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Home My WebLink AboutCOUNCIL - AGENDA ITEM - 03/02/2004 - FIRST READING OF ORDINANCE NO. 046, 2004, AMENDINGAGENDA ITEM SUMMARY FORT COLLINS CITY COUNCIL ITEM NUMBER: 33 DATE: March 2, 2004 STAFF: Alan Krcmarik SUBJECT First Reading of Ordinance No. 046, 2004, Amending Section 25-123(c) of the City Code Relating to Compensation of Vendors for Collecting and Remitting Sales Tax. RECOMMENDATION Staff recommends adoption of the Ordinance on First Reading. FINANCIAL IMPACT Adoption of this Ordinance will provide an additional $300,000 to $400,000 per year to the Sales and Use Tax Fund. After direction from City Council, the additional dollars will be used to fund items related to the economic health of the City of Fort Collins. EXECUTIVE SUMMARY Resolution 2004-006 was adopted by City Council in January directing the City Manager to proceed with public outreach regarding a change to the vendors' fee. The City Manager was further directed to present a recommendation to Council no later than the first meeting in March. The vendors' fee was last changed in 1989 in response to the need for additional funding for the Choices 95 Capital Improvement Program. Prior to that time, vendors were allowed to retain 3.0% of all sales tax they collected. The 1989 change limited vendors to 3.0% of the first $3,000 in tax they collected plus 1.0% of all taxes thereafter. There was no dollar cap on the total amount vendors could retain. Since 1989, the national-wide and state-wide trend has been to reduce the amount of tax that vendors are allowed to retain. Many studies have shown that there are diminishing costs to vendors who collect large amounts of sales tax. Computerized systems have greatly reduced the cost of tax collections. As the City’s tax rate has grown from 1.0% in 1972 to the current rate of 3.0% , so has the total amount of tax revenue that vendors have retained. In 1972, the amount of annual tax revenue retained by vendors in the City was only about $34,000. In 2003, vendors retained just over $1 million. March 2, 2004 -2- Item No. 33 The City currently has 8,579 active sales and use tax vendors. Of those, 2,357 file a monthly sales tax return and of those, about 246 could be affected by the change that staff is proposing. The proposed change would limit the vendors' fee to 3.0% of the first $3,000 in tax collected. The additional one percent that vendors presently retain on sales taxes collected in excess of $3,000 would be eliminated. The effect would be a $90 cap on the vendors' fee, regardless of the amount of sales taxes that a vendor would collect. Thus, the proposed change will affect only retailers who have more than $100,000 in taxable sales per month. Prior research done during the first vendor fee change in 1989, found that the costs associated with collecting and remitting the sales tax are not substantial. On the contrary, the research showed that there is not a lot that businesses would do differently if there were no sales tax. One other point to note in evaluating this proposed change is that vendors do earn interest on the taxes that they collect. A conservative estimate on large taxpayers is that they earn up to $900 per month in interest for the period of time they hold the City’s sales tax. In January, Finance staff issued a press release outlining a possible change to the vendors' fee. Additionally, letters were sent to the affected vendors. Two public meetings were held on February 11 and February 24. Citizens and vendors were asked to respond via e-mail, telephone or letters. To date, staff has received one letter and one e-mail. Both parties supported the current vendor fee structure. The first public meeting produced a total of four visitors and one newspaper reporter. Two interested parties are owners of a local auto dealership. They did not support a change to the vendors' fee. Two citizens were present. Both citizens favored a change in the fee, but would like to see it eliminated altogether. Although staff is sensitive to the concerns of vendors, it recognizes that the City also has a fiduciary responsibility to Fort Collins citizens to use their tax revenues for the purposes for which they are intended, namely, the provision of public services and facilities. Therefore, staff recommends adoption of the Ordinance on First Reading. ORDINANCE NO. 046, 2004 OF THE COUNCIL OF THE CITY OF FORT COLLINS AMENDING SECTION 25-123(c) OF THE CODE OF THE CITY OF FORT COLLINS RELATING TO COMPENSATION OF VENDORS FOR COLLECTING AND REMITTING SALES TAX WHEREAS, Section 25-123(c) of the City Code authorizes retailers to retain 3% of the first $3,000 of the amount of sales tax they collect for the City, as well as an additional 1% of the amount of sales tax collected in excess of $3,000; and WHEREAS, the ability to retain this "vendors' fee" is in recognition of the time and effort expended by City retailers in collecting the City's sales tax from their customers; and WHEREAS, initially, the total amount of sales tax revenue retained by retailers through the vendors' fee did not result in a substantial loss of tax revenue to the City; and WHEREAS, over the years, the number of retailers and the amount of sales tax revenue in the City have increased substantially, so that the amount currently retained by retailers has risen to approximately $1 million per year; and WHEREAS, especially in view of the budget constraints under which the City has been operating in recent years, the loss of this amount of sales tax revenues has a significant negative effect upon the City and its taxpayers; and WHEREAS, the City Council believes it to be in the best interest of the City to reduce the amount retained by retailers for collecting City sales and use tax revenues; and WHEREAS, City staff has recommended limiting such amount to 3% of the first $3,000 in sales taxes collected by the retailers, and eliminating the retention of any amount of revenues collected in excess of $3,000; and WHEREAS, City Council believes that such recommendation is reasonable and is in the best interest of the City. NOW THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That Section 25-123(c) of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 25-123. Remittance of sales tax collected by retailer. . . . . . (c) Every retailer shall file a tax return each month with the Financial Officer on or before the twentieth day of each month for the preceding month and remit the tax due to the Financial Officer simultaneously therewith. Every retailer may deduct three (3) percent of the first three thousand dollars ($3,000.) of the amount of the tax to be remitted by him or her under this Article, and one (1) percent of the amount of the tax in excess of three thousand dollars ($3,000.) to be remitted by him or her under this Article for the collection and remittance of the tax. However, if the remission of the tax by the retailer is delinquent, the retailer may not retain any amounts for collecting and remitting the tax unless the retailer demonstrates reasonable grounds for the delinquency acceptable to the Financial Officer. . . . . . Section 2. That this Ordinance shall become effective on April 1, 2004. Introduced, considered favorably on first reading, and ordered published this 2nd day of March, A.D. 2004 and to be presented for final passage on the 16th day of March, A.D. 2004. _________________________________ Mayor ATTEST: ______________________ City Clerk Passed and adopted on final reading this 16th day of March, A.D. 2004. _________________________________ Mayor ATTEST: ______________________ City Clerk Attachment A Comparison of Sales Tax Rates and Vendor Fees Selected Colorado Home Rule Cities January 2004 City Tax Rate Vendor Fee Cap Arvada 3.21% 3.0% $100 Aurora 3.75% 0.5% None Boulder 3.41% 0.0% Broomfield 4.15% 3.0% $200 Colorado Springs 2.5% 2.0% None Denver 3.5% 0.5% None Englewood 3.5% 0.5% None Fort Collins 3.0% 3.0% 3% of 1st $3,000 – 1% thereafter Golden 3.0% 0.0% Grand Junction 2.75% 3.3% None Greeley 3.3% 0.0% Lakewood 2.0% 0.0% Littleton 3.0% 2.5% None Longmont 2.95% 3.0% $100 Loveland 3.0% 3.3% $300 Northglenn 4.0% 1.0% None Pueblo 3.5% 0.0% Steamboat Springs 4.5% 0.0% Thornton 3.75% 1.5% None Westminster 3.85% 2.5% None Wheatridge 2.0% 0.0%