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Home My WebLink AboutCOW 2018-11-13 Item 4D - Resolution - 2019 Business License Fee ScheduleCOUNCIL AGENDA SYNOPSIS Meeting Date Prepared by Mayorli review Council review 10/22/18 VC , 11/13/18 VC 11/19/18 VC ITEM INFORMATION ITEM No. 4.D. STAFF SPONSOR: VICKY CARLSEN ORIGINAL AGENDA DATE: 10/22/18 AGINDA ITEM TITLE Proposed increase to business license fee CATF,GoRY Discussion Altg Date 11/13/18 El Motion 1111g Date [F] Resolution Mtg Date 11/19/18 [1] Ordinance Mtg Date E Bid Award Alts Date E Public Hearins Mtg Date E Other Mt‘g Date SPONSOR Council Mayor LHR EDCD EFire E TS EIP&R Police flPJV ECourt Finance SPONSOR'S Council is being asked to approve a resolution increasing the fees to take effect January 1, SUMMARY 2019. REVIEWED BY E C.O.W. Mtg. Ei Trans &Infrastructure DATE: 10/16/18 E CDN Comm n Finance Comm. [1] Public Safety Comm. Comm. [1] Planning Comm. CHAIR: QUINN MI Arts Comm. 111 Parks COMMITTEE RECOMMENDATIONS: SPoNsoR/ADmIN. CommITIEE Mayor's Office No recommendation; Forward to Committee of the Whole COST IMPACT / FUND SOURCE EXPENDITURE REQUIRED AMOUNT BUDGETED APPROPRIATION REQUIRED $ $ $ Fund Source: Comments: MTG. DATE RECORD OF COUNCIL ACTION 10/22/18 MTG. DATE ATTACHMENTS 10/22/18 Informational Memorandum dated 10/10/18 (updated to add table after Finance Com.) Resolution (Updated to remove reference to "panoram" after Finance Com.) Minutes from the Finance Com. of 10/16/18 11/13/18 Info Memo dated 10/10/18 (updated to include Open House info & input from 11/5 Reg) Draft Resolution Minutes from the Finance Com. of 10/16/18 11/19/18 39 40 City 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: October 10, 2018 SUBJECT: Proposed increase to business license fee Updated after October 16, 2018 Finance committee meeting, page 2 ISSUE The City Council is being asked to increase the business license fee. BACKGROUND More than one-third of the City's general fund revenues comes from the City's portion of the sales tax (less than 1% of the total sales tax rate). With the statewide change to destination -based sales tax — which means sales tax is charged to where the item is delivered — Tukwila lost significant sales tax revenues, which continues to negatively affect the City today. In addition, many people prefer to shop online, skipping brick and mortar opportunities, further reducing Tukwila's sales tax generation. Finally, the State's mitigation payments to cities hard hit by destination -based sales tax — called Streamlined Sales Tax Mitigation payments — is ceasing in 2020. This act alone will reduce Tukwila's revenue by $1.2 million a year starting in 2020. The Administration instructed departments to achieve a 3% underspend in 2018, which the City is on track to achieve. In addition, during the development of the Mayor's proposed 2019/2020 budget, departments were directed to include a 3% reduction in supplies and services; Fire and Police were given a 1.5% goal. The result of this is approximately $1.8 million in savings per year. Also included in the proposed budget are new revenues to allow the City to continue to provide high level of services to the Tukwila community. New revenues include an increase in the City's gambling tax and business license fees. The proposed new revenue equals the amount of reductions identified above, and the goal was to propose a balanced approach to addressing the City's structural budget challenges of revenues not growing as fast as expenses. DISCUSSION The current business license fee is $70 per full time employee or $35 per part time employee. If the fee were raised to $112 per full time employee and $56 per part time employee, an additional $1.5 million could be generated. In comparison, the business license fee for the City of Kirkland is $105 per FTE and $112 for Redmond — neither city has a B&O tax. Raising the City's fee would bring it in line with these rates. City staff have been meeting with various members of the business community regarding this proposal including but not limited to the Seattle Southside Chamber, Sabey Corporation, Baker Commodities, Great American Casino, BECU and Seattle Chocolates. Overwhelmingly the businesses community members were pleased that the approach to the budget problems included reductions. While no one likes higher fees, the business representatives City staff spoke with understood the reason for the increase and appreciated the outreach. 41 42 INFORMATIONAL MEMO Page 2 City staff also recommend the Council change the "Contractor based outside OfTukwila" tO8flat fee of $100. There remains significant confusion with these outside -based contractors 8Sb]how they calculate their fees with no eOOp|OVe8S located within the City. A flat rate will allow for an efficient @dOUiDiS[[@tiOD Of this category. Finally, when updating the business license fee reSO|ULiDO. staff noticed an Outdated license category that has not been used in many years and [eC000DOend removing itfrom the fee schedule. Follow upfrom October 1G.2Q18 Finance Cornnnitteenneetinq' At the committee 0eedOq.@request was made U3provide business license fees from other nearby C|deS. Asgcomparison, below are cities and their business license fee and ifthey impose aB&[} tax. City Flat Fee Other 0-10FTEu>: $100.