WENATCHEE — The city of Wenatchee is considering a business and occupation sales tax targeting large nonprofit health care providers, namely Confluence Health.
The goal of the proposed tax is to offset property tax the city can’t collect from Confluence’s expensive medical facilities because the organization is a nonprofit, Mayor Frank Kuntz said Tuesday.
“The local dentist pays sales tax when he buys equipment, as does Confluence. And the local dentist pays property tax not only on the real property that he owns but also on the personal property inside the business,” Kuntz said. “Confluence Health does not pay property tax on the real property or the property inside the business.”
As it’s currently proposed, the B&O tax would be collected as 0.2% of all gross sales made in city limits by nonprofit health care providers that have gross sales of $20 million annually or $5 million per quarter, according to a draft of the ordinance provided to The Wenatchee World.
Confluence Health is the only organization that definitely meets those criteria, Kuntz said Tuesday.
Kuntz spent the past 10 years on Confluence Health’s board of directors and became board chairman in May. He resigned from the board earlier this month due to the conflict of interest that the tax proposal creates.
The city doesn’t believe that Columbia Valley Community Health, the area’s other major nonprofit health care provider, meets the annual gross sales bar, he said. CVCH couldn’t immediately be reached for comment.
The proposal caps the tax collected from any organization at $600,000 annually, according to the draft ordinance.
The Wenatchee City Council will review the proposed ordinance at a public hearing on Dec. 12 and may change the specifics of the tax based on feedback collected. If the tax is approved, the city has earmarked the initial funds for hiring three new police officers next year, Kuntz said.
If passed, this would be the city’s only B&O tax on business, Kuntz said. Around 50 other cities in the state have some kind of B&O tax.
Confluence Health believes the tax in its current form is targeting the organization unfairly, CEO Peter Rutherford said Wednesday.
“Obviously, it’s a concern. Confluence Health has a legal nonprofit status from the Internal Revenue Service and the state,” he said. “We think it is a bit inappropriate for the city to single out one nonprofit organization.”
Confluence does pay the city property tax on some “non-clinical” buildings in city limits, Rutherford said. That tax totaled $14,782.76 in 2019, Confluence spokesman Andrew Canning said.
If passed, the proposed B&O tax will likely cost the organization hundreds of thousands per year, Rutherford said. It can also only be collected on sales made to individuals or private insurance, not Medicare or Medicaid.
“We have done some initial calculations. It’s unclear exactly which pieces are included or not, so it’s hard to know for sure, but it appears that it’s above $500,000. And as it’s currently written, it’s capped at $600,000,” he said.
The new expense would come out of Confluence’s annual operating budget, Rutherford said. So far this year, the organization has operated with a 2.63% margin on its roughly $700 million annual budget across North Central Washington.
That annual profit of roughly $16 million — which is what the B&O tax would eat into — is then mostly spent on maintenance or capital projects, Rutherford said.
But Confluence believes it already spends a significant amount of money supporting the community through initiatives like employee donation matching, contributions to the Methow Park project and by offering expanded mental health services, Rutherford said.
“I think we as an organization have tried to give back to the community in a variety of ways that hopefully improve the health of the community and the quality of life in this community,” he said. “When you get a bill that is in the $500,000 to $600,000 range, as the ordinance is proposed, something has to give.”
The city and Confluence have wrestled over the issue before. Confluence in 2018 agreed to make a $330,000 “payment in lieu of taxes” to the city, city Finance Director Brad Posenjak said Tuesday.
Kuntz was still on Confluence Health’s board at the time, but recused himself from board discussions or votes on the issue, he said.
The city wanted to continue that arrangement with Confluence, but the two parties couldn’t reach an agreement, Kuntz said.
“I sort of wish we would have had a ‘payment in lieu of taxes’ for Confluence,” he said. “I wish we would have had a 10-year agreement with Confluence so we wouldn’t have to go down this path, but we couldn’t get that done.”
Representatives from Confluence plan to attend the public hearing on Dec. 12 to voice their opinion, Rutherford said.
“We’re going to go to the meeting and talk about some of the things that Confluence is contributing to the community that the City Council may not be aware of,” he said.
If the tax ordinance is passed, Confluence has the option to ask for a referendum, according to the draft proposal. The organization would need to collect signatures from 15% of the registered voters in the city to send the issue to an election.
“We are aware that that option is out there, but have not made a decision one way or another,” Rutherford said. “I’m hopeful that we can have an honest discussion of the pros and cons of this decision first and reach a decision whether it is really appropriate to move forward with it or not.”
If the ordinance is approved and Confluence chooses to not ask for a referendum, the B&O tax will go into effect on April 1.
Read an early draft of the proposed ordinance below.