March 31 = 30% of license fee If received or postmarked April 1 or later = 45% of license fee W: \Word Processing \Resolutions \Business license fee schedule revised strike -thru 7 -12 -17 VC:bjs 12 Page 4 of 5 Peddler /Solicitor $70.00 Reinstatement of license fee $50.00 Washington State Patrol WATCH background check $12.00 PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this day of , 2017. ATTEST /AUTHENTICATED: Christy O'Flaherty, MMC, City Clerk Dennis Robertson, Council President APPROVED AS TO FORM BY: Filed with the City Clerk: Passed by the City Council: Resolution Number: Rachel B. Turpin, City Attorney W: \Word Processing \Resolutions \Business license fee schedule revised strike -thru 7 -12 -17 VC:bjs Page 5 of 5 13 14 HOUSE BILL REPORT EHB 2005 As Passed Legislature Title: An act relating to improving the business climate in this state by simplifying the administration of municipal general business licenses. Brief Description: Improving the business climate in this state by simplifying the administration of municipal general business licenses. Sponsors: Representatives Lytton, Nealey, Kagi and Ormsby. Brief History: Committee Activity: Finance: 2/14/17, 2/23/17 [DP]. Floor Activity: Passed House: 3/2/17, 96 -2. Senate Amended. Passed Senate: 4/12/17, 49 -0. House Concurred. Passed House: 4/17/17, 97 -0. Passed Legislature. Brief Summary of Engrossed Bill • Requires most cities to partner with the Department of Revenue (Department) to administer general business licenses through the Department's Business Licensing Service. • Requires the Department to submit a biennial partnering plan and annual progress report. • Requires cities, through the Association of Washington Cities, to form a committee to develop a general business licensing model ordinance. • Establishes the Local Business and Occupation Tax Apportionment Task Force to recommend changes to simplify the two- factor apportionment formula. HOUSE COMMITTEE ON FINANCE This analysis was prepared by non-partisan legislative stafffor the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent. House Bill Report - 1 - EHB 2005 15 Majority Report: Do pass. Signed by 11 members: Representatives Lytton, Chair; Frame, Vice Chair; Nealey, Ranking Minority Member; Orcutt, Assistant Ranking Minority Member; Condotta, Dolan, Pollet, Springer, Stokesbary, Wilcox and Wylie. Staff: Richelle Geiger (786- 7139). Background: City Business and Occupation Taxes. Local Business and Occupation Taxes (B &O) are levied at a percentage rate on the gross receipts of a business, less some deductions. Businesses are put in different classes such as manufacturing, wholesaling, retailing, and services. Within each class the rate must be the same, but it may differ among classes. Effective April 20, 1982, the Legislature set the maximum tax rate that can be imposed by a city's legislative body at 0.2 percent (0.002), but grandfathered in any higher rates that existed on January I, 1982. All ordinances that impose this tax for the first time, or raise rates, must provide for a referendum procedure. Any city may levy a rate higher than 0.2 percent, if it is approved by a majority of the voters. Forty- three of Washington's 281 cities levy this tax. In 2003 the Legislature passed a bill that required the Association of Washington Cities (AWC) to convene a committee to develop a model ordinance that would be adopted by all cities imposing a B &O tax no later than December 31, 2004. The Legislature was concerned about the lack of uniformity of the local B &O tax ordinances, and about allegations that some business income was subject to multiple taxation. The legislation requires that the model ordinance have certain mandatory provisions: a system of credits that prevent multiple taxation of the same income; a gross receipts threshold for small businesses; tax reporting frequency requirements; and provisions for penalties and interest, refunds, and deductions comparable with state law. Beginning January 1, 2008, cities that levied a B &O tax had to allow for allocation and apportionment of taxes between cities. City Business Licensing. Approximately 212 of Washington's 281 cities require a business license for any business conducting business activities within the city. Fees associated with the business license vary from flat rate charges to fees based on some combination of employee count, square footage occupied, or business type. For cities imposing a B &O tax, business licensing fees and filing requirements are separate, and in addition to B &O taxes. Administration of Local Business and Occupation Tax and Local Business Licensing. Unlike local sales and use taxes, local B &O taxes are administered exclusively at the local level. In 1977 the Legislature created the Master License Service to streamline business licensing and renewal. The program transferred to the Department of Revenue (Department) on July 1, 2011. The Master License Service was renamed to the Business Licensing Service (BLS) to better reflect the program's purpose. The BLS is the clearinghouse for business licensing, partners with 10 state agencies, and facilitates the issuance of local business licenses on behalf of approximately 70 cities. Agency programs and municipalities retain full regulatory control over their registration and compliance requirements. House Bill Report 16 - 2 - EHB 2005 The cities of Seattle, Tacoma, Bellevue, and Everett have been working together since 2010 to simplify the process of local business licensing and B &O tax filing. In 