At the Auburn City Council study session Dec. 8, financial director Jamie Thomas briefed city leaders about pending changes to the Business and Occupation (B&O) tax, and the state-created tax model ordinance in the city code.

If the city council passes the ordinance, the updates would add new reporting requirements of individual self-service storage, change the non-reporting tax threshold from $2,000 to $4,000, and modify the definition of retail sales to include technology services, security services, temporary stocking services, advertising services and repair services for tangible personal property.

These changes would go into effect on Jan. 1, 2026.

“State law authorizes cities to implement a B&O tax, but at a minimum, they must use the model ordinance as a guideline,” Thomas said. “The goal is to ensure consistency among all cities in the state that have a B&O tax.”

“The B&O tax can be more expansive than the model ordinance, but at the very least, it has to have the minimum provisions of the model ordinance. It has to be consistent with what other cities have in their B&O code,” Thomas said.

The reason for the modifications may be found in Senate Bill 5814, which expands the list of items that will be taxable from a sales tax standpoint, and the definitions it adds to what “retail sale” means, so the model ordinances throughout the state are consistent with sales tax provisions at the state level.

Since Jan. 1, 2022, the city has imposed a B&O tax on every person or company doing business inside city limits, from retail sales to wholesale, retail services, printing and more, regardless of whether the place of business was inside the city or not.

To determine the tax, the city applies a set rate for each business category against the gross proceeds of sales, the gross income, or the value of products and by-products for each quarter of a calendar year.

For example, each manufacturing business pays an amount equal to the value of the products — including by-products — it has made within the city in that quarter, multiplied by the rate of one-tenth of one percent (0.001), regardless of the place of sale or whether deliveries were made outside the city. Those rates vary from category to category.

At present, the gross receipts tax does not apply to any person whose company-wide gross proceeds are equal to or less than $500,000.

The B&O tax does not apply to any person or company that doesn’t maintain a place of business in the city, and whose annual value of products, gross proceeds of sales, or gross income of the business in the city is equal to or less than $2,000. The modifications would increase that non-reporting threshold to $4,000 or less in a year.

People and businesses subject to the B&O tax in Auburn will still be subject to the tax, but with how much they pay will still depend on the business category.

The purpose of the state-mandated changes is to square the existing model ordinance the state requires of all cities that have a B&O tax in their city codes with the modifications. In fact, if the city of Auburn is to continue to have a B&O tax at all, Thomas said, it must make the changes.

Those changes have to be in place by Jan. 1, 2026.