Olympia removes B&O tax exemption for Providence St. Peter Hospital

The Olympia City Council voted unanimously Tuesday to remove an exemption to the business and occupation tax for large non-profit organizations – most notably, Providence St. Peter Hospital.

City officials say the extra money is needed to provide core services such as police, fire protection, roads and building maintenance. Providence officials estimate the B&O tax exemption is worth $375,000.

The tax is effective Nov. 1, and applies to religious and non-profits with a gross annual income exceeding $30 million. The council approved the tax on a first and final reading Tuesday, but the proposal has long been simmering in the city’s Finance Committee as a way to generate more money for municipal services.

Hospital officials and supporters pleaded the council to reconsider. Several commenters at Tuesday’s meeting defended the hospital’s 127-year history of serving local health and medical needs.

“The city has always recognized the importance of a thriving community charity,” said Susan Hettinger, hospital community board member, who asked the council to consider long-term consequences. “If you impose this tax, I fear it’s only a matter of time before other non-profits are hit with the tax.”

Providence CEO Medrice Coluccio urged the council to try the hospital’s “partnership model” and revisit the tax at another time. The model refers to a proposed partnership in which the hospital would fund a range of programs using money that would otherwise go toward the B&O tax.

Suggestions from the hospital included a mobile triage program that could respond to mental health crises in downtown Olympia, according to a memo, or providing a nurse for the city jail. Another suggestion was an investment in transitional housing for the chronically homeless.

“It’s in the best interest of our community and the City of Olympia to be partners together and not tax your hospital,” Coluccio told the council. “This will set a precedent.”

The hospital is the largest private-sector employer in Thurston County with about 1,700 jobs, according to the county’s Economic Development Council.

Providence serves a five-county area and has grown significantly over the years by absorbing various for-profit medical practices, said Councilman Steve Langer, who was once employed in the hospital’s chemical dependency unit.

“It’s really gone corporate, if you will, compared to what it was,” Langer said Tuesday.

In an effort to generate more revenue, Tacoma and Bellingham have also removed B&O tax exemptions for non-profit health systems. Olympia’s current B&O tax rate – two-tenths of 1 percent – is about half of what Tacoma and Bellingham charges. At that rate, a business pays $2,000 for every $1 million in revenue.

The total impact of the new ordinance is difficult to determine, according to a city staff report, because state law does not allow the city to analyze financial records of non-profit organizations.

At Tuesday’s meeting, Mayor Stephen Buxbaum said the ordinance will close a tax loophole and address a steadily eroding tax base.

“We need a less regressive tax system,” he said. “We also need to provide core services to our citizens.”

This story was originally published October 15, 2014 at 1:04 PM with the headline "Olympia removes B&O tax exemption for Providence St. Peter Hospital."