HomeMy WebLinkAbout12/06/2016 19 Raise Lid of 4% Tax to Electric, Natural Gas and Phone Users; Brokered Natural Gas Use Tax; YMC Amendment 5.50BUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDASTATEMENT
Item No. 19.
For Meeting of: December 6, 2016
ITEM TITLE: Ordinance amending Chapter 5.50 of the City of Yakima Municipal
Code to raise the lid of 4% tax to electric, natural gas, and
telephone users from $4,000 to $8,000 per customer per month,
and establishing a brokered natural gas use tax
SUBMITTED BY: Cliff Moore, City Manager
Cindy Epperson, Director of Finance & Budget
SUMMARY EXPLANATION:
At their November 28, 2016 study session, Council approved raising the "lid" or "cap" on the
electric, natural gas, and telephone utilities from $4,000 to $8,000 per customer per month for
4% of the tax. The tax rate for these utilities is 6%, with 4% of the tax capped, while 2% is
charged on the complete balance. Another way to view this is that 6% is charged on the whole
amount up to the cap, then 2% is charged on the amount greater than the cap.
For a business with a monthly bill greater than $8,000, they can expect to pay an additional
$160/month (i.e. $4,000 x 4%), or $1,920 annually.
Council also established a brokered natural gas use tax, which affects 8 businesses. The rate
needs to mirror the regular natural gas use tax rate, so it will have the same $8,000 capon 4%. In
total, we expect this action to generate an additional $200,000 to support General Fund
operations.
The attached ordinance amends Section 25.50.050 of Chapter 5.50 of the City of Yakima
Municipal Code to raise the existing cap, and enacts new Section 5.50.055 establishing a
brokered natural gas use tax. Both the red -lined (i.e. comparative) and final versions of the
ordinance are attached. We have also attached the strategic initiatives that described the taxes
and the effects of the changes. There was also some language that was updated. The most
notable included references to "selling or furnishing steam" which is a throwback to an earlier era,
and hasn't been used in many years.
ITEM BUDGETED:
NA
STRATEGIC PRIORITY: NA
APPROVED FOR �
SUBMITTAL: City Manager
STAFF RECOMMENDATION:
Pass Ordinance
BOARD/COMMITTEE RECOMMENDATION:
ATTACHMENTS:
Description
D LJtiity Tax Ordinance - Redline
D Utility Tax Ordinance - Clean
D Eliminate lid on Utility Tax - S1
D Establish Brokered Natural Gas Tax - Sl
Upload Date
Type
11/30/2016
Ordinance
11130/2016
Ordinance
11/30/2016
Backup Material
11130/2016
Backup Material
ORDINANCE NO. 2016 -
AN ORDINANCE relating to business regulations and utility taxes; amending Section
5.50.050 of Chapter 5.50 of the City of Yakima Municipal Code pertaining
to outside utility tax "caps" on companies in the business of selling or
furnishing natural gas, electric light or power, cellular telephone services
and telephone services; and enacting new Section 5.50.055 of Chapter
5.50 of the City of Yakima Municipal Code establishing a brokered natural
gas use tax; all to reduce the City's dependency on cash reserves and
contribute to capital funding.
BE IT ORDAINED BY THE CITY OF YAKIMA:
Section 1. Section 5.50.050 of Chapter 5.50 of the City of Yakima Municipal Code is
hereby amended to read as follows:
5.50.050 Electric, telephone, and gas andsteamTbusinesses.
....................................................................................................................................................................................................................................................................................................................................
A. There are levied and shall be collected annual license fees or taxes against the
persons on account of business activities, and in the amounts to be determined by the
application of the rates herein prescribed, as follows:
1. Commencing October 1, 1994, upon every person engaged in or carrying on
the business of selling or furnishing electric light or power, a fee or tax equal to six
percent of the total gross revenue derived from such business in the city of
Yakima.
2. Commencing July 1, 1989, upon every person engaged in carrying on a
telephone business, a fee or tax equal to six percent of the total gross revenue
derived from such business in the city of Yakima; provided, that such fee or tax be
subject to the limitations prescribed by RCW 35.21.714; and provided further, that
the city shall suspend collection of any franchise fee on a telephone business in
excess of the rates of fees and taxes permitted under RCW 35.21.870(2), which
rate is six percent.
