City eyes rate hikes for business license fees

By Paul Archipley | Sep 28, 2016

Whether it’s the city, county, state or federal governments, business owners can expect some agency is always reaching into their pocketbook.

The city of Mukilteo is getting ready to reach a little deeper. At a worksession Monday, councilmembers heard a report and held discussion about different options for raising the cost of a business license and other business fees.

Policy analyst Marko Liias said the current business license fee of $113.50 has been in place since 2004.

In addition, business owners who have employees pay FTE (full-time equivalent) rates of about 2 cents per work hour per employee.

Under that system, a sole proprietor who works alone pays only the annual license fee. The largest employer in the city, with 1,288 employees, pays that base fee plus FTE fees that bring the total tab to $53,433.

The average employer in the city has four employees, paying about $302 per year in business license fees, Liias said. There currently are about 1,450 business licenses in the city, he said.

Mayor Jennifer Gregerson, who was on the council when the business license fee was last raised, said the city had relied on construction-related fees and taxes for many years and saw no need to keep raising business fees.

Then, when the recession hit, city officials avoided hitting businesses with fee increases during a difficult economy.

But the result is a 12-year span in which business fees have failed to keep up with inflation. Now that the city has reached build-out and the construction boom has ended, officials are taking a hard look at other revenue sources.

Liias said the administration is recommending the council approve a short-term license fee restructuring while the city transitions to a statewide online platform next year that would hand over the bulk of the licensing process to the state.

The state Department of Revenue provides a master license service; cities that use the service pay the state an administrative fee to handle business license applications and renewals.

It would make the system easier for business owners, providing one-stop shop online service, while freeing up city staff for other duties.

The administration’s proposal would raise the base fee to $125, and modify the FTE fee so that there would be no fee for the first three FTEs for resident and home occupation businesses and no FTE fee for non-resident businesses. The FTE rate would rise slightly, perhaps to $0.029 per hour.

Liias said Mukilteo’s business fees aren’t common; only about a dozen other cities in the state use FTEs. Most cities charge a flat business license rate, and larger cities tack on a B&O (business & occupation) tax.

Turning the bulk of the work over to a state agency would help city staff focus on other duties.

“The administrative burden of calculating FTE fees can be daunting,” Liias said. For example, if a business sends a cable installer into Mukilteo for a few hours a week, how are those hours tracked? Much of what businesses declare is dependent on the “honor system,” he said.

“The licensing process is not automated, so it’s time intensive,” Liias said.

Councilmembers on Monday asked staff to do some more digging on what other cities charge, but there was little stomach for looking at a B&O tax.

“It’s a terrible tax,” Councilmember Richard Emery said. Pointing out it is based on gross rather than net revenue, he added, “It’s very difficult if your net profit isn’t very good.”

The council also wants to discuss a policy that would require regular cost-of-living adjustments so future councils won’t be playing catch-up after a decade or more of no increases.

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