Olympia staff outline B&O tax options, small‑business exemptions and possible revenue impacts

City Manager Jay Bernie and finance staff outlined three revenue scenarios for Olympia’s business‑and‑occupation (B&O) tax on May 13, saying the council was not being asked to decide but to understand impacts as it plans the 2026 budget.

The presentation by Brandy Andrews, the city’s tax and licensed financial analyst, showed that raising the retail classification rate from $1 per $1,000 of gross receipts to the legal maximum of $2 per $1,000 would increase city B&O revenue by about $2.6 million annually in the model used by staff. Combining a retail rate increase with a larger “no tax due” threshold — the level below which taxpayers pay $0 — produced different outcomes: pairing a retail rate increase with raising the threshold from $20,000 to $200,000 yielded roughly $2.3 million in additional revenue; doing both and using a $500,000 threshold produced an estimated net increase of about $1.9 million.

Why it matters: the scenarios redistribute how much revenue the city would collect and who pays. Andrews’ slides showed that raising the zero‑tax threshold to $500,000 would create roughly 3,100 new $0 filers, while the $200,000 threshold scenario added about 2,300 $0 filers. Council members said those shifts could zero out taxes for many small downtown firms while increasing payments by some of the largest payers.

Council and staff highlighted practical considerations and secondary effects. Mayor Pro Tem Andy Nguyen and Council Member Vanderpool noted a downtown concern: the Olympia Downtown Alliance (ODA) relies on a Main Street B&O tax credit that depends on businesses having a taxable B&O liability. Vanderpool said that if many downtown businesses became $0 filers, it could reduce the credit receipts used to fund the ODA.

Staff cautioned that not all exemptions can be evaluated with current data. Andrews said the city cannot easily quantify the revenue impact of removing some exemptions because businesses claiming those exemptions do not file taxable returns on that income and therefore do not report the amounts. “If you have an international banking facility that isn’t reporting that income on our current B&O tax because they’re exempted, we don't know how to quantify removing that exemption,” Andrews said. City Manager Jay Bernie added that the state’s recent B&O proposal appears to target larger businesses while protecting smaller ones, a pattern the city could emulate.

Exemptions and model code: staff provided a comparison of Olympia’s exemptions with a state model ordinance and other jurisdictions. They noted the city already offers more exemptions than many peers and that two exemptions—sales of liquor and motor fuel—are mandatory under state rules. Council members asked for more history on why particular exemptions were adopted and asked staff to model alternative increments (for example, rates between $0.001 and $0.002 per dollar of gross receipts).

Next steps: staff said they will bring more refined modeling to the midyear retreat in June, including the state legislative outcomes and possible interactions with any state B&O changes. Council members asked staff to produce tools (for example, a rate calculator) and to engage the business community before advancing any formal proposal.

Ending: Staff described the council’s direction as exploratory. City Manager Jay Bernie said staff will continue modeling options and return with refined estimates and outreach materials for consideration during the 2026 budget process.