The Poulsbo City Council approved an ordinance to establish a Business & Occupation tax effective July 1, 2024 in efforts to create more revenue for the city.

Councilmember David Musgrove was the only no-vote.

B&O is a tax on businesses operating in Poulsbo, usually based on a percentage of gross income. The minimum gross income threshold for exemption, based on neighboring cities, is $600,000, city documents state.

The B&O tax will have a rate of .002% and exemption of $125,000 for business’ gross receipts subject to retail sales tax and $20,000 for business’ gross receipts not subjected to retail sales tax. The city will begin reaching out to businesses at the start of the New Year.

“We’ve looked at a lot of alternatives to raise revenues,” Councilmember Jeff McGinty said. “Nothing’s going to be nice for everybody, and we’re hoping this will be the least pain for everyone.”

Councilmember Gary McVey added: “For some time now, we’ve been dipping into our reserves to balance our budget. We cannot sustain that on an ongoing basis. Our citizens have told me they are not interested in reducing services. They want more police, not less. They want more parks and better facilities, not fewer. Something’s got to give.”

Musgrove, who owns Hot Shots Java on Front Street, said the tax “burdens a specific section of the community” and “does not exempt small businesses…it exempts the first $125,000.

“On a typical 10% profit margin that a mom-and-pop shop would do, if they did a half million dollars in gross sales, they are only taking home $50,000, which is well under the Average Median Income. If we’re looking for money to pay for things, the businesses and the rest of our population would be happier to see economic development produce higher taxes and more income from the city than levying taxes against them in a negative manner.”

Ian Harkins of Kitsap Building Association spoke against the tax during public comments.

“This tax will adversely impact the incentives for businesses to invest in the city of Poulsbo and will harm small businesses,” he said. “Taxes, especially those targeted at gross sales, are harmful to small businesses. As businesses will need to pay the city, the cost of their products and services will have to increase to account for the added expense. This will be felt in the building industry, like any other industry that does business in the city of Poulsbo. Increasing the cost of everything involved in building a house will not make housing more affordable.”