Several city priorities addressed in 2017-19 operating budget & revenue package, including internet sales tax, but disappointing outcome on property tax cap

After two special sessions and a new revenue forecast that did not bring much change, it was a relief when the Legislature enacted a new 2017-19 operating budget that provided state shared revenues historically distributed to cities such as liquor revenues, fire insurance premium tax, and funding for the Municipal Research and Services Center (MRSC). A revenue bill EHB 2163 was also enacted that will produce new revenue for the state and cities. AWC has long supported an effort to collect sales tax on internet purchases from out-of-state retailers to compliment taxes already collected on in-state retailers, and the passage of a state version of the Marketplace Fairness Act (AKA internet sales tax) will begin to close the loophole for online purchases. In addition, the budget funded new classes at the Basic Law Enforcement Academy (adding six classes per year in the operating budget and adding eight new classes in the supplemental budget for 2017) to address the backlog. Finally, additional sales taxes will be raised by eliminating the bottled water tax exemption.

There were a few areas of disappointment for cities in the 2017-19 operating budget:

• Local government marijuana mitigation revenues are reduced from $30 million to $12 million in the 2017-19 biennium. The budget also provides that if marijuana revenues exceed certain forecasts, local governments will receive an additional $18 million in the 2017-19 biennium. However, in all biennia following 2017-19, the budget imposes a $6 million per fiscal year limit on marijuana distributions.
• The budget includes the intent to phase out streamlined sales tax (SST) mitigation distributions in 2019 for the 48 cities receiving them. Instead, a budget proviso is included to study the actual revenue impacts from the new state implementation of collecting internet sales taxes from out-of-state retailers.
• While the Legislature changed state property taxes as part of the funding sources for the McCleary “fix” for schools (EHB 2242), the budget proposal did not include a new local option (HB 1764) to allow cities or counties to increase property taxes greater than one percent, or any other new “cap.”

In 2016, the Legislature passed a bill which established a task force on local business tax and licensing simplification. A nine-member task force, chaired by the Department of Revenue and included business and city representatives, developed options for simplifying local business licensing. The task force chair reported to the Legislature early in the 2017 session, and many of the recommendations were implemented with the passage of EHB 2005. The bill:

1. Requires all cities with business licenses to collaborate for administration of business licenses by 2022 with the state Business Licensing Service (BLS) or by 2020 with FileLocal, the city licensing and local tax administration portal;
2. Requires cities to adopt a model business license threshold by January 2019; and
3. Creates a task force chaired by the Department of Revenue to recommend changes to the two-factor formula for service income apportionment for local B&O taxes.

AWC is working with cities to aid in the implementation of the bill provisions.