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HomeMy WebLinkAbout2017-032 Utility Tax Caps; YMC Amendments 5.50.050 and 5.50.055ORDINANCE NO. 2017-032 AN ORDINANCE relating to business regulations and utility taxes; amending Sections 5.50.050 and 5.50.055 of Chapter 5.50 of the City of Yakima Municipal Code eliminating the 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 eliminating the cap on brokered natural gas use tax. 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: 5.50.50 Electric, telephone, and gas businesses. 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. 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 5, 2018, the rate of tax set forth in subsection A of this section shall be measured against 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 5, 2018, the rate of 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 to any one customer in any one calendar month or fraction thereof. E. Commencing February 5, 2018, the rate of tax set forth in subsection A of this section shall be measured against the total gross revenue attributable to selling or furnishing natural gas to any one customer in any one calendar month or fraction thereof. Section 2. Section 5.50.055 of Chapter 5.50 of the City of Yakima Municipal Code is hereby amended to read 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. B. Rate. 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. 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 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. Contract execution. 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 5th day of December, 2017 ATTEST: S• nya I4ar Tee, City Clerk i i i Publication Date: December 8 Effective Date: February 6, 20 ��: • ITEM TITLE: SUBMITTED BY: BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT 1 Item No. 11. For Meeting of: December 5, 2017 Ordinance amending Chapter 5.50 of the City of Yakima Municipal Code eliminating the current cap on utility tax Cliff Moore, City Manager Tara Lewis, Financial Services Manager SUMMARY EXPLANATION: Yakima Municipal Code (YMC) Sections 5.50.050 and 5.50.055 levy a utility tax of 6% as allowed by state law. The tax is levied on the gross revenue of a business that sells electric power, natural gas, telephone services and cellular telephone services in the city. A 6% use tax is also charged on brokered natural gas in the city. Currently the formula to charge the tax is 2% levied on all gross revenue and 4% on all gross revenue up to a maximum tax of $8,000 on a single utility bill. The proposed Ordinance would eliminate the $8,000 cap so that the 6% tax would apply equally to the monthly gross revenue earned by the utility within the city. Currently, with the cap in place, a utility bill to a customer would have to be over $200,000 in a single month for a customer to benefit from the cap. Only the very largest of companies would be impacted by this proposed change to the YMC. In researching other Washington cities, no caps are applied in the manner as is currently being done in the City of Yakima. A couple of cities apply a broad overall limitation to the total annual tax paid, but the vast majority have no limitation at all. In speaking with representatives from our local power company, they were aware of no other cities within their service area that limit the tax paid by their customers. The elimination of the cap was presented to Council as a Policy Issue during the proposed 2018 Budget Presentation on October 19, 2017. The general consensus of Council and direction given to staff on that date was to include the revenue from eliminating the cap in the 2018 Preliminary Budget. As a result approximately $550,000 was added to general fund revenue in the 2018 Preliminary Budget. The Policy Issue is attached for reference. This general fund revenue is necessary to fully balance the 2018 budgeted revenue to expenditures and as a step toward rebuilding the general fund balance and preserving the fiscal sustainability of the City. The attached Ordinance would eliminate the cap on utility taxes levied under Sections 5.50.050 and 5.50.055 of the Yakima Municipal Code. ITEM BUDGETED: NA STRATEGIC PRIORITY: Public Trust and Accountability APPROVED FOR SUBMITTAL: City Manager STAFF RECOMMENDATION: Pass Ordinance BOARD/COMMITTEE RECOMMENDATION: ATTACHMENTS: Description Upload Date Ordinance to eliminate utility tax cap 2017 11/22/2017 D 2018 Policy Issue - Utility Tax C.,ap Elimination 11/27/2017 Type Ordinance Exhibit 2 7 2018 REVENUE POLICY ISSUE ELIMINATE UTILITY TAX CAP ON EXTERNAL UTILITIES SUMMARY PROPOSAL This Policy Issue is a proposal to eliminate the cap on Utility Taxes. There are only a handful of large manufacturing businesses that would be affected by this proposal. Comparisons to other jurisdictions show that Yakima is one of very few cities that cap its utility tax. This proposal was considered in the 2017 Budget process and the cap was raised from $4,000 to $8,000 for 2017. Approximately $130,000 additional General Fund revenue is associated with the $8,000 cap. Elimination of the cap is estimated to generate approximately $300,000 in 2018 and $250,000 more in subsequent years for an annual impact of $550,000 beginning in 2019. A detailed discussion follows this summary page. IMPACTS 1. Fiscal Impact - Increases General Fund revenues up to $550,000. 2. Proposed Funding Source - Raise or eliminate the cap on Utility Taxes. 3. Public Impact - Large electric or brokered natural gas users within the City. 4. Personnel Impact - None. 5. Required Changes in City Regulations or Policies - Amend City Code 5.50.050 and 5.50.055. 6. Legal Constraints, if applicable - The total utility tax is limited to 6%. 