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Lacey staff to update B&O model ordinance after state expands taxable services; council warned of a short transition period

City of Lacey City Council · December 10, 2025

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Summary

City staff briefed council on required changes to the local business-and-occupation model ordinance following the 2025 state law (SB 5814) that reclassifies certain services as retail sales; staff will return Dec. 16 with a draft ordinance and definitions and warned businesses may face a temporary overlap of sales tax and B&O filings during the transition.

Acting Financial Services Manager Chelsea Knight told the council Dec. 9 that the state’s 2025 legislative changes (Senate Bill 5814) require cities to revise their Business & Occupation (B&O) model ordinances to reclassify specified services as retail sales effective Jan. 1, 2026.

Knight said the work group that drafted the model‑ordinance updates narrowed the scope of changes to what state law requires and that the city will present an ordinance for council adoption on Dec. 16. Affected classifications include advertising services, live presentations (webinars/workshops with real‑time interaction), certain information-technology services and custom‑software development, temporary staffing, and specified security services. Those classifications shift from the city’s services B&O tax rate (0.2 percent) to the retail-sales rate (0.1 percent B&O equivalent but subject to sales tax at the point of sale).

Council members asked whether businesses would face double taxation during the transition because the sales-tax treatment began Oct. 1 at the state level while the city’s B&O filing classification does not change until Jan. 1. Knight explained that for the last quarter of the year businesses may be remitting sales tax as a result of the state change and would still file B&O under the old classification until Jan. 1, after which the B&O filing will reflect the new rate and classification.

Knight said staff will add two definitions (extractor and extractor-for-hire) before returning on Dec. 16. The packet provided to council included a draft ordinance and a redline of required edits; staff emphasized the work is to comply with state law rather than to add new local policy.

Next steps: staff will return Dec. 16 with a final ordinance for adoption and any necessary local definitions; council members asked staff to clarify the treatment of nonprofit and school activities where the line between taxable live presentations and exempt educational classes may require careful definition.