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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 10/03/2006 - ITEMS RELATING TO THE MANUFACTURING EQUIPMENT USE ITEM NUMBER: 17 A-B AGENDA ITEM SUMMARY DATE: October 3, 2006 FORT COLLINS CITY COUNCIL STAFF: Chuck Seest SUBJECT Items Relating to the Manufacturing Equipment Use Tax Rebate Program. RECOMMENDATION Staff recommends adoption of the Ordinances on First Reading. FINANCIAL IMPACT Based on prior years'experience,the 2005 Manufacturers Use Tax Rebate Program(the"Program") could cost the City approximately $500,000. Costs can vary greatly depending on the purchasing activity of local manufacturers. The Use Tax Carryover Reserve is the designated source for funding the Program. The City Council Finance and Audit Committee met on September 15 to review public input received from the business community about the Program. The changes that were recommended are outlined below in the sections on Background and Staff Recommendations. The Finance and Audit Committee (the "Committee") also reviewed options for funding the Program. There are basically two options: (a) fiord when and if there is a Use Tax surplus; or(b) fund as an ongoing program in the General Fund. The Committee's recommendation was that the Program be considered and funded as an ongoing program and not dependent on whether or not surplus Use Tax revenues are available. The Committee indicated the City should send the message that it is open to business, especially manufacturers, and will be a desirable community in which they can locate and grow. Because of this commitment, the City's own budgetary interests may incur short-term setbacks; however, the City will reap long-term benefits for all stakeholders within the community. EXECUTIVE SUMMARY A. First Reading of Ordinance No. 151, 2006, Continuing and Modifying a Manufacturing Equipment Use Tax Rebate Program for Fort Collins Manufacturers. B. First Reading of Ordinance No. 152, 2006, Appropriating Prior Year Use Tax Carryover Reserves for the Manufacturing Equipment Use Tax Rebate Program. October 3, 2006 -2- Item No. 17 A-B The Manufacturing Equipment Use Tax Rebate Program was intended to encourage reinvestment by local manufacturing firms in new manufacturing equipment. The goal of the Program is to maintain the local economic base by providing modest tax relief to manufacturing concerns located in Fort Collins. Investment in manufacturing equipment used to be made every three or four years, but the current standard is every twelve to eighteen months. The Program remains an economic incentive for retaining local manufacturers. Modifications were last made in 1999 to reflect requests made by the manufacturing community. This year, staff received input from local manufacturers and reviewed the current Program and proposes this Ordinance to modify the Program to better serve the manufacturing business community. BACKGROUND The Program was initiated in 1996 and was intended to encourage the reinvestment by local manufacturing firms in new manufacturing equipment. This type of continual reinvestment could result in a relative windfall for the community since there is little added cost or impact associated with existing firms. The Program results are: Number of Companies Year Applied Amount Rebated 1996 10 373,600 1997 17 439,917 1998 10 385,845 1999 13 329,135 2000 14 332,780 2001 11 440,905 2002 Program not active. 2003 6 172,093 2004 11 167,275 Total 92 $ 2,641,550 Industry Feedback Members of the manufacturing business community were asked to provide feedback on the Program. The feedback is outlined below: • Include research and development investment in the Program. • Simplify the tiered rebate schedule. • Allow companies to apply retroactively for the Program. • Include items discovered during the course of a sales and use tax audit as eligible for the Program. • Provide more advertising for the Program. • Include used manufacturing equipment purchased when a business is acquired through a sale or transfer of title as eligible for the Program. October 3, 2006 -3- Item No. 17 A-B The Fort Collins Area Chamber of Commerce hosted a meeting with additional members of the business community to gather more feedback on the Program. The meeting participants made the following suggestions: • Increased advertisement of the Program would be beneficial. • The simplified rebate schedule was approved. The participants suggested a rebate of 1%for all categories except the investment range of$0 to $5,000,000. • It would be beneficial to enhance the Program to include other investments such as research and development equipment. Staff Recommendations After staff review and public input, the following Program modifications are recommended: 1. Change the tiered rebate schedule by simplifying the Use Tax Rebate Percentage and modifying the tiered rebate schedule to reduce confusion. These changes are designed to allow the companies to more easily calculate their potential rebate. 