The Des Moines City Council unanimously forwarded to a second reading an ordinance updating the city's business-and-occupation (B&O) model ordinance to reflect recent changes at the state level affecting the tax treatment of certain services.

Assistant City Attorney Matthew Hudgins explained the state legislature revised how some service activities are classified for sales tax and B&O tax purposes; categories affected include certain information-technology services, website and custom software development, some security services, temporary staffing and certain advertising services. The state changes reclassify some of these services as retail sales in certain cases and create limited exclusions for health-care providers.

Hudgins said the city's model B&O ordinance must be updated by Jan. 1 to remain consistent with the Association of Washington Cities (AWC) model. He noted the change does not alter the city’s sales tax code (the state Department of Revenue continues to administer sales tax collections) but may increase the sales-tax incidence on certain service contracts and could affect the city’s contract costs where the city purchases those services.

Deputy Mayor Steinmetz moved to pass draft ordinance 25-100 to a second reading; Councilmember Mahoney seconded. The motion passed 7-0.

Ending: The ordinance will return for a second reading; staff and the city attorney’s office will work with finance to estimate any local revenue or contract-cost impacts and provide that information before final adoption.