City council revises fee schedule to include leasehold tax for plaza use

City council voted 6-0 during its January 24 meeting to include a 12.84 percent leasehold tax in fees already established for businesses using the city’s plaza space. Councilmember Mike Hill was absent from the vote.

Council previously voted during its June 28, 2021 meeting to allow local businesses to lease the H, G and Martin Street plazas. But when the plaza ordinance went before council, they were not made aware of the leasehold tax – a Washington state tax a private organization needs to pay for using public property as an alternative to a property tax.

“We did not have a technical need to do that,” city finance director Daniel Heverling wrote in a memorandum. “But nonetheless it would have been good to fully understand the action and the total fee/cost to the user.”

City staff requested clarification from council whether it intended for the leasehold tax to be in addition to the lease fee established in the unified fee schedule or if it was intended to be included in a plaza user’s annual fee.

Currently, Drayton Harbor Oyster Company (DHO) is the only business leasing the city’s plaza space. The business is paying a $12,000 annual fee for the H Street Plaza, which means DHO will need to pay a $1,540 leasehold tax annually, according to city documents.

Council was presented two options: Either to charge DHO the 12.84 percent leasehold tax in addition to its $12,000 annual fee, or to amend the unified fee schedule with a clarification that the total fee included the tax.

“The city is effectively reducing what it’s paying in fees. The oyster company is still paying for this leasehold tax. The city is simply reducing its amount that is being assessed,” councilmember Kerena Higgins said during the meeting. “The city of Blaine is not paying this fee for the oyster company because that could be perceived as an improper use of public funds.”

Councilmembers discussed including the tax in the total fees right now because DHO was not aware of the tax when signing its lease, and then amending the unified fee schedule at a later date to make the tax additional.

“Since we didn’t mention anything about it to begin with, we at least need to give them the benefit of however long the lease is,” councilmember Eric Davidson said.

City manager Michael Jones told council it would need to change the unified fee schedule before DHO decided to renew its one-year lease, if council wanted to create the tax as an addition to the fees.

Councilmember Richard May asked Jones to add the codification of the unified fee schedule to the city council’s agenda no later than one month before the expiration of the current lease between the city and DHO.

“This is a matter of predictability,” May said. “Not a matter of what the fees should or should not have been.”