(11-50FTEo: $25O.(51-1OOFTEs): $1500.(101-500FTEs)� 8euTao $4750.(201'1000+FTEn)�$9500 O��emp.$3UHmneOcc�Bur�n$75HomeDcc 8or�n ou�~--^ fees Auburn $50 Em $340.5Q.50-99Ern p$54O.5g\tO0+Emp$101.if Kent opening July 1 fee is reduced No Renton $150 $1500rifgross revenue iobelow $5OO,00U.Kover they pay $150plus B&Otax. Yes $110($' '� Seattle '� $1.8B9�8B):�48O,(��000�� VO- 99�9Qt$�VOO. *�OV0 '� Yes Plus $5 registration fee plus a $4 customer service fee on all Filel-ocal Payment Bellevue $90 Transactions Yes Redmond ' minimumhae$n2/FTE No Kirkland Base Fee: $1O0plus $105/FTE No VVbodinvil|e $39 Plus *i9application fee `= � 'wm,' Businesses with less than $3.O0Uannual gross revenue ioexamptfrom this Issaquah $60 ohyobusiness endorsement requirement KVercec|e|and $30 B&Ooogross revenue in exoessof$15O,0OO/yr ' Outside Contractor Fee Information was also requested on business license fees for outside contractors. Ch Outside Contractor Fee Cit Outside Contractor Fee SaaTao $15Oflat fee Bellevue Same asbusiness license fee 8uhen First time fee $75.renewal $8U Redmond Same oobusiness license fee Auburn $5Oflat fee Kirkland Same asbusiness license fee Kent $101flat fee Woodinville Same oebusiness license fee Renton Same ombusiness license fee Issaquah Same asbusiness license fee Seattle Same mabusiness license fee Mercer Island Same anbusiness license fee Business Outreach To notify businesses of the proposed business license fee increase and receive feedback, business outreach was conducted from September 24 th throuqh October 17 th as follows: Business Outreach l VVashinqhonP|aoe Two staff convened meeting on -site 2 American Medical Response (AW1R) Two staff convened moodnqon-site 3 Baker Commodities Mayor and staff convened maehnqon-site 4 0ECU Mayor and staff convened moetioqon-site 5 Bneinq Staff convened meeting atCity Hall 6 Clarion Two staff convened mnetinqinbusiness district INFORMATIONAL MEMO Page 3 7 Continental Mills Two staff convened meednqon-site 8 Coub:n Two staff convened meeting on -site 4 Doub|etreeHohe| Staff convened meetinVon-site 10 Fortune Casino Staff convened meednqon-site I Great American Casino Mayor and two staff convened meetinqon-site 12 Macau Casino Staff convened meeting on -site 13 Rainier Industries Mayor and staff convened meeting atCity Hall 14 ReqenuyCentera Staff convened meetinqinbusiness district 15 Riverside Casino Staff convened meetinqon-site 16 SabeyCorp Mayor and staff convened meetinqinbusiness district 17 Soqa|ePropertiea Two staff convened meetinVon-site 18 ToppotDonuta Staff received email from business 14 VVigProporties Two staff convened meeting on -site Staff contacted on additional five businesses with the qmm| cfrneetinq with them directly on the business license issue but did not receive return ooUe. In qenana[ the business community expressed appreciation for bainO contacted and the opportunity to qiva input. There was underetandinq of the financial circumstances neceaoitadnO the fee increase thVuOh some commented that the peroentaqeincrease was hiqh. Follow upfrom Open House held omOctober 29.201O' The City mailed more than 2.000 postcards bJall businesses with G physical location in Tukwila invidnq them toattend an open house on (](tOb8r2D. 2018. Businesses were invited to meet with staff and discuss the proposed business license fee increase. Eleven businesses attended the open house and spoke with staff and two coUnci|0e0bers. Summarized below are comments made bythe various business representatives. °Reproaentotivee appreciated that we held the open house and qawe businesses the opportunity to comment •A couple of attendees indicated that they were disturbed that more didn't show uVtothe open house • 88von3| asked if the City had considered other revenue options. One specifically asked if the City had considered a B&O tax and was q|8dtohear that option did not move forward • At least two commented that they were appreciative that the City reduced costs in addition LoincFeasiOqrevenue * One business owner entered the room and asked "Where do | say no?" wSeveral expressed concern reqanjinqthe overall cost to businesses • At least one business representative stated "60% is a siqnificant increase" • Two businesses asked whether the City would consider steppinq in the increase over time ^ATukwila contractor preferred the former method OfCOrnputinq the business license fee Vsinq full time equivalent (FTE) hours instead of per employee fee. l[ypic@||y, he hires multiple employees for periods of less than one year depenclinq on the size and schedule Dfeach iOb. Acomment board was also provided for representatives toleave their comments iDVVhdnq. Below are the comments placed DOthe board. * "Enhanced or more outreach to srngU businesses" * "Restaurant and hotel "use tax" (per bed/niqhL)for example" * "Find another solution —8 60% hike in license fees is unacceptable. You will be d[iViDq businesses away" * "Thank you for iOvidOq uStOcomment" 43 44 INFORMATIONAL MEMO Page 4 • "Bi-annual payments" • "Possible to step into increase? Start lower go higher?" • "Re-evaluate fee (downward) if budget gap is smaller" The Mayor's proposed budget includes a business license fee of $112 for full time employees and $56 for part time employees. Council also requested analysis of a stair -step increase in the business license fee. If Council chooses to implement the business license fee increase in two steps; 50% in 2019 and the full increase in 2020, a decrease of $750 thousand in revenue would be reflected in the 2019 budget only. Follow up from the November 5, 2018 Regular Meeting. At the November 5, 2018 Regular meeting, Council discussed, and approved, an increase to the gambling tax on card rooms. During the discussion of this item, Council talked about capping the business license fee for casinos operating card rooms as modeled in Option B in the Six Year Forecast — Revenue Option info memo. If Council chooses to cap the license for card rooms at $500 per year, the result would reduce revenues each year by approximately $22 thousand. If Council chooses to exempt card rooms entirely from the business license fee, the result would be a reduction in ongoing revenues of approximately $24 thousand. It should be noted that a change in the business license fee for card room establishments will require a change to the proposed resolution. However, if card room establishments are exempted from the business license fee, an amendment to the model ordinance, recently approved, will be necessary. Update on Proposed Fee for Outside Contractors The new model ordinance, required by the State, includes a provision for businesses that do not maintain a place of business within the City and gross proceeds of sales or gross income is equal to or less than $2,000 is exempt from the business license fee. Further analysis was done to determine the impact of this legislation on outside contractor revenue. Because the City does not collect income information on businesses, the financial impact cannot be estimated with any precision. However, for 2018, over 75% of outside contractors reported 2 or less employees. It is entirely possible that the majority of the contractors that only report 1 or 2 employees would fall below the threshold and not be required to pay a business license fee. At the October 16, 2018 Finance Committee meeting, staff recommended changing the fee structure for outside contractors to a flat fee of $100. The change was recommended due to significant confusion from the outside contractors on how to calculate the business license fee. In order to mitigate the possible impact of the minimum threshold, staff is recommending increasing the flat fee recommendation from $100 to $150. Decisions to be Made There are several decisions that need to be made regarding business license fees prior to the adoption of the 2019-2020 biennial budget. 1. What business license fee should be adopted? a. $112 per full time employee and $56 per part time employee as currently proposed b. Stair stepped implementation of $91 and $45 in 2019 and the full increase in 2020 c. No change in existing fee structure d. Other 2. What should the business license fee be for card room establishments? a. Same as other businesses b. Flat fee of $500 c. Exempt from the business license fee d. Other 3. What should the fee be for outside contractors? INFORMATIONAL MEMO Page 5 a. $100 flat fee b. $150 flat fee c. Same as business with physical presence (no change) d. Other Once consensus has been reached on each of these items, staff will bring an amended resolution and/or ordinance to the Regular Meeting on November 19, 2018 for approval. Business license renewals are historically sent out the third week in November, so any changes to the business license fee are time -sensitive in order to provide businesses with adequate time for license renewals. RECOMMENDATION Council is being asked to forward this item to the October 22, 2018 Committee of the Whole meeting and subsequent November 5, 2018 Regular Meeting for adoption to approve the rate increase effective January 1, 2019. This will allow sufficient time for notification to affected businesses. ATTACHMENT Draft resolution 45 46 NOTE: Shaded text on page 3 reflects changes made after review by the Finance Committee on October 16, 2018. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, REPEALING RESOLUTION NO. 1913 AND ADOPTING A REVISED BUSINESS LICENSE FEE SCHEDULE. WHEREAS, the City has analyzed current business license fees; and WHEREAS, the State of Washington's streamlined sales tax mitigation payments are being phased out in 2019 and will cease in 2020, thereby reducing General Fund revenue by $1.2 million annually; and WHEREAS, sales tax revenue, due to destination -based sales tax distribution rules, has not grown at the same rate as expenditures; and WHEREAS, the City is seeking to take a balanced approach to ensure that ongoing expenditures are paid for with ongoing revenue; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY RESOLVES AS FOLLOWS: Section 1. Repealer. Resolution No. 1913 is hereby repealed. Section 2. Fee Schedule. For 2019, Business License fees will be charged according to the following schedule: (continued...) W:\Word Processing \Resolutions\Business license fee schedule revised 10-17-18 RB:bjs Page 1 of 4 47 ANNUAL BUSINESS LICENSE FEE SCHEDULE Standard Business License fee: $56 3-5 per part-time employee* plus $112 70 per full-time employee* * 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. equals total Business License Fee** ** The total Business