City adopts new occupational tax system

DULUTH - The Duluth City Council voted Monday to switch its occupational tax system for businesses operating in the city.

The annual occupational taxes paid by 30 percent of the approximately 1,800 businesses in the city would decrease under the new system and increase for 69 percent of the businesses, according to City Clerk Teresa Lynn. The amount would stay the same for about 1 percent, Lynn said.

Occupational taxes for Kroger and Associated Hygienic Products, the city's two largest businesses, which would be the most affected by the change, would be capped at $12,500 each.

The systems are used to classify businesses and calculate tax rates. City staff recommended the change to the North American Industry Classification System. The Standard Industry Code had been adopted by the Duluth Council in 1992. Many state and local governments began using the NAICS in 1997.

Paying occupational taxes is required for businesses and professionals to obtain licenses to operate in the city. The NAICS system would go into effect for new businesses July 1, 2008, and for existing businesses Jan. 1, 2009.

Letters advising businesses of the impending change were sent out prior to Monday's public hearing and council action.

Ken Sakmar, the city's budget and accounting manager, presented figures comparing occupational taxes for different types of businesses under the old and new systems at the hearing. Most of the tax increases would be less than $150, he said.

Professionals would have the option of paying an amount based on the new rates or a flat $400.

The change would generate an additional $200,000 that has been included in a proposed $38 million FY 2009 city budget. The city is scheduled to adopt the new budget June 30. The FY 2009 budget would go into effect July 1 and continue until June 30, 2009.

Gwinnett County and the city of Suwanee both use NAICS. The county has a $15,000 cap, and Suwanee has a $12,500 cap.

Duluth city staff recommended a cap of $10,500, but Councilman Doug Mundrick set the cap at $12,500 in his motion to adopt the NAICS system. This figure would be comparable to neighboring jurisdictions, but lower than the county's, he said.

The council raised the administrative fee for occupational taxes from $35 to $50 as recommended by the city staff.

Businesses can obtain information about the new tax system by visiting businesslicense@duluthga.net or calling 770-476-3434, ext. 1224.