Small businesses, such as these at Center Plaza, will only need to pay $5 more in business registration fees. Businesses with 10 employees or less make up 90 percent of Federal Way’s business base. RAECHEL DAWSON, the Mirror

Small businesses, such as these at Center Plaza, will only need to pay $5 more in business registration fees. Businesses with 10 employees or less make up 90 percent of Federal Way’s business base. RAECHEL DAWSON, the Mirror

Federal Way remains competitive with business license fee increase

As businesses in Federal Way prepared for the new year, some may have noticed a slight increase in their business license registration fees.

Most – 90 percent – likely didn’t.

It’s because small businesses with 10 employees or less dominate the Federal Way business community. Those businesses need only pay $5 more than previous years – a $75 flat rate is now $80 for them.

“It doesn’t affect us at all,” said Susan Moss, of Life and Health Chiropractic, Acupuncture and Massage, noting that her and her husband’s business has less than 10 employees.

Folded into the city’s biennial budget and unanimously passed by the Federal Way City Council in December, a staggered registration fee increase will help generate about $360,000 a year to help pay for nine new police officers.

The fees, based on the number of employees each business has, will be applied as follows: Zero to 10 employees: $80, 11-25 employees: $125, 26-50 employees: $250, 51-100 employees: $1,500, 101-501 employees: $4,500, and 501-plus employees: $9,500. Home-based businesses will continue to pay $50, but an additional $20 will be tacked on for outside contractors who are not residents of Federal Way.

Before the city presented the fee increase to the council, Mayor Jim Ferrell and Finance Director Ade’ Ariwoola met with the Greater Federal Way Chamber of Commerce board to discuss the fees last fall.

Chamber CEO Rebecca Martin said she followed up in multiple meetings with city officials to determine how the fees could impact economic development in the city and learned it would be minimal.

“There’s been no increase for 12 years, and we get it,” Martin said. “Any kind of fee burden on the businesses, we’re taking a look at, but we’re also businesses, and we understand there’s some cost of living increases and 12 years is a long time.”

The city’s last rate was established in 2004 for the year 2005.

Martin said she’s working with the city to change the fee collection schedule so that businesses can renew their licenses from the time they first opened, versus in January, which “creates a glutton of backlog.”

Ariwoola confirmed that the city would remain competitive in the South King County area.

Because the city does not have a business and occupation tax — Burien, Des Moines, Kent, Renton, Seattle and Tacoma do, the highest amount of revenue the city can collect on a business with 501 or more employees with $35 million in revenue is $9,500. A city, such as Des Moines, which collects .002 percent of a company’s revenue for B&O tax and a $200 license registration fee, can collect $70,200 on the same type of business.

The city’s model is based on SeaTac’s business registration fee system.

“The city of Federal Way still has the lowest by far among the compared cities,” Ariwoola said, referring to a comparative analysis of various jurisdictions.

According to the city of Federal Way, the city’s largest employers include Xerox Commercial Services with 1,350 employees, St. Francis with 1,032 employees, Wild Waves with 870 employees and World Vision with 850.

In addtion to a business registration fee increase, the city implemented an admissions fee, which will raise $600,000 a year and collect 5 percent of the cost of admissions tickets for non-school sponsored activities, such as events at the Performing Arts and Event Center, movies at theaters and admission to Wild Waves and Enchanted Village.

“The city has to raise its revenue, so I think that all of the options they are looking at are a mix in building their budget,” Martin said. “Our focus at the chamber is to see that the burden isn’t carried solely by the business community.”

Martin said the business fee increase is understandable and, from what she’s heard, the business community is on the same page.

“One of the things the chamber continues to look at strategically is the diversity of our economic base,” she said. “The impact of the fee isn’t as strong as it might have been because it only represents a $5 increase to 90 percent of our business base … So the strategic concern for the future is the sustainability of our business community.”

Martin said small businesses could be susceptible to the marketplace – economic downturns. An economy with a majority of small businesses is not as sustainable as a business community that has businessses with employees with 100-500 or more.

“From the chamber’s perspective, the conversation is really focused on what impact does this have on the business community and what is the long term impact as we develop for our future,” she said.

Ariwoola said the city is working with the chamber to see what the city can do to support small businesses.

“Mayor Ferrell, Ecnonmic Development Director Tim Johnson, various City Council and staff have been traveling, meeting and recruiting businesses to Federal Way,” Ariwoola said. “One example of their efforts is the memorandum of understanding with University of Washington that was signed. Business recruitment is an ongoing effort, and it takes time to see results, but we are seeing some progress.”

A large small-business base, however, serves its purpose, he said.

“In American society, as much as we don’t want the mom-and-pop businesses, that is what carries society,” he said. “That is why if we focus on big corporations, when those big corporations have trouble, like Weyerhaeuser, when a big company sneezes, the entire community catches a cold.”

Ariwoola said when businesses succeed, the city succeeds.

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