2. Allow for a more uniform progression of the Use Tax Rebate Percentage through the elimination of gaps in the tiered rebate schedule. 3. Remove the current rebate cap if the annual growth in the company's full time equivalent employees in Fort Collins exceeded 10%. 4. Plan to increase participation in the Program through advertisement targeting the manufacturing business community: a. Partner with local business organizations to advertise the Program. b Include the Program guide and application on the City's website. The proposed modifications are included in Exhibit"A". In addition,in 2007, staff will bring proposed amendments to the City Code to Council to make this an ongoing program, consistent with Finance Committee recommendations. SUMMARY The Program is an important economic incentive for retaining and supporting local manufacturers. The manufacturing sector remains a very important element of our tax base. The recommended changes will enhance the economic incentive for local companies to invest in manufacturing equipment. Staff will continue to monitor the Program and research the potential impact of making research and development equipment eligible for the Program. Council Finance Committee Meeting Minutes Excerpt 9/15/06 3. Discussion on Funding for Manufacturers Use Tax Rebate Program. What level of importance does the City place on this program? • Jeremy reported that use tax totals are down, which could result in the City not having the funding (from a Use Tax surplus) for this program after 2007. If surplus Use Tax revenues are not available to fund the program, does this committee want to add it into the budget? Currently, $250,000 is the estimated amount needed for the program in 2007. • Kurt asked if the slow down could be a one year anomaly. Diane stated the slow down would probably continue for some time. Kurt then requested information showing a best and worst case scenario for future construction and growth planni ng. gr P • The committee agreed that this program is important to the City, and that the option of adding it into the budget in future years should be presented to the entire Council as part of the amended budget. 4. Preliminary Overview of the September 26th Budget Work Session. • Darin reviewed what his recommended budget cuts will be at the Council Meeting on September 26, 2006. 5. Other Business Next Meeting time and date: September 29, 2006 Agenda items for meeting: Bondi & Discussion on of 2005 Audit. ORDINANCE NO. 151, 2006 OF THE COUNCIL OF THE CITY OF FORT COLLINS CONTINUING AND MODIFYING A MANUFACTURING EQUIPMENT USE TAX REBATE PROGRAM FOR FORT COLLINS MANUFACTURERS WHEREAS, by the passage of Ordinance No. 029, 1996, the City Council authorized a Temporary Manufacturing Equipment Use Tax Rebate Program (the "Rebate Program"); and WHEREAS, the Rebate Program was subsequently renewed for each succeeding calendar year through 2001; and WHEREAS, the Rebate Program was not in effect for the year 2002, so that there was no 2003 rebate of taxes received by the City in 2002; and WHEREAS, the Rebate Program was re-authorized for calendar years 2003 and 2004; and WHEREAS, it is the intent of the City Council to modify the Rebate Program for taxes received by the City in 2005 in order to incorporate administrative and program scope changes that have been recommended by City staff, and to continue said program as described in Exhibit "A", attached hereto and incorporated herein by this reference; and WHEREAS, Council seeks to continue the Rebate Program as an ongoing program as a means of encouraging business, and particularly manufacturing businesses, within the City. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City of Fort Collins Manufacturing Equipment Use Tax Rebate Program, as described and previously approved by the Council by Ordinance No. 029, 1996, and as modified by the Council by Ordinance No. 030, 1999, is in the best interests of the City. Section 2. That the Council hereby approves the Rebate Program as shown on Exhibit "A" for taxes paid in calendar year 2005 (for rebates to be paid in 2006). Section 3. That the City Manager shall bring before Council in 2007 an amendment to the Code of the City of Fort Collins codifying the Rebate Program. Introduced, considered favorably on first reading, and ordered published this 3rd day of October, A.D. 2006, and to be presented for final passage on the 17th day of October, A.D. 2006. Mayor ATTEST: City Clerk Passed and adopted on final reading on the 17th day of October, A.D. 2006. Mayor ATTEST: City Clerk EXHIBIT"A" A GUIDE TO THE MANUFACTURING EQUIPMENT USE TAX REBATE PROGRAM City of Fort Collins Purchasers ofqualifying manufacturing equipment can apply directly to the City of Fort Collins Finance Department for a refund of use tax paid to the City. The 3% use tax must have been paid in full to the City of Fort Collins prior to the request for the refund. The taxpayer will be responsible for providing proof that the use tax was paid. Sales taxes paid directly to vendors are not eligible for the rebate. Sales or use taxes paid to another taxing jurisdiction for purchases of manufacturing equipment are not eligible for the rebate. Companies licensed with the City of Fort Collins and classified as "manufacturers" under the Standard Industrial Code (SIC) will be notified of the rebate program. This program is temporary and may be terminated at anytime by the City Council. WHO QUALIFIES? Manufacturers, who in an industrial setting, produce a new product, article, substance or commodity that is different from and has a distinctive name, character or use from the raw or prepared materials used to manufacture the product. WHO DOES NOT QUALIFY? Companies that do not directly manufacture new products will not qualify for the rebate program. Examples of such companies include: publishers, ready-mix concrete producers, loggers, mining operations,farmers, construction contractors and wood preservers. Additionally, the following processing is not considered to be manufacturing for the purposes of this program: electroplating, plating, metal heat treating or polishing, lapidary work, fabrication of signs and advertising displays, milk bottling and pasteurizing, typesetting, engraving, plate printing, preparing electrotyping and stereotype plates. Manufacturing shall not include product research, development and testing. ADDITIONAL QUALIFICATIONS: Only purchases of manufacturing machinery to be used in the City of Fort Collins directly and exclusively in the manufacture of tangible personal property, for sale or profit, are eligible for the rebate. The firm applying for the rebate must certify compliance with all Federal, State and local laws and regulations for the manufacturing facility located in Fort Collins. Firms must be current with all payments to the City of Fort Collins and in compliance with any contractual agreements with the City. WHAT QUALIFIES AS MANUFACTURING EQUIPMENT? Machinery and equipment that qualifies for the manufacturing use tax rebate must meet all of the following criteria: • Be tangible personal property when purchased. • Be necessary, essential, and used directly in the manufacturing of tangible personal property to be sold. 1 WHAT DOES NOT QUALIFY? Tangible personal property will not qualify for the manufacturing rebate if it meets these conditions: • Taxable items used in any activity other than the actual manufacturing process; • Items that are merely useful or incidental to the operation. • Any items that are discovered during the course of a sales and use tax audit that may have been eligible for the rebate at the time of purchase, are not eligible for the rebate. Examples of items that do not qualify for the rebate(not all inclusive): • Machinery and equipment used in intraplant transportation (i.e. forklift, conveyors, and overhead cranes). • Machinery and equipment used to repair tangible personal property belonging to the taxpayer's customer. • Repair labor. • Leased or rented machinery. • Improvements to real property. • Special foundations needed for machinery. • Electrical wiring, electrical switches or plumbing that is incorporated into real property. • Office equipment and supplies. • Climate control equipment. • Research and development equipment. • Equipment or supplies used in sales or distribution activities. • Equipment used to maintain equipment and other manufacturing support items. • Hand tools. • Used manufacturing equipment purchased when a business is acquired through sale or transfer of title or possession. HOW DOES THE REBATE WORK? The following tiered rebate schedule will be used to determine the amount of rebate to be granted: Cost of Manufacturing Use Tax Rate Use Tax Rebate Maximum Equipment Paid Percentage Cumulative Rebate $0 to $5,000,000 3.00% 1.50% $75,000 $5,000,001 to $15,000,000 3.00% 1.00% $175,000 $15,000,001 to $50,000,000 3.00% 1.00% $525,000 $50,000,001 and over 3.00% 1.00% $2,400,0010 Total Maximum Rebate 2 400 000 The maximum rebate given to any one company for purchases of manufacturing equipment will be$2,400,000. 