City leaders are taking a proposal for a new tax on businesses off the table as an option to help address Vancouver’s structural budget deficit.
The proposed Business and Occupancy, or B&O, tax was eliminated from Vancouver’s revenue-generating toolbox by the city council during a workshop Monday afternoon. The tax would have collected 55 cents per $1,000 of annual gross revenue for businesses within city limits, totaling an estimated $5.5 million per year.
“I think it’s an unanimous decision to remove the B&O (tax) from the options,” Mayor Anne McEnerny-Ogle said.
Vancouver used to impose a B&O tax, but it was eliminated in 2002. Most comparable cities in Washington still collect the tax, including Tacoma, Renton, Bellevue, Seattle, Bellingham and Everett.
The council decided to forego the tax for a few reasons. Not first of which, they agreed, is that it’s regressive — by taxing gross revenue instead of profit, smaller businesses with narrower margins can be hit harder.
“There is no good tax in the state of Washington, flat out,” Councilor Ty Stober said. “They’re all regressive in some form or another, and we are stuck trying to pick from a bunch of bad options.”
Mayor Pro Tem Bart Hansen said he was worried about raising taxes on businesses in Vancouver right now. Changes in the Oregon tax structure could make its northern neighbor much more attractive to businesses, Hansen said, and Vancouver is uniquely situated to take advantage of any shifts as a border city.
“My concern isn’t that if you build it, they’ll come. It’s that if you tax it, they won’t,” Hansen said.
Other councilors pointed to the cost of administering a B&O tax. Natasha Ramras, Vancouver’s chief financial officer, said that collecting and managing the new tax would require three new full-time employees at City Hall.
“I think it would be difficult to implement,” Councilor Laurie Lebowsky said.
The proposed B&O tax was part of a revenue-raising package recommended by the group that drafted A Stronger Vancouver, a sweeping conglomeration of 35 capital projects and 25 new or expanded programs designed to carry the city through 2030.
The package will allow the city to catch up on deferred maintenance neglected since the Great Recession and keep up with projected population growth, City Manager Eric Holmes said. The plan touches everything from transportation to emergency services to parks.
It’s also expensive — estimated to increase the city’s annual budget by $30.1 million. The group that drafted A Stronger Vancouver, the Executive Sponsors Council, proposed a three-way split between business taxes, property taxes, and miscellaneous taxes and fees to pay the bill.
More than half of the revenue generated from the business side, or $5.5 million out of $9.7 million, would have come from a B&O tax. The rest would come from a proposed hike in the employee surcharge for local businesses, which would see a $70 increase per full-time staffer, from $90 to $160.
On the employee surcharge, city councilors remained open to more discussion.
Councilor Erik Paulsen said that when it comes to things that are important to businesses, “taxes are lower on the list” than other considerations, like the workforce and infrastructure that comes with any given community.
But taking a B&O tax off the table leaves city leaders with two options: They can either start slicing projects and programs from A Stronger Vancouver, Holmes said, or they can find the money somewhere else, or some combination of the two.
The council is expected to discuss next steps at its Oct. 28 meeting.
“We dropped $5.5 million. How are we going to make that up?” McEnerny-Ogle asked.
Outcry from businesses
Councilors were under pressure from local businesses to heave the B&O tax proposal.
Upon hearing in March that the Executive Sponsors Council had proposed implementing a B&O tax, a coalition of Vancouver businesses drafted a letter to voice opposition to the idea. Signed by a cross-section of leaders from the Greater Vancouver Chamber of Commerce, Identity Clark County, Vancouver’s Downtown Association and others, the group vehemently opposed the $5.5 million burden, calling it “regressive, unfair (and) anti-competitive.”
“(It’s) especially inappropriate given our location next to the Portland metropolitan area which has neither gross revenue taxes nor sales taxes, and within Clark County where no other municipality applies a local B&O tax,” the group wrote. “We cannot support such a highly negative anti-business signal when instead we should be actively broadening our economic tax base to attract more job-producing employers and encourage expansion among those operating here now.”