EVERETT — A $3.4 million Business and Occupation tax increase is being proposed by the Everett City Council as the city begins its annual budget debate while facing a projected $7.2 million budget deficit for 2027.
The proposed ordinance is estimated to generate approximately $3.4 million annually in additional General Fund revenue beginning in 2027 and could be passed with a simple majority vote of the council, according to city documents. The first reading of the ordinance is scheduled for the Everett City Council meeting September 30, but a final vote would have to wait for two subsequent City Council meetings–potentially on October 14.
The ordinance updates the City’s B&O tax structure which already includes some exemptions and percentage reductions depending on the carve out. The proposed ordinance says the City has not changed the base B&O tax rates since implementing the model B&O ordinance over 20 years ago.
The proposed ordinance says the City wants to support small businesses by limiting the applicability of the City B&O tax and by
limiting the applicability of the City’s business license registration fees. In that effort, the ordinance says pursuant to Everett Municipal Code 3.24.050.B, the City’s B&O tax currently does not apply to businesses with gross proceeds under $20,000 from all activities conducted within the City. Effective January 1, 2027, this ordinance will increase that threshold to $250,000, thereby expanding the number of businesses to whom the tax is not applicable. However, the proposed ordinance doesn’t specify how many small businesses would potentially be protected by that exemption.
The ordinance will also increase another exemption on business license registration fees for businesses with gross proceeds under $5,000 that does not maintain a place of business within the City. Effective January 1, 2027, this ordinance will increase that
threshold to $45,000 and expand the definition to include businesses within City limits, thereby expanding the number of businesses to whom the license fee is not applicable.
The proposed B&O tax hike ordinance says, “to better support small businesses while strengthening long-term fiscal sustainability, it increases the threshold at which businesses are required to pay B&O tax and business license registration fees, and adjusts tax rates across business classifications. These changes simplify compliance, support local business growth, and ensure the City’s revenue system reflects current economic conditions. Council adoption is needed to implement the updated thresholds and rates effective January 1, 2027.”
The proposed B&O tax hike ordinance focuses on manufacturing, wholesale, retail products, retail services, printing, extracting and processing business. Effective January 1, 2027, this ordinance will implement that increase for the following classifications: extractor (EMC 3.24.050.A.1); manufacturer (EMC 3.24.050.A.2); wholesaler (EMC 3.24.050.A.3); printing, extracting, and processing (EMC 3.24.050.A.5); and other (EMC 3.24.050.A.7). The tax rate for the classifications of retail seller (EMC 3.24.050.A.4) and for retail service seller (EMC 3.24.050.A.6) will be reduced to 0.00075.
Since 2006, the City has also provided a reduced tax rate on certain gross receipts. In 2006, the City enacted a reduced tax rate for manufacturers that earn gross receipts over $6 billion. In 2016, the City increased the $6 billion threshold to $8 billion. In 2021, the City extended the reduced rate to all reporting classifications and extended the applicability of the reduced rate to 2034.
Effective January 1, 2027, this ordinance will extend the applicability of the reduced rate to 2042. The reduced rate will also be changed from a flat rate to a rate that is discounted 75% from the otherwise applicable rate, which will allow the reduced rate to adjust over time as the otherwise applicable rate adjusts. This means the reduced rate effective January 1, 2027 will be 0.0003 instead of 0.00025.
The full 21-page update to the ordinance can be seen by clicking here.
A subsection of the ordinance describes the B&O tax on personal services and the tax application this way: Persons performing services or personal services include persons rendering professional or personal services to persons (as distinguished from services rendered to the personal property of persons) such as, but not limited to, this enumeration: accountants, aerial surveyors, agents, ambulances, appraisers, architects, assayers, attorneys, automobile brokers, barbers, baseball clubs, beauty shop operators, brokers, chemists, chiropractors, collection agents, community television antenna owners, court reporters, dentists, detectives, doctors, employment agents, engineers, financiers, funeral directors, refuse collectors, hospital owners, janitors, kennel operators, laboratory operators, landscape architects, lawyers, loan agents, map makers, music teachers, oculists, orchestra or band leaders, contracting to provide musical services, osteopathic physicians, physicians, public accountants, public stenographers, real estate agents, school bus operators, school operators, sewer services other than collection, warehouse operators who are not subject to other specific statutory tax classifications, teachers, theater operators, undertakers and veterinarians, and other persons engaging in the business of serving persons.
Persons performing “services” or “personal services” do not include persons engaged in the business of cleaning, repairing, improving, etc., the personal property of others, such as automobile, house, jewelry, radio, refrigerator and machinery repairmen, laundry or dry cleaners. Also not included are certain personal and professional services specifically included within the definition of the term “sale at retail” in this section, such as amusement and recreation businesses of a participatory nature; abstract, title insurance and escrow businesses; credit bureau businesses and automobile parking and storage garage businesses. Not included are persons who render services to others in the capacity of employees as distinguished from independent contractors.
Persons engaged in the business of rendering services to others are taxable under the other classification upon the gross income of such business under Section 3.24.050(A)(6) 3.24.050(A)(7). There must be included within gross amounts reported for tax all fees for services rendered and all charges recovered for expenses incurred in connection therewith, such as transportation costs, hotel, restaurant, telephone, copy, printing, computer time and other expenses charged in providing the services.
If the proposed B&O tax ordinance is approved, it says EMC 3.24.050 is amended as follows, except as provided in subsection B of this section, there is hereby levied upon and shall be collected from every person a tax for the act or privilege of engaging in business activities within the city, whether the person’s office or place of business be within or without the city. The tax shall be in
amounts to be determined by application of rates against gross proceeds of sale, gross income of business, or value of products, including byproducts, as the case may be, as follows:
Upon every person engaging within the city in business as an extractor; as to such persons the amount of the tax with respect to such business shall be equal to the value of the products, including byproducts, extracted within the city for sale or for commercial or industrial use, multiplied by the rate of one-tenth fifteen hundredths of one percent (referred to in this subsection A(1) as the “extractor rate”), except as provided in subsections (A)(1)(a), (b), (c), (d), and (e) through (h) of this subsection. The measure of the tax is the value of the products, including byproducts, so extracted, regardless of the place of sale or the fact that deliveries may be made to points outside the city.
For the year beginning January 1, 2027, and ending December 31, 2027, upon every person engaging within the city in business as an extractor; as to such persons the amount of the tax with respect to such business shall be equal to the value of the products, including byproducts, extracted within the city for sale or for commercial or industrial use, multiplied by the extractor rate where such value is up to and including $8.5 billion and where such value exceeds $8.5 billion, the value of such products so exceeding the $8.5 billion shall be multiplied by the extractor rate discounted by seventy-five percent (75%).