New B&O tax would target wholesale and manufacturing businesses

By Stefanie Donahue

To keep up with a growing demand for city services, Blaine City Council will consider approving a 0.2 percent Business and Occupation (B&O) tax on wholesale and manufacturing businesses with gross receipts of $20,000 or more per year.

“Additional revenue is essential to maintaining existing service,” said Blaine city manager Michael Jones. “Whether it [comes from] a B&O tax is still open to discussion.”

Per state law, a B&O tax can be imposed by a city at a maximum tax rate of 0.2 percent on manufacturing, wholesale, retail and service businesses. Gross receipts are defined as the total annual revenue of an organization, without subtracting costs and expenses.

Manufacturing businesses such as plants, factories and mills are those that transform raw materials, substances or components into new products and wholesale businesses arrange the purchase or sale of goods to retail establishments, said city finance director Jeff Lazenby in an email.

“These types of businesses pay little in the way of sales tax, but rely on city services like police, roads and streets,” he said.

Lazenby estimated that 30 to 50 businesses in Blaine would have to pay the tax and said a business that grosses $500,000 in annual revenue would pay $1,000.

City services are primarily funded through a 6 percent utility tax, which applies to electric energy, garbage and solid waste refuse, natural gas, telephone service and cable television businesses; an 8.7 percent sales tax, of which the city retains 1.05 percent; and a property tax.

“Strict legal guidelines prohibit reallocation of funds from one city service to another,” according to a statement from the city. “For example, money from utilities cannot be used for other city services, such as police or public safety.”

Hamstrung by budget constraints brought on by the late 2000s recession and a lower Canadian exchange rate, the city has made what it describes as significant cuts to staffing, expenses and services over the past decade.

As well, it has been unable to adequately fund economic development initiatives or properly maintain parks and public buildings. Limited staffing has also caused delays in processing permits and payments and responding to inquiries from the public.

“Public safety has been particularly hard hit by workforce reductions with just one police officer available to respond to calls at times,” according to a statement from the city. “This [is] a concern because the demand for police services continues to increase.”

Blaine City Council intends to vote on the B&O tax after two public hearings scheduled for February 11 and 25. If approved, Jones said the tax would generate an estimated $200,000 per year and would go into effect in 2019.

The money raised will pay for city services, such as additional police and administrative personnel, replacement of police vehicles, What-Comm 911 emergency dispatch services and public park and building maintenance. City officials also want to use some of the funding on a program to help the manufacturing industry find and retain workers.

“Many of them have experienced challenges in attracting and retaining employees,” Jones said of local businesses, emphasizing, “It is not unique to Blaine.”

Jones said the B&O tax will also help level the tax burden.

“Manufacturing and wholesale businesses do not contribute to sales tax revenue like the retail or service industry and still require city services,” he wrote in a letter to the Blaine Chamber of Commerce board of directors.

In addition to the chamber, Jones also reached out to businesses that would be subject to the B&O tax.

“The feedback was mixed,” he said. “The majority of them were understanding and not excited.”

Jones does not believe the B&O tax will deter manufacturing and wholesale businesses from coming to Blaine. The city’s proximity to Interstate-5 and an international border, as well as its low electricity rates, make it an enticing place to do business, he said.

Windermere real estate agent Mike Kent has a different opinion.

“Businesses will always gravitate where costs are less,” he said. Blaine’s lack of a B&O tax is “a great incentive,” he added.  “I’d hate to lose it.”

Kent said his company recently leased all remaining parcels in the Marine Drive Business Park, located just outside of Bellingham city limits.

According to the Association of Washington Cities, Bellingham is the only municipality in Whatcom County that imposes a B&O tax on wholesale, manufacturing, retail and service businesses, which Kent believes is a deterrent.

“That’s one of the first things a buyer will ask,” he said.

Jones said the city has considered other options for generating revenue, but decided against them.

A levy lid lift, for example, would require voters to approve a property tax increase, but would disproportionately impact businesses that are already paying sales or lodging tax, he said.

Voters could also approve a 0.1 percent sales tax increase to fund public safety, but Jones said the city has broader needs.

“In general, I don’t like increasing taxes,” said mayor Bonnie Onyon. “We’re certainly not in dire straits with our budget, but it’s not going to get better.” The B&O tax, she said, “seemed like the most fair way to do it.”

Ultimately, “the decision has not been made,” Jones said. “We want the public to participate.”

To learn more about the B&O tax, visit bit.ly/2C9rlJl.

To comment on the proposal, attend two public hearings that begin at 6 p.m. on Monday, February 11 and 25 at Blaine City Hall, 435 Martin Street, Suite 4000 in Blaine. Comments are also being accepted via email to citycouncil@cityofblaine.com and by phone at 360/332-8311.