RESOLUTION No. SUBSTITUTE 36128

Accept recommendations of the Community Partnership Steering Committee for reform of the Business License Fee and Multnomah County Business Income Tax (Resolution)

WHEREAS,  Business license fees as currently allocated by the City of Portland and business income taxes as currently allocated by Multnomah County may act as disincentives to businesses remaining, investing, or locating in the City and County; and

WHEREAS,  City business license fees and County business income taxes as currently allocated also create inequities among competing businesses and unfair tax burdens upon certain business sectors; and

WHEREAS,  The revenues generated by the City business license fees and the County business income taxes represent significant portions of the general funds of both the City and the County and are used to support police, jails, libraries, fire, health services, school-based services, and parks; and

WHEREAS,  The Portland Business Alliance, the Portland Development Commission, the City and the County agreed in a Community Partnership Agreement in November 2001 to jointly assess and review the impacts of City business license fees and County business income taxes on the business climate and to consider potential reforms if necessary; and

WHEREAS,  A Community Partnership Steering Committee consisting of all parties to the Community Partnership Agreement and representatives of other private sector industries and non-profit organizations was appointed to guide the process of review and to develop recommendations; and

WHEREAS,  A Community Partnership Technical Committee consisting primarily of staff of the City, County and the Portland Business Alliance was appointed to assist the Community Partnership Steering Committee with technical issues related to reform proposals; and

WHEREAS,  The Community Partnership Steering Committee conducted an in-depth evaluation of the City business license fee and the County business income tax, and considered changes that may be needed to achieve a predictable tax system that is equitable in allocation, efficient in collection, and that furthers the missions of the City and the County without reducing the revenues available to the City and the County.

WHEREAS,  The Community Partnership Steering Committee has completed its review process and has developed recommendations for reform of the City business license fee and the County business income tax; and

WHEREAS,  The recommendation of the Community Partnership Steering Committee is that a substantial replacement of the City business license fee and the County business income tax is necessary in order to significantly reduce the inequities and inconsistencies such fees and taxes currently create, to increase efficiency in collection, and to fairly and equitably levy or assess replacement fees and taxes without reducing the revenues available to the City and the County; and

WHEREAS,  The recommendation of the Community Partnership Steering Committee is that the City and County require businesses to file an informational return based on the revised structure in order to gather additional information necessary to verify the assumptions and potentially to modify the conclusions reached in the analysis; and

WHEREAS,  It is recommended by the Community Partnership Steering Committee that a target amount, defined as revenue neutrality, be established at $76 million dollars annually; and

WHEREAS,  The City and the County have approximately $20 million in overpayment credits applied to taxpayer accounts.

NOW, THEREFORE, BE IT RESOLVED:

1.  The City business license fee and the County business income tax shall be replaced with a two-source business revenue mix involving:

1)  A City business license fee measured by payroll and a County payroll tax targeted to a rate of .395% to generate approximately 60% of current revenue from in-jurisdiction businesses plus apportioned payroll from out-of-jurisdiction businesses, with a goal of a maximum tax liability limitation on business license fees measured by payroll of $50,000 for the City and a maximum payroll tax liability of $50,000 for the County;

a)  Using the information collected from the informational return process as provided by directive 12 of this resolution, staff shall complete statistical analysis to determine the appropriate maximum amount to be paid by any single business entity to the City and the County for the City business license fee measured by payroll and the County payroll tax and the final rate at which the tax shall be levied.

b)  While the informational return may lead to revision of targeted rates as described in this resolution, the City and County recognize that Tri-Met currently levies a regional payroll tax at the level of .6% and it is the goal of the County and City that at no time shall the combined City/County/Tri-Met payroll tax rate exceed 1%.

2)  A City business license fee and a County business income tax based on net income targeted to a rate of 1.39% to generate approximately 40% of current revenue from in-jurisdiction businesses plus apportioned income from out-of-jurisdiction businesses, with a goal of a maximum income tax liability limitation of $15,000 for the City and $15,000 for the County.

 a)  Using the information collected from the informational return process as provided by directive 12 of this resolution, staff shall complete statistical analysis to determine the appropriate maximum amount to be paid by any single business entity to the City and the County for the City business license fee measured by income and the County business income tax and the final rate at which the tax shall be levied.

2.  Business entities whose payroll is $30,000 or less annually indexed shall be exempt from the payroll component of the tax. Business entities whose gross income is $30,000 or less annually indexed shall be exempt from the income component of the tax.

3.  Staff shall ensure that any limitation on total tax paid or levels under which business entities are exempted from paying tax are indexed either annually or on a reasonable periodic basis using rounded amounts to the Portland-Salem area consumer price index.