Total gross revenue for this purpose shall not include charges which are passed on to
the subscribers by a telephone business pursuant to tariffs required by regulatory order
to compensate for the cost to the telephone business of the tax imposed by the
ordinance codified in this section.
"Telephone business" as used herein means the business of providing access to a local
telephone network, local telephone network switching service, toll service or coin
telephone services, or providing telephonic, video, data or similar communication or
transmission for hire, via a local telephone network, toll line or channel, or similar
communication or transmission system. It includes cooperative or farmer line telephone
companies or associations operating an exchange. "Telephone business" does not
include the providing of "competitive telephone service" as defined herein below nor the
providing of cable television service or cellular telephone service.
"Competitive telephone service" as used herein means the providing by any person of
telephone equipment, apparatus, or service, other than toll service, which is of a type
which can be provided by persons that are not subject to regulation as telephone
companies under RCW Title 80 and for which a separate charge is made.
3. Commencing November 17, 2005, upon every person engaged in or carrying
on the business of selling or furnishing natural gas for heat, power, light and other
purposes, a fee or tax equal to six percent of the total gross revenue derived from
such business in the city of Yakima as explained in subsection E of this section.
45. Commencing February 1, 1997, upon every person engaging in or carrying
on the cellular telephone service business, a fee or tax equal to six percent of the
total gross revenue derived from conducting such business within the city of
Yakima, as indicated by billings and/or charges to Yakima customers.
"Cellular telephone service" as used herein means a two-way voice and data
telephone/telecommunications system based in whole, or substantially in part, on
wireless radio communications, and which is not subject to regulation by the Washington
Utilities and Transportation Commission (WUTC). This includes cellular mobile service.
The definition of cellular mobile service includes other wireless radio communications
services such as specialized mobile radio (SMR), personal communications services
(PCS), and any other evolving wireless radio communications technology that
accomplishes a purpose similar to cellular mobile service. "Cellular telephone service" as
used herein also means service provided by means of an electric device that has the
ability to send or receive voice or digital messages transmitted through the local
telephone network, via satellite, or any other form of voice or data transmission.
B. The minimum fee or tax on each such business activity shall not be less than two
hundred fifty dollars per tax year.
Commencing February 8, 2017, the rates of tax set forth in subsection A of this section
shall be measured against a maximum of the first eight thousand dollars of the total
gross revenue attributable to selling or furnishing telephone services described in the
definition of "telephone business" contained herein, or selling or furnishing cellular
telephone services described in the definition of "cellular telephone service" contained
herein to anv one customer in anv one calendar month or fraction thereof.
D. GE)FnMeRGiRg QG GberT1994,vim, the first four perrP—A+ of +rvrzhe-tax Setfn—rnr
light or power to anv one ni iS+nm er in anv nno nelenrler month OF thereof• +rein
0
total grnSS to Selling OF fi irnishing elentrin light nr Power.
Commencing February 8, 2017, the first four percent of the tax set forth in subsection A
of this section shall be measured aaainst a maximum of the first eiaht thousand dollars
of the total gross revenue attributable to selling or furnishing electric light or power to any
one customer in any one calendar month or fraction thereof; two percent of the tax set
forth in subsection A of this section shall be measured against the total gross revenue
attributable to selling or furnishing electric light or power.
Commencing February 8, 2017, the first four percent of the tax set forth in subsection A
of this section shall be measured against a maximum of the first eight thousand dollars
of the total gross revenue attributable to selling or furnishing natural gas to any one
customer in any one calendar month or fraction thereof; two percent of the tax set forth
in subsection A of this section shall be measured against the total gross revenue
attributable to selling or furnishing natural gas.
Section 2. Chapter 5.50 of the Yakima Municipal Code is hereby amended to add
new Section 5.50.055 which provides as follows:
5.50.055 Brokered Natural Gas Tax.
.......................................................................... .............................................................................................................................................................................................
A. Imposed. There is hereby levied and there shall be collected from every person in
this city a use tax for the privilege of using natural gas or manufactured gas within the
city as a consumer.
The tax shall be imposed in an amount equal to the value of the article used by the
taxpayer multiplied by the rate in effect for the tax on the natural gas businesses under
RCW 35.21.870 within the city under YMC 5.50.050(E). The value of the article used
does not include any amounts that are paid for the hire or use of a natural gas business
in transporting the gas subject to tax under this subsection if those amounts are subject
to tax under RCW 35.21.870.
