City Manager’s Office and Department of Finance
Reference: 2026 tax and licensing code updates
To: Mayor Gregory Mills and Members of City Council
Through: Michael P. Martinez, City Manager
Prepared By: Ana LeScoezec, Revenue Manager
Date Prepared: October 14, 2025
PURPOSE
To provide City Council with recommended updates to the tax and licensing code that will ensure consistency and allow for more flexibility to better service the business community.
BACKGROUND
Since 2020 business licenses have been issued by the City’s Finance Department and also serve as the business sales tax account under which the business files and pays sales tax owed to the City. The licensing process involves review and approval by various departments depending on the type of business. Businesses such as remote online sellers who are not required to have a license maintain a sales tax account with the City under which they file and pay sales tax.
The tax and licensing code is reviewed periodically to ensure consistency with current practices, rules and regulations as well as improving the process for businesses.
House Bill 24-1371 added requirements for massage facilities requiring local governments to regulate these massage businesses. The State Legislature made it a matter of statewide concern that all owners and employees of massage facilities submit to a fingerprint-based criminal history record check. One stated purpose of the bill is to have all jurisdictions work to combat human trafficking.
PROPOSED SALES TAX AND TELEPHONE TAX CODE UPDATES
Clarify conflicting code sections regarding excess tax collection
Excess tax refers to sales tax collected in excess of the applicable combined rate, or total rate, including State, County, City and any other applicable sales tax. This can occur for various reasons including errors in the business’s point of sale system or simply rounding.
The current tax code has two conflicting code sections regarding what a business should do with excess tax collected when they are not able to refund or credit the customer. The proposed change clarifies that excess tax collected should be remitted to the City.
Removal of vendor fee
The vendor fee is a credit initially put in place to help compensate taxpayers for collecting and remitting sales tax. This credit is currently 3.33% of the tax due up to a maximum of $25 per return and is only applicable if the taxpayer files and pays electronically and on time.
Many jurisdictions are now moving towards eliminating this credit and requiring taxpayers to pay the full amount of sales tax collected and owed without providing any credit. The State of Colorado is removing the vendor fee on state returns effective 2026 with the passage of HB25B-1005 and many municipalities are following their lead.
Removal of Utility Company Occupation Tax
The telephone utility company occupation tax was put in place in the 1970’s when landlines were common. It requires a charge of $4 per landline per year. It is payable monthly and cannot be paid electronically resulting in numerous small dollar checks remitted throughout the year.
Current revenue from this tax is less than $2,000 per year and implementing an online filing option would cost the City several thousand dollars plus staff time.
Staff recommends removal of this tax as it requires compliance for taxpayers and collection and processing efforts by the City for a minimal amount of tax.
PROPOSED USE TAX CODE CHANGES
Provide flexibility to charge use tax on permits based on a percentage of valuation other than 50%
Construction use tax is charged on construction materials, which are materials that will become part of a building structure. This is currently charged on an estimated basis based upon the valuation of a project at the time of building permit issuance based on 50% of the project valuation.
Upon project completion of the project, an audit or construction use tax reconciliation may be done by the City’s Finance Department to reconcile the use tax paid to the actual material costs of the project and determine if there was an over or under payment of use tax.
City staff is proposing to add flexibility to allow to use tax to be charged on permits using a percentage other than 50% should it be determined that doing so would better reflect the accuracy of estimated tax payments based on history for various development types. The percentage would be set in policy proposed by the Finance Department and approved by the City Manager. Percentages other than 50% would be used for categories of permits where staff finds that 50% is not an accurate estimate of actual use tax owed.
This could reduce the amount of use tax collected or refunded through audits after a project is completed.
Remove alternative option of paying use tax upon completion of project instead of the time of building permit
Current code allows for use tax to be paid based on actual costs upon project completion and not at the time of building permit. This option is not used in practice and would require significant additional tracking, verification, and follow-up for both the City and taxpayer. City staff proposes that is option be eliminated and all taxpayers be required to pay use tax consistently based following the estimation process at the time of building permit unless a valid use tax exemption is provided.
PROPOSED LICENSING CODE CHANGES
Proposed changes for added clarity
Staff is recommending changes to the tax code section for clarity and flow of information. This includes relocating sections related to licensing that are currently in Article 3-28 of the Municipal Code (Sales Tax) of the Municipal Code and moving those sections to Chapter 5 of the Code (Business License, Regulations and Occupations). It also includes clarifying procedures for revocation and suspension to be consistent across license types.
Removal of separate kennel license
In consultation with the City’s Police Department, it has been determined that requirements for a separate kennel license are not necessary and can be removed from Code. Kennel businesses will require a standard business license. As part of the licensing process the applicant will be required to provide a copy of their State Department of Agriculture Pet Animal Care and Facilities Act (PACFA) license. The City’s Code Enforcement Division will review license applications before a license is issued by the City’s Finance Department.
Addition of massage business licensing requirements
In order to be consistent with new state regulations staff is adding additional requirements for massage businesses. These requirements include obtaining and reviewing a finger-based criminal background check for the proposed business owner, employee, and operators. The municipal code is being updated to add all the requirements set forth in state law.
CRITERIA BY WHICH COUNCIL MUST CONSIDER THE ITEM
Some of the proposed changes, such as changes to massage business licensing, are required by state regulations. Other changes are intended to improve efficiency for both staff and businesses or increase consistency internally and with the State.
FINANCIAL IMPACT
Impact of changes to sales tax and telephone occupation tax code changes
Eliminating the vendor fee will have a minimal impact on each taxpayer given that it is capped at $25 per sales tax return ($300 maximum per year for monthly filers) and is not available to businesses filing by paper or not paying on time. It should be noted that this is sales tax collected and owed to the City that would no longer be credited to the taxpayer. The City would retain an estimated $200,000 in sales tax due to the City that was previously being credited.
Removal of the telephone utility company occupation tax would result in a reduction in revenue of less than $2,000 per year. This would be offset by the staff time spent processing and collecting numerous small dollar checks. Businesses would no longer have to spend time and effort for remittance and compliance.
Impact of use tax code changes
Providing flexibility to charge use tax on permits on a percentage of valuation other than 50% would not result in any immediate financial impacts. Should the City determine that a different percentage should be used would allow for a more accurate collection of estimated tax due on construction materials at the time of building permit and would reduce the amount of use tax collected through audits or refunded after project completion.
Attachments:
Ø Presentation