Body
Department of Finance
Reference: Use Tax Ballot Question
To: Mayor Richard N. McLean and Members of City Council
Through: Clint Blackhurst, Acting City Manager
Prepared By: Jean Starr, Finance Director
Date Prepared: August 10, 2017
PURPOSE
To approve a resolution authorizing the referral of a TABOR ballot question to the voters of the City of Brighton on November 7th regarding the City’s use tax, by expanding the transactions to which the use tax would apply. The ballot question authorizes the City to levy a general use tax of three and three-quarter percent (3.75%), commencing January 1, 2018.
Recognizing that the bulk of the revenue that will be generated from the expanded use tax will come from new businesses, the City Council intends to focus its resources there and enact the necessary legislation to impose the use tax ONLY on businesses that purchase new equipment, furnishings, machinery, fixtures and other personal property
By all accounts, the City of Brighton is growing at a fast pace. In order to provide the services residents have come to expect, and even expand services in the future, the City has explored additional revenue sources. With the potential national trend that sales tax revenues may be decreasing in the future, the City believes that expanding its existing use tax will not only bring in much needed revenue, but also put Brighton in a comparable position with other cities in the metro area. Without this additional revenue, the City could be faced with the difficult decision to reduce services.
BACKGROUND
Brighton History on Use Tax
The voters of the City of Brighton (“City”) adopted the Home Rule City Charter on June 27, 2000. Subsequently, Ordinance 1764 was passed to adopt Municipal Code Articles 28 and 32 on December 14, 2002, amending Sections 3-28 and 3-32 of the Brighton Municipal Code to accommodate the City collecting, administering and enforcing its own sales tax on retail sales and its own use tax on construction and building materials purchased outside the City for use, storage or consumption within the City; and, motor or other vehicles purchased at retail outside the City by a resident of the City for the purpose of use, storage or consumption within the City.
Article X, Section 20, of the Colorado Constitution, also referred to as TABOR, requires voter approval for the imposition of a new tax, or the expansion of an existing tax.
General Use Tax
Use tax is simply “sales tax that wasn’t paid by the purchaser to the vendor.” A general use tax is imposed on the use, storage or consumption of tangible personal property or taxable services not subject to the City sales tax (i.e. supplies, fixtures, furniture and equipment (not inventory) that is stored, used or consumed within the City upon which no local legally imposed sales and use tax was paid at the time of purchase, lease, or rental.) Use tax is complimentary to sales tax (i.e., the purchaser pays one or the other, not both), but is paid directly to the City rather than to a vendor collecting on behalf of the City.
FINANCIAL IMPACT
Examples of how and by whom Use Tax would be payable:
1. ABC COMPANY is a manufacturing business, either located in or moving to Brighton, that will be purchasing non-construction items including equipment, machinery, and other tangible personal property for its business - a conveyor system, HVAC, lights, carts, office furniture, ladders, fork lifts, bathroom and other fixtures, etc. If this equipment is purchased from a supplier and is not subject to the City’s sales tax. ABC will be required to pay the City 3.75% use tax and will include this tax on its Brighton Sales and Use Tax Return.
2. NEW BUSINESS enters into an agreement to purchase OUT OF BUSINESS. Use tax is due on the fair market value of the furniture, fixtures, supplies and equipment that NEW BUSINESS acquired with the purchase.
3. Best Office Furniture (“Best”) has an executive chair in inventory. The President of Best needs a new chair for her office. Because Best is a dealer in office chairs, they buy them free of Brighton sales tax. When they withdraw the chair from inventory for their own use, they would be required to pay 3.75 percent Brighton general use tax. Best will report the use tax on their Brighton Sales and Use Tax Return.
Examples of when Use Tax Would not need to be paid:
1. SLEEP EASY MATTRESS STORE opens in Brighton and has an inventory of 70 different mattresses for sale. Under the City’s Code, inventory (for resale) is not subject to use tax. Sleep Easy would NOT be assessed the 3.75% use tax on that inventory.
2. LOVE TO BE IN BRIGHTON business has been operating in Brighton since 2000 and purchased a considerable amount of equipment and personal property when it opened its business. Because the Use Tax is effective for transactions on or after January 1, 2018, LOVE TO BE will NOT be assessed the 3.75% use tax on its existing equipment and personal property. Note: if it acquires additional equipment or personal property in the future for which it did not pay sales tax, it would be assessed the 3.75% use tax.
The additional revenue collected will be effected by the economic trends and growth of businesses in Brighton. Understandably, the amount of revenue will be greater in years when new or existing businesses in Brighton invest in personal property, like equipment and machinery. Based on estimates and potential business development, the Finance staff has estimated that approximately $4 million of use tax could be collected in calendar year 2018.
The imposition of use tax is common among many home rule municipalities, including the following in the Denver metro area: Northglenn, Thornton, Commerce City, Wheatridge, Lafayette, Englewood, Littleton, Arvada, Aurora, Westminster and Boulder.
The additional revenue from the expansion of the use tax could benefit the citizens of Brighton in critical and important ways, for example:
v PUBLIC SAFETY. Maintain the existing level of services and protections provided by the Police Department and Emergency Management, including patrol and crime prevention, victim advocacy animal control, community policing and the School Resource Officer Program.
v STREETS MAINTENANCE AND IMPROVEMENTS. Allows for maintenance and improvements to streets, traffic signals, street lights, snow removal, street sweeping, pothole repair and street overlay.
v PARKS AND RECREATION. Maintenance of 960 acres of municipal park land, including neighborhood, community, special use and open space parks, more than 27 miles of trails, 20 athletic fields, two pools, a recreation center, and adult center, 19 playgrounds, as well as a variety of recreational programming for youth, adults and seniors.
v GENERAL SERVICES. Planning and community development, essential internal support services, programming for cultural events, youth and family resources, enhanced job opportunities, safety inspections and sustainability efforts.
The Use Tax would be effective January 1, 2018, for taxable purchases occurring on or after that date.
STAFF RECOMMENDATION
The staff is recommending the City submit a ballot issue to the voters of the City of Brighton levying and authorizing an expansion in the collection of general use tax.
ATTACHMENTS
Resolution setting the ballot title for the November 7, 2017 municipal election.