C. Exemptions.
The tax imposed under this chapter shall not apply to the use of natural or manufactured
gas if the person who sold the gas to the consumer has paid a tax under RCW
35.21.870 with respect to the gas for which exemption is sought under this section.
There shall be a credit aaainst the tax levied under this section in an amount eaual to
any tax paid by:
1. The person who sold the gas to the consumer when that tax is a gross receipts
tax similar to that imposed pursuant to RCW 35.21.870 by another state with
respect to the gas for which a credit is sought under this section; or
2. The person consuming the gas upon which a use tax similar to the tax imposed
by this section was paid to another state with respect to the gas for which a credit
is souaht under this subsection.
E. Administration and collection.
The use tax hereby imposed shall be paid by the consumer. The administration and
collection of the tax hereby imposed shall be pursuant to RCW 82.14.050.
F. Contract c i
The City Manager is authorized to execute a contract, and any renewals thereof, with the
State Department of Revenue for the administration and collection of the tax imposed by
this section. The city attorney shall approve the form and content of such contract.
Section 3. This ordinance shall be in full force and effect 60 days after its passage,
approval, and publication as provided by RCW 35.21.865 and by the City Charter.
Section 4. The referendum provisions and procedures set forth in YMC 5.50.205
shall apply to this Ordinance.
PASSED BY THE CITY COUNCIL, signed and approved this 6th day of December,
2016.
ATTEST:
Sonya Claar Tee, City Clerk
Publication Date:
Effective Date:
Kathy Coffey, Mayor
ORDINANCE NO. 2016 -
AN ORDINANCE relating to business regulations and utility taxes; amending Section
5.50.050 of Chapter 5.50 of the City of Yakima Municipal Code pertaining
to outside utility tax "caps" on companies in the business of selling or
furnishing natural gas, electric light or power, cellular telephone services
and telephone services; and enacting new Section 5.50.055 of Chapter
5.50 of the City of Yakima Municipal Code establishing a brokered natural
gas use tax; all to reduce the City's dependency on cash reserves and
contribute to capital funding.
BE IT ORDAINED BY THE CITY OF YAKIMA:
Section 1. Section 5.50.050 of Chapter 5.50 of the City of Yakima Municipal Code is
hereby amended to read as follows:
5.50.050 Electric, telephone,a si s s.
A. There are levied and shall be collected annual license fees or taxes against the
persons on account of business activities, and in the amounts to be determined by the
application of the rates herein prescribed, as follows:
1. Commencing October 1, 1994, upon every person engaged in or carrying on
the business of selling or furnishing electric light or power, a fee or tax equal to six
percent of the total gross revenue derived from such business in the city of
Yakima.
2. Commencing July 1, 1989, upon every person engaged in carrying on a
telephone business, a fee or tax equal to six percent of the total gross revenue
derived from such business in the city of Yakima; provided, that such fee or tax be
subject to the limitations prescribed by RCW 35.21.714; and provided further, that
the city shall suspend collection of any franchise fee on a telephone business in
excess of the rates of fees and taxes permitted under RCW 35.21.870(2), which
rate is six percent.
Total gross revenue for this purpose shall not include charges which are passed on to
the subscribers by a telephone business pursuant to tariffs required by regulatory order
to compensate for the cost to the telephone business of the tax imposed by the
ordinance codified in this section.
"Telephone business" as used herein means the business of providing access to a local
telephone network, local telephone network switching service, toll service or coin
telephone services, or providing telephonic, video, data or similar communication or
transmission for hire, via a local telephone network, toll line or channel, or similar
communication or transmission system. It includes cooperative or farmer line telephone
companies or associations operating an exchange. "Telephone business" does not
include the providing of "competitive telephone service" as defined herein below nor the
providing of cable television service or cellular telephone service.
"Competitive telephone service" as used herein means the providing by any person of
telephone equipment, apparatus, or service, other than toll service, which is of a type
which can be provided by persons that are not subject to regulation as telephone
companies under RCW Title 80 and for which a separate charge is made.
3. Commencing November 17, 2005, upon every person engaged in or carrying
on the business of selling or furnishing natural gas for heat, power, light and other
purposes, a fee or tax equal to six percent of the total gross revenue derived from
such business in the city of Yakima as explained in subsection E of this section.
