The city council discussed a proposal yesterday that could, its proponents hope, satisfy businesses and state officials (including Gov. Chris Gregoire) who say the state should take over the collection of local business and occupation taxes.

The state, and the Association of Washington Business, say centralizing local B&O tax collections at the state level will make it easier for small businesses to pay their taxes (on the grounds that every city in which businesses operate has slightly different tax classifications and rules); cities, including Seattle and Tacoma, argue that centralizing B&O collections will cost them tens of millions of dollars in lost audit fees, lost penalties from businesses that fail to pay their taxes, lost taxes from businesses that claim their main operations are outside Seattle, and a 1 percent administrative fee that would go directly to the state. Seattle estimates that the state plan could cost it up to $43 million; Tacoma estimates annual losses between $4 million and $7 million.

The council proposal is intended as a compromise between the centralized state proposal and the current system, in which every jurisdiction where a business operates collects a slightly different set of taxes, forcing businesses that operate in more than one city to file multiple tax returns. Under the compromise, the state's five largest cities would create a central online "portal," where businesses could say how much they made and where they operated, and the portal would calculate how much they owe in taxes overall.

"We have a challenge here: We need to prove that this thing works, that we can actually pull this off, and that it's not an attempt to stall other types of change," council president Sally Clark said yesterday morning.  Reached after the meeting, Clark added, "I think what I've hard [the state] say is, 'Your portal thing is interesting, but what we really need is consistency and an assurance that this will work."

We have a call out to the AWB's Amber Carter.

The council hopes to pick a contractor to build the portal by early next year.