HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 04/19/2011 - FIRST READING OF ORDINANCE NO. 055, 2011, AMENDING DATE: April 19, 2011 M
STAFF: Mike Freeman FORT
AI
First Reading of Ordinance No. 055,2011,Amending Section 25-71 and Section 25-74(b)of the City Code to Exempt
Manufacturing Equipment from the City Use Tax and Repealing Division 5, Article II, of Chapter 25 Regarding the
Manufacturing Equipment Use Tax Rebate.
EXECUTIVE SUMMARY
This Ordinance adds an exemption for manufacturing equipment to Section 25-74- Imposition of the use tax. This
exemption would be effective July 1, 2011. Manufacturing equipment will continue to be subject to sales tax. The
Manufacturing Equipment Use Tax Rebate Program will be discontinued, effective June 30, 2011.
BACKGROUND/ DISCUSSION
The City collects use tax on manufacturing equipment. The City has provided a manufacturing equipment use tax
rebate program since 1996,with the exception of 2002 due to economic conditions. The goal of the program was to
maintain the local economic base by providing modest tax relief to manufacturing concerns in Fort Collins.
In 2006, the City made a change to its use tax rebate program to provide a more consistent rebate and increase the
overall rebate for manufacturing equipment so as not to discourage private sector investment in equipment and
technology used in the manufacturing process. Prior to 2007 the rebate program required Council approval each year.
In 2007, the rebate program was added to the City Code as a permanent program. The following table provides an
overview of the program from 1996 to 2004 and 2005 through today.
Manufacturing Use Tax Program Details
1996 -2004(none given in 2002)
Cost of Equipment Rebate % Maximum Rebate
$0 -$5,000,000 2% 100,000
$5,000,001 -$15,000,000 1% 100,000
$15,000,001 -$50,000,000 0% 0
$50,000,001 and over 2% 2,200,000
maximum rebate 2,400,000
2005 -2009
Cost of Equipment Rebate % Maximum Rebate
$0-$5,000,000 1.5% 75,000
$5,000,001 -$15,000,000 1.0% 175,000
$15,000,001 -$50,000,000 1.0% 525,000
$50,000,001 and over 1.0% 1,625,000
maximum rebate 2,400,000
April 19, 2011 -2- ITEM 30
The following table provides an overview of the rebate history.
Impact of Elimination of Use Tax on Manufacturing Equipment(Manufacturing equipment as defined
in the rebate program only)
Amount of Manufacturing Use Tax Paid on
Year Purchase Subject to Use Tax Manufacturing Equipment Rebate Issued
2005 7,027,223 210,817 105,408
2006 4,729,511 141,885 70,943
2007 9,470,548 284,116 142,058
2008 8,938,693 268,161 132,702
2009 1,847,505 55,425 68,025
32,013,480 970,404 519,136
Average for past 5 years 6,402,696 192,081 103,827
In discussions leading up to the Keep Fort Collins Great election, City Council reviewed the manufacturing use tax
program and the rebate policy. Manufacturing equipment eligible for the use tax rebate program was exempted from
the 213 .85%tax increase. In August 2010, City Council directed the City Manager to review the program and provide
a recommendation to the City Council. Staff has conducted this evaluation and, based on the following factors,
recommends eliminating the use tax rebate program and instead exempting manufacturing equipment from all use
tax:
1. The average lost revenue is minimal—approximately$192K per year
2. The perceived and real marketing disadvantage to the City of Fort Collins is one of the few regional entities
that taxes manufacturing equipment
3. The desire of the business community to discontinue this tax.
The intent of the ordinance is to create an exemption equivalent to the industries and equipment currently eligible
under the rebate program. Therefore, the definitions for Manufacturing and Manufacturing equipment are based on
the attached Guide to the Manufacturing Equipment Use Tax Rebate Program (Attachment 1). The definition of
manufacturing outlines that one condition for qualifying is the physical form of materials are changed, converted, or
transformed into a different state or form from which they previously existed.
A second condition to qualifying for the exemption is the business must be a manufacturing company as defined by
the 2007 North American Industrial Classification System (NAICS). The NAICS is the standard used by Federal
statistical agencies in classifying business establishments by industry. The industries are broken into sectors. Sectors
31-33 are for manufacturing companies. The definition excludes the types of industries currently not eligible under
the rebate program. Examples include publishers, printers, ready-mix concrete and asphalt production, sign and
advertising display fabrication, and engraving.
FINANCIAL / ECONOMIC IMPACTS
The estimated revenue loss is approximately$192K per year.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on First Reading.
April 19, 2011 -3- ITEM 30
BOARD / COMMISSION RECOMMENDATION
At its February 28, 2011 meeting, the Council Finance Committee approved the exemption of manufacturing
equipment from all use tax .