4. Commencing February 1, 1997, upon every person engaging in or carrying on
the cellular telephone service business, a fee or tax equal to six percent of the total
gross revenue derived from conducting such business within the city of Yakima, as
indicated by billings and/or charges to Yakima customers.
"Cellular telephone service" as used herein means a two-way voice and data
telephone/telecommunications system based in whole, or substantially in part, on
wireless radio communications, and which is not subject to regulation by the Washington
Utilities and Transportation Commission (WUTC). This includes cellular mobile service.
The definition of cellular mobile service includes other wireless radio communications
services such as specialized mobile radio (SMR), personal communications services
(PCS), and any other evolving wireless radio communications technology that
accomplishes a purpose similar to cellular mobile service. "Cellular telephone service" as
used herein also means service provided by means of an electric device that has the
ability to send or receive voice or digital messages transmitted through the local
telephone network, via satellite, or any other form of voice or data transmission
B. The minimum fee or tax on each such business activity shall not be less than two
hundred fifty dollars per tax year.
C. Commencing February 8, 2017, the rates of tax set forth in subsection A of this
section shall be measured against a maximum of the first eight thousand dollars of the
total gross revenue attributable to selling or furnishing telephone services described in
the definition of "telephone business" contained herein, selling or furnishing cellular
telephone services described in the definition of "cellular telephone service" contained
herein to any one customer in any one calendar month or fraction thereof.
D. Commencing February 8, 2017, the first four percent of the tax set forth in
subsection A of this section shall be measured against a maximum of the first eight
thousand dollars of the total gross revenue attributable to selling or furnishing electric
light or power to any one customer in any one calendar month or fraction thereof; two
percent of the tax set forth in subsection A of this section shall be measured against the
total gross revenue attributable to selling or furnishing electric light or power.
E. Commencing February 8, 2017, the first four percent of the tax set forth in
subsection A of this section shall be measured against a maximum of the first eight
thousand dollars of the total gross revenue attributable to selling or furnishing natural
gas to any one customer in any one calendar month or fraction thereof; two percent of
the tax set forth in subsection A of this section shall be measured against the total gross
revenue attributable to selling or furnishing natural gas.
Section 2. Chapter 5.50 of the Yakima Municipal Code is hereby amended to add
new Section 5.50.055 which provides as follows:
A. Imposed. There is hereby levied and there shall be collected from every person in
this city a use tax for the privilege of using natural gas or manufactured gas within the
city as a consumer
Rate.B. The tax shall be imposed in an amount equal to the value of the article used
by the taxpayer multiplied by the rate in effect for the tax on the natural gas businesses
under RCW 35.21.870 within the city under YMC 5.50.050(E). The value of the article
used does not include any amounts that are paid for the hire or use of a natural gas
business in transporting the gas subject to tax under this subsection if those amounts
are subject to tax under RCW 35.21.870.
C. Exemptions. +The tax imposed under this chapter shall not apply to the use of
natural or manufactured gas if the person who sold the gas to the consumer has paid a
tax under RCW 35.21.870 with respect to the gas for which exemption is sought under
this section.
D. Credits. There shall be a credit against the tax levied under this section in an
amount equal to any tax paid by:
1. The person who sold the gas to the consumer when that tax is a gross receipts
tax similar to that imposed pursuant to RCW 35.21.870 by another state with
respect to the gas for which a credit is sought under this section; or
2. The person consuming the gas upon which a use tax similar to the tax imposed
by this section was paid to another state with respect to the gas for which a credit
is sought under this subsection.
E. Administration acollection. The use tax hereby imposed shall be paid by the
consumer. The administration and collection of the tax hereby imposed shall be pursuant
to RCW 82.14.050.
F. Contract c i . The City Manager is authorized to execute a contract, and any
renewals thereof, with the State Department of Revenue for the administration and
collection of the tax imposed by this section. The city attorney shall approve the form
and content of such contract.
Section 3. This ordinance shall be in full force and effect 60 days after its passage,
approval, and publication as provided by RCW 35.21.865 and by the City Charter.
Section 4. The referendum provisions and procedures set forth in YMC 5.50.205
shall apply to this Ordinance.
PASSED BY THE CITY COUNCIL, signed and approved this 6th day of December,
2016.