2014 these cities signed an interlocal agreement to establish a "one-stop" system for tax payment and business license application filing to make it easier and more efficient for businesses to apply for local business licenses, and file local taxes, while the cities retain local control over local licensing, tax collection functions, and policies. This joint effort is to create an Internet website application gateway where tax collection and business licensing functions can be collectively administered, and where businesses operating in multiple cities can use a one - stop system for tax payment or local business license application filing. This website began operations in 2016 and is known as FileLocal. Local Tax and Licensing Simplification Task Force. The Legislature enacted Engrossed House Bill 2959 in 2015, directing the Department to lead a task force during the 2016 interim to evaluate and develop options to: (a) improve the local business licensing process; (b) examine the difference in nexus between the state and cities; (c) examine allocation and apportionment methods; (d) centralize B &O tax collection; and (e) share data between the Department and FileLocal. The task force consisted of the following nine members: two representatives from the Association of Washington Business (AWB); one representative of the National Federation of Independent Business (NFIB); one representative of the AWC; one representative from the Washington Retail Association (WRA); one representative from a Washington city or town that imposes a local B &O tax and has a population greater than 100,000; one representative from a Washington city or town that imposes a B &O tax and has a population of less than 100,000; one representative from FileLocal; and one representative from the Department who served as chair of the task force. In 2017 the task force prepared and presented a report for the Legislature that examined the differences in apportionment and nexus between state and local B &O taxes, and how these differences affect taxpayers and cities; evaluated additional or alternative options to improve the administration of local business tax and licensing; and provided recommendations for options evaluated by the task force. The task force provided recommendations on four of the five topics and did not provide a recommendation to centralize B &O tax collection. Summary of Engrossed Bill: All cities that require a general business license (license), unless otherwise exempted (partnering cities), are required to partner with the Department to issue and renew licenses through BLS. The Department must partner with all partnering cities by December 31, 2022, if specific funding is appropriated for that purpose. If specific funding is not appropriated, the Department must partner with at least six cities per year between January 1, 2018 and December 31, 2021. Between January 1, 2022 and December 31, 2027, the Department must partner with the remaining partnering cities. The Department may delay assuming the duties of issuing and renewing general business licenses if insufficient funds are appropriated for this purpose, the Department cannot ensure the BLS is adequately prepared to handle all general business licenses due to unforeseen House Bill Report - 3 - EHB 2005 17 circumstances, or the Department determines that a delay is necessary to ensure that the transition to the mandatory Department issuance and renewal of general business license is as seamless as possible. Additionally, if a city submits written notice that they need to delay implementation due to fiscal or technical challenges, the Department can delay implementation for that city for up to three years. Cities are exempt from partnering with the Department to issue and renew licenses through the BLS if the city participates in the FileLocal program as of July 1, 2020. By January 1, 2018, and January 1 of each even - numbered year thereafter, the Department must establish a biennial plan for partnering with cities and submit it to the Governor, the Legislature, affected cities, the AWC, the AWB, the NFIB, and the WRA (stakeholders). The Department can alter the plan with a minimum notice of 30 days to affected cities. By January 1, 2019, and each January 1 thereafter through January 1, 2028, the Department must submit a progress report to the Legislature to provide information about the progress of the efforts to partner with all cities that impose a license requirement. Partnering cities may adopt a broad fee structure, but it must be within the Department's technological ability to administer. If the Department is unable to administer a city's fee structure, the city must work with the Department to adopt a fee structure that is administrable by the Department. If a city does not work with the Department, the city may not enforce its general business licensing'requirements until the effective date of a fee structure that is administrable by the Department. Cities may not require businesses to renew a license more than once per year. The BLS is not required to accommodate fees imposed by a city on a business for failing to obtain or renew a license. The Department may refuse to administer any license ordinance that is inconsistent with the rest of this bill. The Department's authority to administer a partnering city's licensing laws is limited to: issuing or renewing licenses; and refusing to issue a license due to an incomplete application, nonpayment of fees, or penalties for late renewal. Partnering cities have