2 HOW DOES A COMPANY APPLY FOR THE REBATE? The City's Finance Department will notify companies who are listed as "manufacturer's" under the SIC classification. Once notified, companies must do the following: 1. Complete and submit a Manufacturing Equipment Use Tax Rebate Application. 2. Submit a listing of manufacturing equipment purchased that includes the following information: a. Invoice number b. Invoice date c. Vendor name d. Description of machinery purchased e. Intended use of the machinery f. Date use tax was paid to the City of Fort Collins 3. Companies are not required to submit copies of the invoices for which the rebate is requested. However, in the event that there are questions regarding the eligibility of equipment, supporting documentation, including invoice copies, will be required. For equipment purchased in 2005, rebate applications and supporting documentation are due no later than December 31, 2006. The right of any company to apply for a rebate under this program is not assignable. An application for rebate must be made by the company that paid the tax to the City of Fort Collins. Applications may be subject to audit as provided in Chapter 25 of the Code of the City of Fort Collins. WHERE DO I SEND THE REBATE APPLICATION? Send rebate applications to: City of Fort Collins Finance Department Attn: Jeremy Reese P.O. Box 580 Fort Collins, CO 80522-0580 WHAT IF A REBATE IS DENIED? If a rebate is reduced or denied,the applicant may petition the Financial Officer for an administrative hearing. Appeals must be submitted within twenty (20) days after the City's decision. The Financial Officer will notify the applicant of the time and location of the hearing. All hearings will be held in Fort Collins. WHERE DO I CALL WITH QUESTIONS? Call Jeremy Reese at(970) 221-6626 with specific questions regarding the Temporary Manufacturing Use Tax Rebate Program. For general questions regarding sales and use tax, please call the Sales Tax Office at(970)221-6780. 3 ORDINANCE NO. 152, 2006 OF THE COUNCIL OF THE CITY OF FORT COLLINS APPROPRIATING PRIOR YEAR USE TAX CARRYOVER RESERVES FOR THE MANUFACTURING EQUIPMENT USE TAX REBATE PROGRAM WHEREAS, in March 1996, the City Council originally approved a Temporary Manufacturing Equipment Use Tax Rebate Program (the "Rebate Program") for use tax paid on manufacturing equipment to encourage the reinvestment by local manufacturing firms in new manufacturing equipment; and WHEREAS,the City Council has,this same date, adopted Ordinance No. 151,2006,which modifies and extends the Rebate Program for tax year 2005; and WHEREAS, the goal of this program is to support the local economic base by providing modest tax relief to manufacturers located in Fort Collins; and WHEREAS, staff estimates, based on the prior years' experience, that the 2005 Rebate Program will cost approximately$500,000; and WHEREAS,the money to rebate these funds is available in the Sales and Use Tax Fund Use Tax Carryover Reserve; and WHEREAS,Article V, Section 9,of the Charter of the City of Fort Collins permits the City Council to appropriate by ordinance at any time during the fiscal year such funds for expenditure as may be available from reserves accumulated in prior years, notwithstanding that such reserves were not previously appropriated. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS that there is hereby appropriated for expenditure from the Sales and Use Tax Fund Use Tax Carryover Reserve,the sum of FIVE HUNDRED THOUSAND DOLLARS($500,000)for the Manufacturing Equipment Use Tax Rebate Program. Introduced, considered favorably on first reading, and ordered published this 3rd day of October, A.D. 2006, and to be presented for final passage on the 17th day of October, A.D. 2006. Mayor ATTEST: City Clerk Passed and adopted on final reading on the 17th day of October, A.D. 2006. Mayor ATTEST: City Clerk