The Auburn city council has proposed a Business and Occupation tax (B&O tax). The Auburn Examiner knows that businesses will have questions, so we gathered some useful data to help you navigate the waters.
Why is a B&O Tax being Proposed?
According to the city, expenditure growth has outpaced revenue growth and is expected to continue in that direction. The City says at the current rate that the general fund reserve balance will dip below 12% by the year 2022, and then dip even further below 8% by 2023. By 2024 the general fund balance will be in the negative if it continues in this trend.
The city’s recently passed 2021/2022 budget goals include; restoring employees’ salary and benefits; bringing furloughed and laid off employees back to work; maintaining current staffing levels, and lifting hiring freezes. The City also wants to restore service levels by reinstating deferred maintenance and service contracts.
Will all Businesses be Affected?
Per City statistics, there are currently 5,788 Businesses in the City of Auburn that make up a total gross income of $7.7B annually. The proposed B&O Tax would apply to all businesses that don’t meet the proposed exemptions.
In the proposal, 75 to 80% of Auburn businesses will be exempt and won’t have to pay the B&O Tax. Of the remaining large businesses, tax rates will be calculated based on gross income figures reported to the Department of Revenue. Example: A retail business generating $1.5M in gross sales would pay $690 per year. A service provider (100% of business taking place in Auburn) generating $500,000 in gross sales would pay $760 per year. The rates set by the industry is not expected to exceed .2%.
The current proposal includes exemptions for small businesses based on a gross revenue threshold. Other business types will also be exempt like; adult family homes, daycare provided by churches, child care services provided by non-profits, credit unions, agricultural farmers, long-term housing rental income, and liquor sales. There are also proposed exemptions for Deduction for certain activities; retail or wholesale sales delivered outside of the city, credits or bad debts sustained by sellers, tax credits for new businesses, and Business Improvement Area payments.
What About Plans to Reduce Spending?
Auburn’s population continues to increase along with the demand for services. For this reason, the city says there isn’t room in the budget for further cuts without lowering service levels or decreasing jobs. The city council has reviewed current service levels and has decided not to make further cuts at this time. The City says it has yet to restore services and staffing to full operational levels that were in place before the last recession cuts.
How has the business community responded?
Already facing shortfalls and setbacks due to COVID-19, Auburn business owners have concerns regarding the proposed B&O tax. Although the City of Auburn is proposing to enact the B&O tax starting in 2022, most business owners feel the tax is poorly timed.
“We appreciate the City’s need for increased revenue and look forward to working together on a solution that has the least impact on Auburn businesses during this unprecedented time,” said Auburn Area Connect Chamber of Commerce CEO Kacie Bray.
Between December 1-15, 2020, the Auburn Area Connect Chamber of Commerce hosted meetings so businesses could ask questions and give feedback regarding the proposed tax. There was a separate meeting for each of the following sectors; Nonprofit, Auto Dealers, Manufacturing and Warehousing, Retail, Hospitality and Food Industry, Healthcare, and Personal Services.
City Councilmembers attended each of the meetings to listen to the business community feedback. Deputy Mayor Claude DiCori assured attendees in one meeting that, though the council can not speak on pending legislation, they were listening intently to the business community.
What is the status of the proposal?
The City Council is expected to review and vote on the legislation in the first quarter of 2021.
“So, what the council is looking at right now is taking all this information in the business community, looking at the situation we’re in, and making a decision of whether or not to go forward,” DiCorsi said. “So it’s definitely not a done deal. It won’t be a done deal. Until the council sits on the dais and it comes to a vote early in 2021.”
Businesses and the community are encouraged to get involved now by attending city council meetings and study sessions, staying up to date with the Auburn Area Connect Chamber of Commerce, and sharing your feedback.
“The Auburn Area Chamber of Commerce will continue to bring our members and businesses updates on a potential B&O tax in the City of Auburn,” said Bray. “We are a connector of comments and concerns about a B&O tax to the Auburn City Council.”
DiCorsi acknowledged not passing the B&O tax legislation is possible. The bottom line is that if this not enacted, and other revenue sources are not viable to do, then the city will be looking at their options of cutting expenses like any other business would cut.”
You can learn more about the proposed B&O tax and watch each of these recorded meetings by visiting https://www.auburnareawa.org/auburn-proposed-botax. To watch the previously recorded meetings scroll down to the section listed under “Business Sector Meetings.”
To write this article, the Auburn Examiner watched and/or attended the Auburn Area Connect Chamber of Commerce sector meetings, watched the February 10, 2020, city council study session, reviewed the documentation from the Feb. 10 study session presentation, and confirmed facts with the City of Auburn Finance Department.