the authority to set licensing fees, provide exemptions and thresholds, approve or deny licenses, and take appropriate administrative action against licensees. Cities may only require a business to obtain or renew a license if they engage in business within the respective city. Partnering cities must provide the Department 75 days notice if the city changes who must obtain a license, who is exempt from obtaining a license, or the amount or method of determining any fee to issue or renew a license. Cities, working through the AWC, must form a committee to develop and adopt a general business licensing model ordinance by July 1, 2018. The ordinance must include a definition of "engaging in business within the city" and a uniform minimum licensing threshold under which a person is exempt from obtaining a license. Cities must adopt the provisions of the model ordinance by January 1, 2019, or they may not enforce their licensing requirements until they adopt the ordinance. Cities must coordinate with the AWC to submit a report to the Governor, the Legislature, and stakeholders to provide information about the model ordinance and identify cities that have and have not adopted the provisions. The report must incorporate comments from statewide business organizations concerning the model ordinance House Bill Report 18 - 4 - EHB 2005 process and substance. Business organizations must be allowed 30 days to submit comments for inclusion in the report. The Legislature directs cities, towns, and identified business organizations to partner and recommend changes to simplify the two- factor municipal B &O tax apportionment formula. The Local Business and Occupation Tax,Apportionment Task Force must consist of the following seven representatives: three voting representatives selected by the AWC that are tax managers representing municipalities that impose a B &O tax, including at least one jurisdiction that has performed an audit where apportionment errors were discovered; three voting representatives selected by the AWB, including at least one tax practitioner or legal counsel with experience representing business clients during municipal audits that involved apportionment errors or disputes; and one nonvoting representative from the Department who will serve as the task force chair. The Department will staff the task force. The task force may seek input or collaborate with other parties if necessary. The task force must present its recommendations to the Legislature by October 31, 2018. Appropriation: None. Fiscal Note: Available. Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed. Staff Summary of Public Testimony: (In support) This bill continues several years of work by the committee to help small businesses with regulations and reports. This bill is a proactive and reasonable step towards simplifying business regulation requirements. Representatives from cities and the business community have spent the last summer working on a task force in order to develop recommendations for improving the business licensing requirements. This bill reflects the cooperation and compromise that took place during the work sessions, as well as represents a huge amount of work and many unanimous decisions. The task force came to multiple tactical and strategic solutions to issues. Both the cities and business community agree that a "one -stop shop" model for obtaining a license and renewing licenses makes sense. The simplicity will increase compliance, get more businesses registered, and will result in significant time savings for small businesses. The Department's BLS is a logical centralized portal. The model ordinance will also help businesses comply with city licensing requirements. Recommendations on how to improve apportionment can be completed sooner than 2018, and presented to the legislature next session. The apportionment system is broken, and no one defended it on the task force. To complete the recommendation, the right people need to be at the table to have the discussion. House Bill Report - 5 - EHB 2005 19 The business community supports this bill. Businesses are burdened with the current system, and this helps alleviate the burden. It makes sense to simplify the administration. Multiple city requirements, locations, and differences in renewal dates makes it challenging to comply. Under this bill, the Department administers the licensing process, but the cities retain significant autonomy over their own rates and enforcement. This bill provides a number of safety valves with delays, long implementation timelines and exemptions for FileLocal, and findings of hardships in order to make sure the timeline works for participating cities and businesses. (Opposed) None. (Other) Cities should have the option to use FileLocal or reject participation. The hardship thresholds need to be reviewed and determined if they are appropriate. Cities with populations over 500 have serious problems and should be granted flexibility as well. There should be an advisory board to determine the right hardship parameters. Persons Testifying: (In support) Representative Lytton, prime sponser; Ron Bueing and Eric Lohnes, Association of Washington Business; Roger Flygare, Flygare and Associates; Mark Johnson, Washington Retail Association; and Patrick Connor, National Federation of Independent Business. (Opposed) None. (Other) Peter King and Paul Roberts, Association of Washington Cities; and Glen Lee, City Of Seattle. Persons Signed In To Testify But Not Testifying: None. House Bill Report 6 EHB 2005 20