4.  The rates established for the City business license fee and the County business income tax measured by both payroll and income will retain the same relative proportions as the current taxes, both with respect to the City and County revenues, and as they apply to individual taxpayers.

5.  Any temporary increases in rates imposed to fund public schools will not be subject to any maximum limits established for tax calculations measured by either payroll or income.

6.  If in conjunction with payroll, if appropriate, the owner’s compensation deduction shall be increased to a maximum of $125,000.

7.  Along the same timeline for implementing business tax reforms, staff shall develop a financing plan to pay or amortize the $20 million in overpayment credits over a period of time not to exceed 10 years and the reformed City business license fee and the County business income tax codes will not authorize business entities to carry tax credits.

8.  City and County staff shall develop separate but parallel financial policies for consideration by their elected officials. The policies shall specify under what circumstances the respective business tax revenue growth may be used to fund economic development and further reductions in the business tax rate. The policies will be guided by the following:

1)  The policies shall take into account consideration of the overall condition of the General Fund, and the change in discretionary resources in particular.

2)  Discretionary resources shall be defined by the respective City and County financial organizations and incorporated into the policy.

3)  The policies shall incorporate a baseline of Current Service Level (CSL) and shall include a working definition of CSL that will be incorporated into the policy. In the event of a general fund surplus where resources exceed CSL requirements the respective governments will review growth in the business tax revenues.

4)  The policies will identify that the forecast year-over-year tax revenue growth percentage must exceed the Portland-Salem consumer price index (CPI). If growth in the business tax revenues exceeds the Salem-Portland consumer price index plus 2%, and if sufficient business tax surplus exists, then the following will be incorporated into the respective governments annual financial planning and budgeting processes in the priority of the order listed:

a)  1% of surplus business tax revenues will be appropriated into a counter cyclical fund. These shall be in addition to any reserves presently budgeted by the respective governments. The counter cyclical fund shall be funded at a level equal to 10% of the prior year’s BIT revenue.

b)  1% of business tax revenues will be appropriated toward an economic development fund that will not exceed 10% of the total business tax revenues.

 a.  Decisions on how these funds will be allocated will be made by a public/private committee similar to the structure of the Visitor Development Fund Board.

c)  Resources over this amount will be prioritized for reduction of business tax rates of the respective governments with due consideration given to providing rate certainty for taxpayers on a year-to-year basis.

5)  The policies will identify the methodology specifying how any excess revenue growth may be allocated to funding economic development and business tax reduction.

6)  The City of Portland policy shall be consistent with and may be incorporated into the existing Comprehensive Financial Management Policy (CFMP).

9.  Under the direction of the Multnomah County Chair’s Office and the Commissioner-in-Charge of the City of Portland, Bureau of License, in consultation with representatives of taxpayers, the City and the County staff are authorized and directed to draft ordinances and code amendments necessary to implement the recommendation of the Community Partnership Steering Committee; Ordinances and code amendments will be drafted in consultation with staff from neighboring municipal jurisdictions in order to ensure efficiency and consistency in regulation, administration, and disbursement.

10.  The tax reforms called for in this resolution shall be adopted by City Council and the County Board by September 30, 2003 so as to be implemented for the tax year 2003;

11.  City and County staff shall negotiate and or draft such agreements and administrative mechanisms necessary to administer and collect the payroll tax.

12.  In consultation with representatives of taxpayers, City and County staff shall develop and implement a one-time only informational return process to test the effects on both revenues and taxpayers created by this change in tax policy. This process shall be completed no later than August 1, 2003.

13.  City and County staff shall develop an outreach and information process designed to notify all licensed businesses of these changes, to solicit comments, and provide opportunities for all businesses to be heard on the recommendation.

14.  County and City staff are directed to undertake an independent evaluation of mechanisms for achieving the goals sought through inclusion of payroll taxpayer liability caps and exemptions, with a full examination of possible alternatives including but not limited to credits.

15.  The City and the County will review and adjust the tax reform plan, after one full revenue cycle, in June 2005, to address any unanticipated consequences.

16.  The Community Partnership Steering Committee was unable to resolve certain issues, including establishment of a fee in lieu of payroll tax, up to a maximum of $50,000 per jurisdiction for hospitals/health systems/fee-for-service medical non-profits; and establishment of a County $100 minimum fee.

BACKING SHEET INFORMATION

AGENDA NO. 230

ORDINANCE/RESOLUTION/COUNCIL DOCUMENT NO. Substitute 36128