ATTEST:
Sonya Claar Tee, City Clerk
Publication Date:
Effective Date:
Kathy Coffey, Mayor
CITY WIDE / NEW REVENUE
2017 STRATEGIC INITIATIVE
ELIMINATE LID ON ELECTRIC, NATURAL GAS AND TELEPHONE TAX
UNBUDGETED
PROPOSAL
Eliminate the $4,000 lid of 6% tax to electric, natural gas, and telephone users — potential
revenue of $760,000 annually. This affects primarily larger manufacturing businesses.
Washington State Revised Code of Washington (RCW) 35.21.870 allows a city to impose a tax on
electricity, telephone, natural gas, or steam energy business, with a limit of six percent without a
vote of the people. Yakima Municipal Code (YMC) 5.50-050-050 and YMC 5.50-050-060 governs
the City's imposition of this particular tax.
YMC 5.50-050-050
"There are levied and shall be collected annual license fees or taxes against the persons on
account of business activities as follows:
Since October 1, 1994, the rates of tax ... shall be measured against a maximum of the first four
thousand dollars of the total gross revenue attributable to selling or furnishingtelephone
services... or natural gas to any one customer in any one calendar month or fraction thereof.
Since October 1, 1994, the first four percent of the tax is measured against a maximum of the
first four thousand dollars of the total gross revenue attributable to selling or furnishing electric
light or power to any one customer in any one calendar month or fraction thereof; two percent
of the tax ... shall be measured against the total gross revenue attributable to selling or
furnishing electric light or power."
In 2005, the tax on natural gas was changed to mirror electricity. "Since November 17, 2005, the
first four percent of the tax set forth ... shall be measured against a maximum of the first four
thousand dollars of the total gross revenue attributable to selling or furnishing natural gas to
any one customer in any one calendar month or fraction thereof; two percent of the tax ... shall
be measured against the total gross revenue attributable to selling or furnishing natural gas."
Explanation:
Telephone services are totally capped at $4,000 per customer per month, while electricity and
natural gas tax the first $4,000 at 6%, and amounts greater than $4,000 at 2%. The following is an
example of the tax calculation, assuming a monthly electric or gas bill of $10,000:
Current Cap No Ca
6% on $4,000 $240 6% on $10,000 $600
2% on $6,000 excess 120
Total Tax $360 Difference $240
We asked Pacific Power to provide information on different cap amounts. They provided the
previous year's data from October 2015 through September 2016. We could determine that the
additional amount of tax for Cascade Natural Gas customers would only be about $40,000 if the
cap was totally eliminated, so we did not request additional detail. This calculation was based
on calendar year 2015. The following table summarizes the data from Pacific Power and
Cascade Natural Gas:
Cap on 4%
Max # of Capped
Accounts
Amount excluded
annually
Additional
Annual Tax
Cumulative
Monthly
Impact
$4,000 to $5,000
108 to 96
$18.Om to $17.1m
$36,126
$36,126
40
$5,000 to $6,000
96 to 87
$17.1m to $16.3m
32,761
68,887
80
$6,000 to $7,000
87 to 73
$16.3m to $115.5m
29,470
98,357
120
$7,000 to $8,000
73 to 64
$15.5m to $14.8m
127,446
127,446
160
$8,000 to $9,000
64 to 60
$14.8m to $14.3m
20,251
147,697
200
$9,000 to $10,000
60 to 55
$14.3m to $13.7m
23,422
171,119
240
Total Elimination
108
$18.Om
720,243
CNG Total Elim
60 in winter- 6-10
May thru Nov
$992,000
39,696
39,696
Total Elec & Gas
$759,939
If the cap is totally eliminated, 108 companies will be paying a total of about $760,000 more per
year, which calculates to an average of $7,037 a year per company, or $586 a month. In looking
at this stratification, 53 accounts (about half of the 108) would still benefit from a cap set at
$10,000 a month. The maximum increase for any one account moving to a $10,000 cap is $240 a
month ($6,000 x 4%) or $2,880 per year.
We also compiled information on what other cities in the state charge for taxes on electric and
natural gas utilities. This was excerpted from the 2014 Municipal Tax Data survey. Generally,
most comparable cities have the 6% tax imposed and very few have caps on the tax. The
detailed spreadsheet is attached. This analysis does not consider telephone taxes, because we
could not determine the numbers of accounts affected.
At the October 24f Study Session a Council member asked if there was a time frame authorized
when the original cap was placed in 1994. Upon review of the original documents, there was no
mention of an expected time -frame or a "sunset" clause.
