Lacey increases out-of-city business license exemption

A $2,000 licensing exemption in the City of Lacey, which has applied to small contractors and service providers for two decades, is rising to $10,000 beginning Jan. 1, 2026. 

The Lacey City Council voted unanimously to adopt Ordinance 1681 at a meeting on Tuesday, Aug. 19.

Ordinance 1681 amends Section 5.12.010 of the Lacey Municipal Code (LMC) to comply with the state of Washington’s model ordinance for business licensing. 

The ordinance raises the exemption threshold for out-of-city businesses to $10,000 and establishes a requirement for automatic adjustments every 48 months, calculated from the Consumer Price Index for All Urban Consumers (CPI-U) for the Western Region. 

The council approved the measure without debate after reviewing it at an Aug. 12 work session. 

Mayor Andy Ryder acknowledged the impact on contractors who occasionally work inside city limits. 

“Obviously, when you’re a small business owner, you come and do business one time where, you know, do one project in that community, and you don’t do it again for another year, and yet have to go through a bunch of hoops. It makes it very difficult,” Ryder said.  

He added, “I also will be supporting this amendment.” 

The newly adopted ordinance aligns Lacey’s code with Revised Code of Washington (RCW) 35.90 requirements that apply to cities imposing business and occupation taxes. 

The City of Lacey said the Washington State Department of Revenue and the Association of Washington Cities requested adoption by Aug. 26 due to upcoming system upgrades, accelerating the timeline for changes that take effect in January. 

State mandate

The Washington state model ordinance for business licensing, required by RCW 35.90, standardizes how cities with a business and occupation (B&O) tax apply their licensing rules. 

According to the city, amendments effective in 2026 contain two core elements, updated classification definitions for service and retail categories, under the state B&O tax, and an increase in the licensing threshold for out-of-city businesses. 

In the prior language, businesses with annual sales, proceeds, or income of $2,000 or less and no fixed location in the city were exempt from obtaining a general business license.  

Ordinance 1681 raises that amount to $10,000 and embeds a Consumer Price Index (CPI) adjustment mechanism into the code. 

The Association of Washington Cities worked with municipal representatives and the business community before finalizing the proposal. 

RCW 35.90.080(1)(c) requires that all participating cities adopt amendments with a uniform effective date. The Department of Revenue set Jan. 1, 2026, as that date. 

The council approved the ordinance on Aug. 19 due to a technical deadline. 

Cities that use the state’s Business License Service had to alert the Department of Revenue by Aug. 26 so systems could be updated. The said requirement shortened the normal schedule for local review. 

Ordinance 1681 spells out the threshold amount will be recalculated every 48 months based on cumulative CPI-U increases. 

Increases in the CPI-U above 5% in any single year will be limited to 5%, with the four-year cumulative maximum set at 20%. Negative years will be treated as zero. 

For ease of administration, adjustments will be rounded to the nearest $100.