7. Viable Alternatives - Not applicable 2018 Preliminary Budget - 1 8 UTILITY TAX CAP - DISCUSSION AND ANALYSIS With the adoption of the 2017 Budget, Council approved a proposal to raise the Utility Tax cap from $4,000 to $8,000 in 2017. The impact of that action on City revenue is estimated on the line labeled "Current Cap $8,000." The impact of raising the cap to a level of $10,000 or eliminating the cap altogether is estimated on the next two lines. Comparisons to other jurisdictions show that Yakima is one of very few cities that cap its utility tax. Due to the confidentiality of customer records, the various utilities can only make general statements about how the City tax affects their customers and provide us with data from which averages may be used to make assumptions. As far as we know there has been no direct feedback from any enterprises within the City regarding the increase of the cap in 2017. Due to the relatively high usage of utilities that must occur for an enterprise to benefit from the cap, this proposal does not affect any residential customers. A single bill would have to be over $200,000 to trigger the cap. Not even the City's own Wastewater Division, a high electric volume customer to Pacific Power, comes close to using sufficient power to hit the cap. Their bill runs around $40,000 to $50,000 per month. The utilities impacted by this proposal include those that provide electrical service, natural gas and brokered natural gas to Yakima businesses. Residential customers of these utilities would not be impacted. It is assumed from discussions with the utility companies providing services to Yakima that only electric and perhaps a few brokered natural gas customers continue to be affected by the current $8,000 cap, and then only in high usage months. Confidential customer information prohibits the utilities from sharing specific details. Utility taxes are currently assessed by the City as follows: • A tax on all utility revenues is assessed at 2% • An additional tax is assessed at 4% up to a cap of $8,000 Example: A manufacturing firm has an electric bill of $250,000 Example with current cap of $8,000 Tax computation: 2% of $250,000 is $5,000 4% of $250,000 is $10,000 (this is currently capped at $8,000) Total tax on $250,000 electric bill is $13,000 (13,000=5,000+8,000) Example with proposed cap of $10,000 Tax computation: 2% of $250,000 is $5,000 4% of $250,000 is $10,000 Total tax on $250,000 electric bill is $15,000 (15,000=5,000+10,000) Example with proposed elimination of cap would result in the same tax for this customer, $15,000. The monthly electric bill would have to be larger than $250,000 in order to generate more tax. As this example demonstrates, only enterprises with very heavy electric use would be affected by either proposal. A monthly utility bill would have to be $200,000 to have sufficient tax to rise to the limit imposed by the $8,000 cap. It can be reasoned with a high degree of certainty that no ordinary residential customer was affected by last year's cap increase, nor would they be affected by a further increase. Even 2018 Preliminary Budget - 2 9 our Wastewater facility with an annual electric bill of over half a million dollars is not taxed highly enough to reach the current cap. From the limited information provided by the local gas and water utilities, it appears that there are few customers that would be impacted by adjusting the cap. Only the electric utility has sufficiently large billings to have customers fall outside of the current cap. RAISE OR ELIMINATE UTILITY TAX CAP Bill Estimated Estimated Cumulative Utility Tax Size to Customers Additional Revenue Capped at Exceed Affected Revenue Generated $ 8,000 $ 200,000 $ $ 10,000 250,000 40 96,000 96,000 15,000 375,000 95 175,000 271,000 20,000 500,000 100 120,000 391,000 No Cap n/a 121 159,000 550,000 UTILITY TAXES IMPOSED BY WASHINGTON CITIES Excerpted from the 2016 Municipal Tax Survey compiled by the Association of Washington Cities City Natural Population Gas Electricity Caps (based on City research) Union Gap 6,200 6% 6% No cap Spokane 214,500 6% 6% Cap - elc. & gas over $100,000 annual Tacoma 206,100 8% 8% No cap - Increased since 2014 from 6.0% Vancouver 173,500 6% 6% Elec. 6% up to $1.5 mill/mo, then 2% - Gas Bellevue 139,400 5% 5% No cap Kent 124,500 6% 6% No cap Everett 108,300 6% 6% No cap - Increased since 2014 from 6.0% Renton 101,300 6% 6% No Cap Yakima 93,410 6% 6% $8,000 per account per mo.Cap on 4% - 2% uncapped Bellingham 84,850 6% 6% Cap on gas only - $250,000 per acct. No accts affected Kirkland 84,680 6% 6% No cap Kennewick 79,120 9% 9% No cap Auburn 77,060 6% 6% No cap Pasco 70,560 9% 9% No cap Marysville 64,940 5% 5% Redmond 60,560 6% 6% Lakewood 58,800 5% 5% Shoreline 54,990 6% 6% Richland 53,410 9% 9% No cap Olympia 51,600 9% 9% No cap Burien 50,000 6% 6% Lacey 47,540 6% 6% 2018 Preliminary Budget - 3 10 UTILITY TAXES IMPOSED BY WASHINGTON CITIES Excerpted from the 2016 Municipal Tax Survey compiled by the Association of Washington Cities Natural City Population Gas Electricity Caps (based on City research) Bothell 43,980 6% 6% Edmonds 40,900 6% 6% Bremerton 40,500 6% 6% Puyallup 39,850 2% 2% Longview 37,230 6% 6% Lynnwood 36,590 6% 6% Mount Vernon 33,730 6% 6% Wenatchee 33,510 6% 6% Walla Walla 33,340 6% 6% No cap Pullman 32,650 8% 8% No cap Lake Stevens 30,900 5% 5% Des Moines 30,570 6% 6% Maple Valley 24,790 6% 6% Bainbridge Island 23,760 N/A 6% Mercer Island 23,660 6% 6% Oak Harbor 22,410 6% 6% Kenmore 22,320 4% 4% Moses Lake 22,250 6% 6% Tele/Elec - $100k W/S - $150k Average Rate 6% 60/0 Note: Utility rates are based on a 2016 survey conducted by AWC. Only cities with a population >22,000 are shown. Cities that are in bold are often used as comparables for Yakima. If there is an entry in the "Caps" column these were researched by Finance to determine if there is a cap on individual utility accounts. 2018 Preliminary Budget - 4