IMPACTS
1. Fiscal Impact — Up to $760,000 annual increase to General Fund Revenue, less if cap is
raised but not eliminated.
2. Proposed Funding Source — General Fund Revenue.
3. Public Impact — Affects primarily large manufacturing businesses.
4. Personnel Impact —The utilities self-report—staff would need to communicate the
change to the effected companies.
5. Required Changes in City Regulations or Policies — Revise YMC 5.50-050-050.
6. Legal Constraints, if applicable — No legal constraints when assessing tax of 6% or less.
7. Viable Alternatives — This is a Council policy decision.
Notc Utility tax rates are based on a 2014 survey wculu cted Is yAWC Only cities with a population > 16,00()areshmm. Added
chies, arecifew used as ocurgsrabler. fcrYaldma. If thereis an entry in theCaps' wriumn these %me ressarcedbyFinant ceto
determined thersis a cap onindi-vidual utility accounts.
Natural
GIV
A)pulatkm
Gas
flechicity, Telephone Cellular Caps (based on City research
Union Gap
6,037
6.OD%
6.OD9--s
6M`6
6M*'* No cap
Spokane
212,300
6.ODO.,.
fi.OD%
6DO%
6AD`V Cap _air. & gas over S100,000 annual
Tamma,
400,900
6.00%
6. ix
6OD%
6.W4 No cap
Verwouvor
2677,400
6,0004
6Wi
6OO104
6,W4 Elec.-6*4up toSI.Suriki'mo, then 2% Gas -6% up to
$2,000,raw, then 1.25% No cap on either phrase
Moose
134,400
5W6
SjDCP6
5.OD04
6.000;, No cap
Everett
104;9W
4-50%
4-5iY%
4.50%
4.55M No cap
Rest
121,400
6D0%
6DO%
600%
6.00% No cap
Federallvar
90,150
Ncrcap. rady-mastirea li fm
Iyabims,
93,080
6. W. c
6.0)1*
6W*,
6W, is S4,RW E ar account Eff sum LAE on 4%-Zx* uzLaEE!d
Bellingham
32,810
fi.Wi Cap on gk s, crdy-32 5DOOD per scot. Noacch affected
LakeKvod
58i360
SWv
SW,*
6.00*;D
6.W.4 No cap
Kennewick
—77,700
8-;O*v
8-90%
8,50*4
3.5004 No cap
Renton
97,M
6W6
6DO`%
6.0(r4
6.0(ex NO Cap
Shcrelive
52,740
6
6DOP6
6.0DO4
6.000;, NO cap
Redmond
57,7DD
6
6DD%,
6.0004
No cap
Auburn
74,630
6W4
6NY%
60004
No cap
Kirkland
82,591
6W4
600%
600%
6.00*4 No cap
04& -pia,
49,670
9IXr4
9D(r4
9.00,56
9.W4 No cap
Richland
52,090
8-50-4
83(ri
E30%
3.-F(P4 No cap
PASM
67,770
3
S 50%
SLW%
8.50% No cap
Edmonds
:59,950
5,75%
6W%
$75%
5.75%
Bremerton
38,180
6Wv
6W,4
fi.Gr4
6.W.4
Pexallep
38,670
220114
2120%
-V
L-9view
37,040
6
6DD%,
6.01ry
6.M4
Lacey
45X0
6M,4
6,0004
6.00%
6,W,4
Barraft
3a240
6. CO`v
6-W*
6.
&NYx
Bothell
41,630
f
6
60(M
6.W4
U-niversityPlace
31,420
6W4
No
fLOOS4
6.W4
Wells Wallis
32,260
6
6DO-i
fiW%
6.00% No cap
Do blamm
30,050
6DQ%
6jw%
600%
6.00%
'NUrysville
62,6W
5W%
5W%
500,04
NO
Wenatchee
33010
6
6DDO*
6.0(r4
No
bbrunt Vernon
33,1770
6W,*
6W,6
6.0004
6.0Y4
pullman,
31,420
3
8,000;6
&W%
3,00% No cap
xhircer Island
23,310
60D%
6_
6.