License fee due time and full-time employees employed For example, a business with one part-time pay a Business License Fee of $56 3-5. A business with one full-time employee License Fee of $112 70. will vary based on the combination of part- by the business. employee (and no other employees) will (and no other employees) will pay a Business Minimum Business License fee: $56.00 36,00 Business License Fee for contractors operating within the City of Tukwila boundaries without a physical presence: $100.00 flat fee *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 or reports from a location within the City's corporate limits; 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,.; and e. Self-employed persons, sole proprietors, owners, officers, managers, and partners; and f. Any other person who performs work, services or labor at the business, including an independent contractor who may be exempt from requirements to have a separate City of Tukwila business license. W:\Word Processing \Resolutions\Business license fee schedule revised 10-17-18 RB:bjs 48 Page 2 of 4 Other annual license fees: Adult Cabaret establishment $500.00 + Business License Fee (per above) Adult Cabaret entertainer $75.00 + Business License Fee (per above) Adult Cabaret manager $75.00 Adult Entertainment Cabaret establishment $500.00 + Business License Fee (per above) Adult Entertainment Cabaret entertainer $75.00 + Business License Fee (per above) Adult Entertainment Cabaret manager $75.00 Amusement Center $500.00 + Business License Fee (per above) Amusement device fee $50.00 per device + Business License Fee (per above) 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 + Business License Fee (per above) Contractor based outside of Tukwila Same as Busine. License Fee (per above)$100.00 Panoram promises 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 W:\Word Processing\Resolutions\Business license fee schedule revised 10-17-18 RB:bjs Page 3 of 4 49 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 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 , 2018. ATTEST/AUTHENTICATED: Christy O'Flaherty, MMC, City Clerk Verna Seal, 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 10-17-18 RB:bjs 50 Page 4 of 4 Finance Committee Minutes October 16, 2018 C. Ordinance: Business License Fees Staff is seeking Council approval of a resolution that would increase the business license fee from $70 to $112 per full time employee and from $35 to $56 per part time employee, resulting in a revenue increase of $1.5 million. The City is facing a budget shortfall due to flattening sales tax and the loss of streamlined sales tax mitigation payments. The Mayor's proposed budget includes $1.8 million in departmental reductions and additional revenues in the form of increases to gambling tax and business license fees. The proposed resolution adopts a revised business license fee schedule, changes outside contractors to a flat fee of $100, and will remove reference to the archaic "panoram" category. Committee members discussed the proposal for contractors based outside of Tukwila and decided the flat rate should be evaluated after one year. Councilmember Kruller asked for rates for neighboring jurisdictions including whether they have B&O tax. Chair Quinn stressed the importance of ongoing communication with the business community, with consistent and clear messaging around why the City is considering this change. Staff has already conducted business outreach and is working on a communications plan in the event of Council passage. NO RECOMMENDATION. FORWARD TO OCTOBER 22, 2018 COMMITTEE OF THE WHOLE. D. Resolution: Employee Compensation Policy Staff presented the draft resolution incorporating feedback given in previous Committee meetings, which containing policy items relating to timeliness, comparability, market ranking, and internal equity. Committee members discussed the current proposal and requested the following changes: • Amend B(1): "A second criteria to be used to refine comparable jurisdictions is to only include cities with their own police department." • Amend sentence at end of B(4:) "Administration will provide a written justification documenting that an adjustment is warranted for the City Council's review and approval prior to implementation." • Amend sentence at end of B(5): "Administration will provide a written justification documenting that an adjustment is warranted for the City Council's review and approval prior to implementation." Councilmember Robertson stated that he believes 100/0 above is too high for market competitiveness. The City should be paying the average of current comparables. Chair Quinn and Councilmember Kruller noted that the policy revisions add more opportunities to review anomalies as well as overall review of the policy itself. MAJORITY RECOMMENDATION. FORWARD TO OCTOBER 22, 2018 COMMITTEE OF THE WHOLE. E. Contract Amendment: Interim Human Resources Director Staff is seeking an amendment to Contract 18-132 with Prothman Company for an additional $40,000 to allow the interim Human Resources Director to remain through January. The City is initiating a search for a new HR Director and anticipates having someone begin in January. UNANIMOUS APPROVAL. FORWARD TO NOVEMBER 5, 2018 REGULAR CONSENT AGENDA. 51