Washington cities worry that a proposed state business-tax-collection plan could cost them millions.
Washington’s largest cities are unhappy with Gov. Chris Gregoire’s proposal that would make Olympia the base of all business-tax collections in the state, saying it would cost them money, in part because state auditors wouldn’t be as aggressive in tracking down local cheats.
At a time when places like Tacoma and Seattle are dealing with significant budget problems, city officials worry this plan to simplify tax payments for the state’s businesses would make things worse for municipalities that currently assess and collect local taxes.
Seattle estimates it could lose between $23 million and $44 million annually if the governor’s measure becomes law.
But the president of the Association of Washington Business says his members, especially the small companies without accounting departments, really need some help navigating the state’s complicated local tax system.
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Seattle finance director Glen Lee said the losses would come from the following parts of the tax proposal:
• A 1 percent administrative fee charged by the state to do the tax collection.
• A loss of tax penalties and interest paid by tax cheats. These fees would now be kept by the state.
• Elimination of a local tax on the square footage of businesses, also known as the occupancy tax.
• Less-aggressive state pursuit of local tax cheats.
• A change in the way local tax dollars are apportioned between the municipalities where the money is earned.
Mike Gowrylow, a spokesman for the state Department of Revenue, said the changes were proposed to ease the burden on taxpaying businesses.
Don Brunell, president of the Association of Washington Business, said his organization has spent the past decade trying to help the state simplify local tax collection.
Forty percent of his organization’s 7,800 members have fewer than 10 employees. Usually the owner or a family member is responsible for navigating multiple tax forms and rules, with a variety of deadlines.
“Just understanding all the local government rules is tough,” Brunell said, but he added that he understands why the big cities are reluctant to give up control of their tax collection.
“It’s probably one of these issues where you come to the point where it’s fish or cut bait. And we’re encouraging them to pass it,” he said.
Instead of businesses filing as many as 39 tax forms for each of the Washington cities with local business taxes, the governor’s proposal would allow them to file just one state and local form.
Gowrylow said that until he saw the cities’ figures, he couldn’t challenge their loss estimates. He added, however, that the cities have several ways to make back some of the money, including the possibility of more money coming from out-of-state businesses with no offices in Washington.
“There are pluses and minuses,” Gowrylow said.
Lee said Seattle couldn’t make up losses by charging a higher gross-receipts tax, because the city has already maxed out its rate and the governor’s proposal doesn’t change the limits.
The bill, which will be sponsored by Sen. Derek Kilmer, D-Gig Harbor, is expected to be introduced sometime this week. So some details could change before the actual bill is available for debate and discussion.
Lee, Seattle’s finance director, has seen some proposed language, however, and he’s not happy.
“We’re very concerned, first and foremost, about the cities’ abilities to manage their fiscal affairs,” he said speaking for Seattle and the other large cities that collect their own business taxes.
Seattle, Bellevue, Tacoma, Everett and Bellingham were already working together on a plan to simplify local tax payments for businesses when the governor announced her proposal, Lee said.
He thinks lawmakers should wait and see how their project works before throwing out the system entirely.
Seattle officials think the worst part of the plan could be moving all auditing to state government.
Gowrylow said the bill would allow the cities with their own auditors — Seattle, Bellevue and Tacoma — to maintain them. But Lee said the language he’s seen would take away their teeth.
“There’s a control issue here,” Gowrylow said. “They feel that they’re doing a good job and don’t need the state to be involved. Businesses are giving us a different story.”
Lee said it’s not that he doesn’t respect the state tax experts or that he questions their sincerity. It’s just that the state government and local governments have different missions.
“That’s not a criticism of the Department of Revenue. Their mission is quite clear. They don’t have the institutional incentive to worry about local taxes,” he said.