BUSINESS AND OCCUPATION TAX

Effective July 1, 2024, the City of Poulsbo will implement a Business and Occupation (B&O) tax.

The City of Poulsbo is working with File Local an online filing program utilized by several other cities. Based on user’s feedback, the City of Poulsbo was encouraged to utilize the program as a simple on-line filing system.  File Local program was created by several cities and is a non-profit agency.

The program will not be available for release until the end of August/beginning of September for the first reports due at the end of October for the first effective quarter.  If you have a current account with File Local you will already be set up and will only need to choose Poulsbo filing when ready. If you currently do not have a File Local account, you can set this up at any time which will allow you the ability to file for Poulsbo once available.   Poulsbo should be active by mid-September.

At this time, we are exploring thresholds for annual reporting.  At this time a request to the Finance Department via tax@cityofpoulsbo.com or by calling 360-394-9881 will be considered for annual reporting.  Recommended for annual reporting would be gross B&O taxable earnings that are less than $100,000/ per annum.  We will continue to monitor and adjust as necessary.

A draft example of a reporting can be found here.  (Create a link to the draft workbook).  Once the on-line portal is set up the form will be updated to replicate the on-line filing option.

All on-line reporting will be charged a fee per legally regulated and a credit card transaction fee.  Filers can choose to file manual reports eliminating the on-line filing fees.

Workshops will be offered in August and September to introduce filing options and answer any questions.

To view a sample of what the return form may look like, please click HERE.

Overview

As an incorporated City, one way the City of Poulsbo will collect revenue to support operational expenditures is through the B&O tax, which will be levied on businesses operating within city limits. This gross receipts tax will apply to the gross revenue measured on the value of products, proceeds of sales, or gross income the business receives. Gross receipts tax means there will be no deductions for labor, materials, or other costs of doing business.

The City of Poulsbo B&O tax is not the same as the Washington state B&O tax and will need to be filed separately from your state taxes.

As a reminder, to do business in the City of Poulsbo you must:

• Have a City of Poulsbo business license in good standing. Business Licenses are applied for through WA Department of Revenue Business License Service (BLS).

Tax Rate and Exemptions

In 2024, the tax rate for all categories of business is .2%, (.002) and there are two thresholds for exemptions:

Exemption 1: The first $20,000 of taxable gross revenue earned annually (or $5,000 per quarter) that is not subject to retail sales tax is exempt from the Poulsbo B&O tax.

Exemption 2: The first $125,000 of taxable gross revenue earned annually (or $31,250 per quarter) that is subject to retail sales tax is exempt from the Poulsbo B&O tax.

Businesses will be exempted from paying the City’s B&O tax if their gross receipts are less than $20,000, however B&O tax filings are required, even if there is no balance due. Nonprofit organizations will also be exempt from paying the City’s B&O tax but must also file a return.

A full listing of exemptions may be found in Chapter 3.34 of the Poulsbo Municipal Code.

How to Calculate your Taxes Owed

Your gross revenue will determine the amount of tax you pay. To calculate this amount, multiply your taxable gross revenue amount by the tax rate, considering the applicable exemption.

Exemption #1 example: The 2024 retail B&O tax rate is 0.002 (.2%). If your business grosses $200,000 of taxable income that is not subject to retail sales tax in Poulsbo during 2024 you would list $200,000 as your gross revenue, then deduct the allowed exemption of $20,000 from the gross. The taxable revenue is $180,000 which is multiplied by the tax rate .002, for an annual tax liability of $360.

Exemption #2 example: Alternatively, if your business grosses $200,000 of taxable income that is subject to retail sales tax in Poulsbo during 2024, you would list $200,000 as your gross revenue, then deduct the allowed exemption of $125,000 from the gross. The taxable revenue is $75,000, which is multiplied by the tax rate .002, for an annual tax liability of $150.

Tax Periods

Businesses will be required to submit the tax quarterly unless the City grants an allowance for annual reporting.  Late returns will be subject to penalties and interest.

*For due dates that will fall on holidays or weekends, returns will be due on the following business day.

Resources

You can read the Poulsbo Municipal Code (PMC) Chapter 3.34 for more details about the Poulsbo business and occupation tax.

Please contact tax@cityofpoulsbo.com for further information.

Questions and Answers

Are gross sales generated from Real Estate Sales used to calculate B&O?

Only the commission earned by the selling agent is used to calculate the tax owed.

Is rental income B&O taxable?

The only revenue that would be considered taxable in these transactions is the fee a agent may collect for managing the properties, but rental of units for more than 30 days is exempt from B&O Tax.  Rental of units less than 30 days would not be exempt from the tax.

Are insurance premiums and interest earned from investments exempt from B&O Tax?

The interest earned and insurance premiums are exempt, however the fees paid to the advisor is considered not exempt and B&O tax would be owed.

Must I file returns quarterly?  Can I file annually?

Tax returns will be set up to file either quarterly or annually.  You can request to the City of Poulsbo Finance Department for annual return submittals.  At this time we are exploring thresholds for annual filing but would recommend annual reporting for businesses that are less than $100,000/year of eligible B&O taxable earnings. (This means for retail sales taxable earnings of $225,000 less exemption $125,000 = taxable earnings of $100,000 or non-retail trade $120,000 less exemption $20,000 – taxable earnings of $100,000)

What are the exemption amounts?

Exemptions for those collecting retail sales tax will have an annual exemption of $125,000 meaning only earnings above $125,000 will be taxed at a rate of .002.

Exemptions for those not collecting retail sales tax will have an annual exemption of $20,000 meaning only earnings above $20,000 will be taxed at a rate of .002.

What if the revenue generated is not within the City of Poulsbo and B&O taxes have been paid to another jurisdiction?

RCW  35.102.130 requires the ability to allocate and apportion revenue between locations.  The method uses a two-factor formula to determine how income is to be taxed and apportioned between multiple locations when engaging business in more than one jurisdiction.

 When is the tax effective?

City Council passed the ordinance with the effective date as July 1, 2024 allowing tax payers 6 months to prepare.  The first return would cover revenue as of July 1, 2024 with the first returns due October 31, 2024 or January 31, 2025 for annual filers.

 How will the exemption work for 2024 since it is only half a year?

The exemption will be 50% for 2024.  $62,500 for businesses collecting retail sales tax and $10,000 for businesses not collecting sales tax.

Where can I find out the details about the new tax?

There is information on the City of Poulsbo’s website Business and Occupation Tax | City of Poulsbo

Can I file on-line?

Yes you will be able to file 0n-line through File Local a non-profit organization who manages on-line filing for several cities. An account can be set up now with File Local, however Poulsbo filing will not be available until mid September.  If you currently have a File Local account you do not have to set up a new account, but can file for Poulsbo when available. FileLocal-wa.gov [a Portal to e-File and Pay Business Taxes, Licenses, and Fees]

 Do I have to file on-line?

You will be able to file manually by completing a return and submitting payment and the return to Poulsbo City Hall.

 Where do I get a City of Poulsbo business license?  Can I apply through File Local which has a business licensing option?

City of Poulsbo business licenses will not be an option through File Local but must continue to be processed through the State of Washington  Business License System  (BLS). Home | Washington Department of Revenue