Department of Finance
Reference: Tax and licensing code updates
To: Mayor Gregory Mills and Members of City Council
Through: Michael P. Martinez, City Manager
Prepared By: Catrina Asher, Finance Director
Ana LeScoezec, Revenue Manager
Date Prepared: October 20, 2022
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 serve the business community.
STRATEGIC FOCUS AREAS
- Financially Responsible
- Strong Regional Relationships and Partnerships
BACKGROUND
The City of Brighton is in the process of transitioning to a new tax and licensing system that will allow businesses to apply for licenses online and for taxpayers to file electronically. This system will also integrate with the State of Colorado’s Sales and Use Tax System (SUTS). As part of the transition process City staff has reviewed the tax and licensing code and has identified several areas where updates or clarification is needed to better serve the business community.
In addition, the Colorado General Assembly recently passed a new retail delivery fee as well as a carryout bag fee, both of which would be taxable under the City’s current Code. City staff is addressing the taxability of these new fees as part of these proposed updates.
RECOMMENDED TAX AND LICENSING CODE CHANGES
Colorado delivery fee and carryout bag fee
The Colorado retail delivery ($0.27 per delivery) as well the carryout bag fee ($0.10 per plastic bag) are not expected to generate a significant amount of revenue for the City of Brighton. The retail delivery fee became effective July 1, 2022, and the carryout bag fee is effective January 1, 2023. Since these fees are new, the City has not received any significant amount of tax revenue from these fees. Additionally, sales tax generated from these fees is expected to be very small ($0.01 per delivery fee and $0.004 per bag fee). City staff recommends adding an exemption to sales tax for both the Colorado delivery fee and the carryout bag fee. This is consistent with actions taken by neighboring jurisdictions as well as the State of Colorado.
Sales tax reporting
• Under the City’s current code, businesses that file and pay in full on or before the sales tax due date are allowed to deduct 3.33% of the sales tax due up to a maximum of $25 per return from the amount of taxes owed to help cover the retailer or vendor’s expense of collection and remittance of tax. To encourage electronic filing without the addition of any fees, staff proposes that this discount would only apply for returns filed electronically. Vendors or retailers who file paper returns and pay via check or cash would not be allowed to deduct and retain the vendor fee.
• The current code references to specific reporting frequencies (monthly, quarterly, annually). Staff proposes eliminating the specific frequencies and allowing staff to determine the appropriate filing frequency based on a business’s particular circumstance, including allowing for intermittent/one-time filing.
Sales tax notice of final determination
• The timeframe a taxpayer would have to protest a notice of final determination, including a notice of tax assessment or a decision on a refund request, would increase from twenty (20) to thirty (30) days. This is consistent with the timeframe allowed by surrounding jurisdictions.
• The current code allows for full waiver of penalties and partial waiver of interest. Interest is assessed at 1% per month or 12% per year. The current code allows waiver of interest of up to 6% per year. The changes would allow the Finance Director to authorize waiver of both penalties and interest in full for good cause shown.
• Notices would no longer be required to be sent via certified mail.
Business Licensing
• Adding language stating that businesses that apply for a license renewal must meet all applicable provisions of the Municipal Code in order for the renewal to be granted.
• Clarifying the language surrounding the business license exemption for contractors meeting certain conditions.
STAFF RECOMMENDATION
Staff recommends approving the changes listed above in order allow for more consistency and better flexibility to serve the Brighton business community.
FINANCIAL IMPACT
Overall, the financial impact is expected to be minimal. Because the retail delivery fee and the carry out bag fee are new and tax revenue would be minimal. The retail delivery fee became effective July 1, 2022, and is currently taxable, generating $0.01 in sales tax revenue per fee that is taxed. City staff has not seen a noticeable increase in sales tax as a result. The carryout bag fee is effective January 1, 2023 and will not be taxable under the proposed code changes. Many of the surrounding jurisdictions, including the State of Colorado, are exempting these fees from sales tax. The exemption of these fees will mean less time spent on tracking and enforcement as well as less confusion for taxpayers.
City staff spends significantly more time processing returns that are paid by check versus sales tax returns that are filed and paid electronically. Eliminating the vendor fee credit for those that do not file electronically will motivate businesses to file and pay electronically without adding any additional fees and will result in less staff time spent on processing paper returns and checks.
BUSINESS IMPACT
These changes will have an overall positive impact on the Brighton business community. The changes will add clarification around the business license requirement. Staff will have more flexibly to work with businesses based on their circumstances to determine how often sales tax needs to be reported and when penalty and interest can be waived. Businesses will have additional time to review a notice of final determination and notify the City in the event that they do not agree with the findings.
OPTIONS FOR CITY COUNCIL
• Approve the Ordinance as presented
• Reject the Ordinance
• Request staff provide additional information or revise the proposal
ATTACHMENTS
• Ordinance
• Tax & Licensing Code Updates (redline)
• Presentation