Olympia developing new business tax audit program

The Olympia City Council, on Tuesday, approved continued work on establishing a new tax audit program, which aims to improve business tax compliance for local establishments operating in the city.

The approval entails creating a tax audit team to focus on compliance, outreach/education, and auditing. It also includes hiring two full-time auditors and one program assistant to establish the tax audit program.

In presenting the proposed new tax audit program, Olympia's Tax and License analyst Brandie Andrews noted that an analysis of city data found that business licenses had increased by 30% from 8,800 in 2019 to 11,000 in 2022. However, the number of businesses filing Business and Occupation (B&O) taxes was 6,280 in 2019 and increased slightly to 6,377 in 2022, representing only a 2% increase.

She added that the discrepancy between increased business licenses and B&O tax filings caused the city to consider improving tax compliance among local businesses.

Andrews further explained that the program would focus on increasing voluntary compliance through education and outreach initiatives to help businesses understand their tax obligation.

She noted that the outreach and education aspect was likely the most important part of the program. With high business turnover during COVID, Andrews said there was a lack of institutional knowledge about municipal tax rules. The program aimed to provide education to fill this gap and help businesses understand their tax responsibilities.

Andrews cited other cities, such as Tacoma, Seattle, and Bremerton, that have established tax and license audit programs. These cities claimed they found significantly improved voluntary compliance among businesses resulting from increased awareness of tax obligations. She added that the tax audit program in other municipalities was shown to be self-funding as the additional tax revenue discovered helped cover the costs of administering compliance efforts.

Andrews clarified that the proposed new tax audit program would not raise tax rates for local businesses or add new types of taxes for businesses to pay beyond what is already required.

The goal was not to make tax compliance more difficult or burdensome for businesses. It aims to simplify filing through the online system and provide education to help businesses understand and meet their obligations.

In her presentation, Andrews briefly discussed the estimates for the expenses and projected revenues of the proposed tax audit program over its first three years.

The first-year expenses would total about $557,000, with two full-time auditors and one program assistant. Professional services and supplies, education, and outreach were also included in the expenses.

Andrews estimated the potential additional tax revenues that could be generated by the new audit program and the expenses of establishing it over the first three years. She projected the program would find $370,000 to $500,000 in additional tax revenues annually once fully operational.

At the Olympia City Council meeting held Tuesday, April 16, 2024, Councilmember Lisa Parshley suggested allocating a portion of revenue from the tax …

In response to Councilmember Lisa Parshley's query about where the additional money would go, Finance Director Aaron BeMiller said it would go to the general fund, and 11% would be for park use.

Parshley suggested that a portion of the additional tax revenue generated by the new tax audit program could fund small business programs under the city's economic development efforts. She noted that the economic development fund currently receives money primarily from the sale of city properties. She proposed allocating some of the tax revenues as an additional funding stream to support the city's work on economic opportunities for local businesses.

Councilmember Clark Gilman supported the establishment of the tax audit program while also acknowledging the importance of education for businesses initially coming into compliance. However, he believed it was important for the city to have a level playing field where all businesses plan to pay required taxes for doing business in Olympia.