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Home My WebLink AboutCOUNCIL - AGENDA ITEM - 01/04/2000 - RESOLUTION 2000-5 ENDORSING FEDERAL LEGISLATION RE AGENDA ITEM SUMMARY ITEM NUMBER: 27 DATE: January 4, 2000 . FORT COLLINS CITY COUNCIL STAFF • John Fischbach SUBJECT: Resolution 2000-5 Endorsing Federal Legislation Requiring the Collection of State and Local Sales and Use Taxes on Remote Sales. RECOMMENDATION: Staff and the Council Finance Committee recommend adoption of the Resolution. FINANCIAL IMPACT: Revenue from the City's sales and use taxes is the largest revenue source for governmental operations. In 1998, over half of the City's general fund came from the sales and use tax. In the next budget year.the general fund is projected to receive over 60% of its total resources from sales and use taxes. In addition to governmental operations,revenue from the sales and use taxes funds debt service on several projects in the City.and provide for most ofthe governmental capital projects that are being and will be built in the Building Community Choices projects. EXECUTIVE SUMMARY: In 1998. Congress enacted a law that provided for a three-year moratorium on sales and use taxes being charges on goods being sold over the Internet. The stated purpose of the law was to protect Internet based commerce (e-commerce) in the formative stages of its development. Many large e- commerce retailers convinced the Congress that this method of sales needed protection from state and local sales taxes in order to grow. Based on the studies of several national research organizations.e-commerce is not only growing,but is experiencing exponential growth. The volume of sales over the Internet is doubling every 18 months. Some research indicates certain categories of sales are growing even faster. Allowing Internet sales to occur without regard for state and local taxes creates an inequity in tax collection obligations between mainstreet hometown businesses and their electronic and mail-order catalog competitors. Resolution 2000-5 expresses the Council's position that sales and use taxes should be collected on all types of remote vendor sales in order to maintain an equitable system of taxation. i .__........_ TE: January 4, 2000 2 ITEM NUMBER: 27 �KGROUND In Colorado,the state and local governments share responsibility for the provision and funding of local services. Home rule cities and towns have strong powers of fiscal autonomy which have resulted in some very strong financial results for the major cities in Colorado. Through their tax policies,local governments can match the appropriate revenue source with services being demanded by their constituents. Therefore,Colorado municipalities have a strong and vested interest in making sure that local retail businesses are robust and competitive. Generally, what is good for a city's retail base is good for the community. Retail businesses create jobs,bring jobs into the economy,and generate tax revenue with many public benefits. Local retail employees spend their pay checks at other businesses in town,adding to the economic health of the community. Busy retail stores helps cities avoid boarded-up storefronts and blight, helping foster a sense of place and community pride. It is therefore in the mutual interest of locally-owned businesses and local government officials to work together to eliminate conditions and policies that put local businesses at an unfair market position. Under the current state of the law regarding collection of state and local taxes on Internet sales,"remote commerce"vendors are able to compete in the local market without having to collect from their customers the taxes that local retailers must collect. 'Remote commerce"entails retail businesses that have no physical presence in,and thus are not a part of, the local community, as are other retailers. These out-of-town retailers compete for local customers by selling through mail order catalogs, over the telephone, through televised advertising, and most recently through the Internet. The purchase of the materials and goods that these out-of-town vendors are selling is generally already subject to tax within the municipalities where the purchase order is placed. Thus, the issue is not whether to tax the transaction. Instead, the issue is whether the out-of-state vendor should be responsible for collecting the tax. The need for federal legislation on this subject arises from a decision of the U.S. Supreme Court. The Court has ruled, in effect,that vendors selling only by catalogue cannot be required to collect local sales tax because these vendors do not have a sufficient "physical presence" within the jurisdiction where the sale occurs to justify such a requirement. One can argue that this applies to vendors who sell on the Internet as well. However,the Supreme Court has also said that Congress is free to decide whether, when and to what extent local and state governments may burden such interstate sales with the duty to collect local taxes. The Colorado Municipal League has urged municipal officials throughout the state to work with local business people to make sure that our congressional delegation understands that they should act to avoid perpetuating a tax policy that favors remote commerce businesses over local businesses. According to highly regarded economic research firms, sales over the Internet are expected to surpass $108 billion and comprise over six percent of all retail sales in the United States by 2003. The National Mail Order Association reports mail order sales to retail consumers of$185 million in 1998. Clearly, this is a significant fairness issue and one that results in lost revenue to the City of Fort Collins. Using data and reports available from various research firms over the Internet, City Finance Department staff have estimated the magnitude of revenue loss from e-commerce and catalog sales. In 1998,the total loss is about$750,000,with about two-thirds of the total from mail order catalog sales. By 2003,the loss of sales and use tax revenue will be over$6 million,with over 80%of this total from e-commerce. Beyond 2003,the number continues to grow dramatically. . RESOLUTION 2000-5 OF THE COUNCIL OF THE CITY OF FORT COLLINS ENDORSING FEDERAL LEGISLATION REQUIRING THE COLLECTION OF STATE AND LOCAL SALES AND USE TAXES ON REMOTE SALES WHEREAS, currently, neither catalog not Internet sales taxes are being collected on interstate sales when the vendor lacks physical presence in Colorado because United States Supreme Court decisions have precluded local governments from requiring such vendors to collect local taxes, absent enabling federal legislation, and Congress has not acted to remedy this limitation; and WHEREAS,local retailers are put at an unfair disadvantage by the retail operations of remote vendors with no obligation to collect and remit sales and use taxes; and WHEREAS, as a general matter remote vendors have not been willing to collect sales and use taxes voluntarily; and WHEREAS, the City is dependent upon local collection of sales and use taxes, which constitute more than 50%of the revenues supporting its general fund; and WHEREAS,it is estimated that by 2003, sales from the Internet alone will reach 6%of total retail spending and it is projected that such sales will continue to increase into the future; and • WHEREAS,in the absence of congressional action to provide for the collection of sales and use taxes by remote vendors, revenues received by state and local governments will experience a corresponding reduction, resulting in a shortage of funds for needed public services and infrastructure; and WHEREAS,although taxpayers are presently obligated to pay sales or use taxes on remote sales, regardless of whether the vendor is obligated to collect such taxes, it is difficult and inconvenient for local governments to collect such taxes without the cooperation of the vendor. NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the Council of the City of Fort Collins urges the Congress of the United States of America to enact legislation to require state and local sales and use taxes to be collected by all remote vendors and remitted to the appropriate jurisdictions. Section 2. That the City Manager is hereby directed to transmit a copy of this Resolution to all members of the Colorado congressional delegation,the Governor of the State of Colorado,and the Colorado Municipal League. • Passed and adopted at a regular meeting of the Council of the City of Fort Collins held this 4th day of January, A.D. 2000. Mayor ATTEST: City Clerk