&NYx
23,360
NA,
&
6. t
6.W,14
Oak Piarber
21,90
6W4
6wi
600%
6.W4
Mounflake Terrace
20,530
6
6DO-i
fiW%
6.CC'4
iii ldhers
20,50
6DC%
6DO%
600%
6.00%
Kenmore
234,,770
4DM
4W%
600,04
6.00%
post Angeles
19'M
woL
6w%
6. ;i5.50%
2' ala
M210
6
6DOPO4
6.0DO4
AtexcIeen
16,850
6
6.00%,
6.W%
No
Ellensburg
13,440
6.CO`6
600%
6,G)%
6.x
Nliple Valley
24,230
6W,*
6Wo
6.W -t
Mmes Lake
21,600
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CITY WIDE / NEW REVENUE
2017 STRATEGIC INITIATIVE
ESTABLISH BROKERED NATURAL GAS UTILITY TAX
UNBUDGETED
PROPOSAL
To establish a tax rate of 6% upon consumers of brokered natural gas. RCW 35.21.870
authorizes cities to impose this tax, and the Washington Administrative Code (WAC) 458-20-
17902 gives additional guidance on how this tax is calculated and reported to the Washington
State Department of Revenue (DOR). The following is an excerpt from a DOR publication:
History
The state and municipal taxes on brokered natural or manufactured gas were adopted by the
Legislature in 1989; the effective date of the taxes was July 1, 1990.
The need for these taxes was a result of federal deregulation of the natural gas industry.
Increasingly, large industrial and institutional users of gas have been able to make purchases of gas
from sellers in other states through brokers; this enables large purchasers to take advantage of
differentials on the spot market for natural gas. Although the gas may be delivered through the
pipeline of a local gas company, the transaction is considered to take place out of state. Some
utilities had been reporting retail sales tax on such sales and some purchasers had reported use tax,
but there was confusion about the tax liability of such transactions until the Legislature enacted the
1989 statute.
There are currently 274 taxpayers that report use tax on natural/manufactured gas. The Department
currently administers the municipal use tax on natural/manufactured gas for 46 cities, although not
every one of them receives revenues each year depending upon when the taxable transactions
occur.
Washington State Department of Revenue, 'Brokered Natural Gas Use Tax RCWS 82.12.022 and
82.14.230" 14October, 2016.
http://dor.wa.gov/docs/reports/2010/tax reference 2010/24brokeredgas.12df
In discussion with a representative from DOR, this tax rate would need to mirror the local tax
rate for natural gas. In other words, if the lid on our natural gas utility tax stays at 4% on the
first $4,000 per customer per month, the Brokered Natural Gas would need to have the same lid.
Based on information from Department of Revenue, the City would have collected about
$54,000 in the past year if the current tax rate of 6% on all amounts up to
$4,000/customer/month, and 2% on all amounts greater than $4,000 had been in place. If the lid
was removed and 6% was charged on the full monthly amount, we would have received
$113,000.
Most of the cities comparable in size (i.e. Population 50,000-130,000) have imposed this tax:
Auburn
Bellevue
Everett
Kennewick
Kent
Kirkland
Marysville
Redmond
Renton
Richland
Also, many other cities in neighboring communities and in Eastern Washington:
Goldendale
Wenatchee
Spokane
Sunnyside
Union Gap
Walla Walla
IMPACTS
Selah
Grandview
Pasco
Prosser
Pullman
Fiscal Impact — $113,000 annually to General Fund Revenue if imposed with no $4,000
lid on 4% of the tax or $54,000 with a $4,000 lid. If the lid is increased to $5,000, the City
can expect to receive $60,000. With the Department of Revenue requirements to start a
new tax only at the beginning of a quarter coupled with a 75 day notice, the earliest the
City could start collection of the tax is April 1, 2017. This changes the 1st estimates to
$45,000 with a $5,000 cap and $84,750 if the cap is totally removed.
2. Proposed Funding Source — General Fund Revenue.
3. Public Impact — This would affect 8 customers - primarily large manufacturing
businesses — resulting in an average increase of $7,500 per customer per year if the
$5,000 cap is chosen, and $14,125 per customer if the cap is totally eliminated.
4. Personnel Impact — The City would not need a collection effort --the State Department of
Revenue would collect and submit the tax to the City in our monthly remittance.
Required Changes in City Regulations or Policies — Revise YMC 5.50-050-050 to
include Brokered Natural Gas or establish a new and separate code. The earliest we
could start collecting is April 1, because the Department of Revenue requires 75 day
notice.
6. Legal Constraints, if applicable — No legal constraints when assessing tax of 6% or less.
7. Viable Alternatives — This is a Council policy decision.