A significant goal of Mukilteo’s financial planning is to adjust fees and taxes so that each service draws enough revenue to pay for itself.

 

While many of those services cost more than they take in, business licenses are currently the opposite, drawing more revenue than it costs to operate the program.

 

Currently, business owners pay a total of about $300,000 in license fees to do business in the city. How to reduce that down to a reasonable level without bankrupting the city?

 

Not all at once, finance director Scott James told the council Monday.

 

“The city has created some sort of reliance on that ongoing revenue,” he said. “In order to bring it down to what it costs (to issue business licenses), I recommend doing it over a period of time so we can absorb that decrease in revenue.”

 

To cut that revenue source all at once would create “quite a shock to the system,” he warned, and significantly impact the general fund.

 

The city has already taken steps to be more business friendly, and to make it easier to do business here, by reducing its base fee of $113.50 down to $25 for businesses that can show they generate no more than $5,000 in annual income.

 

Those who qualify for the reduced annual fee are also exempt from the $.02280 per hour each employee worked during the previous year.

 

Mukilteo is considering not only further reducing what it charges for licenses, but researching the years-old debate of how to handle real estate agents, James said.

 

“If we indeed can have real estate agents pay their fair share, we can reduce the amount we charge other businesses,” Councilmember Kevin Stoltz said.

 

Currently, real estate agents don’t pay annual business licenses, and the city has never asked them to do so. Brokers pay licenses, but don’t pay a percentage of their revenue for each full-time equivalent hour their agents work, like every other business owner in town.

 

The logic is that agents are independent contractors and not direct employees of their respective brokers.

 

It’s complicated, James said. For example, a buyer may live in Lynnwood, and his or her agent in Edmonds. How to know when they’re in Mukilteo, unless a sale is recorded?

 

According to broker and Realtor Bruce McKinnon of Mukilteo Windermere, state law prohibits cities from requiring agents pay for business licenses.

 

The government specifically set it up that way to ensure brokers are accountable for anything their agents do, he said.

 

“The broker owns the listings we go out and get, not the agents,” he said. “A lot of people don’t understand that.”

 

There is more to it than simply charging agents who put their signs up in town, James said.

 

“We’d like to be fair about how we go after them, come up with a plan that’s fair to real estate agents but also fair to the city,” he said. “There may be some lost revenue there, but we don’t know how significant.”

 

Stoltz said the city should look at agents like it does any other outside company that wants to do business in the city.

 

Mayor Joe Marine cautioned the council against unintended consequences.

 

“It’s not that simple,” he said. “If we’re the only city in the area requiring this, and an agent wants to show a house in Mukilteo, but doesn’t have a license, then what?”

 

If agents steer their clients away from Mukilteo, it could impact the Real Estate Excise Tax fund, and make it harder for city residents to sell their homes, he pointed out.

 

“We’re looking into all of that. What we don’t want is a chilling effect on our REET funds and our citizens,” he said. “Obviously we don’t want houses sitting empty in Mukilteo.”