ATTACHMENTS
1. Guide to the Manufacturing Equipment Use Tax Rebate Program.
2. Chart for Taxability of Manufacturing Equipment by Other Colorado Municipalities.
3. Council Finance Committee minutes, February 28, 2011.
4. Powerpoint presentation
ATTACHMENT 1
Financial Services
F6rt
City of Sales Tax Division
`r 215 North Mason Street,2ntl Floor
Collins F O Box 680
Fort Collins,CO 80522
O 970.221.6780
970.221.6782-fax
fcgov.com/sa/estax
A GUIDE TO THE MANUFACTURING EQUIPMENT USE TAX REBATE PROGRAM
Purchasers of qualifying manufacturing equipment can apply directly to the City of Fort Collins Finance Department for a
refund of a portion of the 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.
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.
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 merely useful or incidental to the operation.
• Any items 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.
• Incidental parts and accessories for manufacturing equipment.
Examples of items that do not qualify for the rebate are(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.
• Screws and washers.
• 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% $2,400,000
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?
Companies must do the following to apply for the rebate:
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 o
3. Companies are not required to submit copies of the invoices for which the rebate is requested. However, in the
event there are questions regarding the eligibility of equipment, supporting documentation, including invoice copies,
will be required.
For equipment purchased in 2009, rebate applications and supporting documentation are due no later than December 31,
2010. 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
Sales Tax Division
Attn: Peggy L. Streeter
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?
For specific questions regarding the Manufacturing Use Tax Rebate Program, call Peggy L. Streeter at(970)221-6527.
For general questions regarding sales and use tax, please call the Sales Tax Office at(970) 221-6780.
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ATTACHMENT
Taxability of Manufacturing Equipment by Other Colorado Municipalities
Municipality Sales Tax Use Tax
Boulder taxable taxable
Broomfield taxable taxable
Colorado Springs # #
Fort Collins-current taxable
Fort Collins-proposed taxable non-taxable
Greeley @ @
Longmont '
Loveland taxable non-taxable
Thornton taxable taxable
Westminster taxable taxable
Windsor taxable I non-taxable
#Machinery or equipment for manufacturing is subject to an alternative rate of tax based on
total cumulative calendar year purchases. The rate incrementally decreases as the
cumulative purchases exceed$5M and is eliminated on purchases in excess of$20M.
—Use tax is due at the time of purchase;however a portion of the use tax paid may be
eligible for the manufacturing equipment use tax rebate.
@ Greeley has a Business Development Incentive Plan in their Code which allows the City
to potentially waive,in whole or in part,the sales and use tax for new or expanding
businesses for the period of construction or expansion only.
'Exemption only applies to a new business and only for the first two years of operation.
ATTACHMENT 3"
City of
Council Audit & Finance Committee Fort.Collins
Minutes �`..�'�•.
Feburary 28, 2011
----Hcaun-ptan Tor sustainability '
• Local action plan for GHG Reduction
\Key
Action Plan
s Energy Policy
ic Action Plan
Dsions for the Pilot program
Wheth to account for Renewable Energy Credits (REC) at 3x value
The 3x val is supported by State of Colorado law and supports a Program size up to 14
MW. Progra ized at 14 MW contributes 4.25 percentage points toward Re able Portfolio
Standards (RPS
The 1x value only su orts a Program size of 5.35 MW. Program size t 5.35 MW contributes
0.6 percentage points and RPS.
Whether to accelerate Ifillment of Renewable Po lio Standards (RPS)
mandates/objectives
Program size of up to 14 MW wit 3x REC treatment al s Fort Collins to exceed its current
6% RPS level entirely with bundle ECs.
Program size of 10 MW with 3x REC tre men ows Fort Collins to meet its current 6% RPS
level entirely with bundled RECs.
Kelly Ohlson requested adding data on a ' izen'. alysis in addition to the current economic
analysis.
Darin Atteberry said the new Ma r and Council will defi 'tely have a focus on Utility, both
water and energy, and he the a stated that the summer ti a frame will be likely to present
this data to the newly elec d City Council.
Ben Manvel supports s topic but stated that there has been no ention of conservation in
regard to this disc ion. Fort Collins is challenged already by the t that our electric rates
are so low, so s nding for clean energy is difficult.
,Council Fi nce Committee members Kelly Ohlson, Ben Manvel, and Doug utchinson are all
in afire ent that this looks like a good fit with the City, however some of data needs to
be r ined or changed based on some feedback from this meeting. Once that complete,
t topic can be presented to the entire City Council, probably in June or July.
JManufacturer's Use Tax
Discussion of the existing Manufacturing Use Tax Program and the Council Finance
Committee's direction on the proposal to eliminate the use tax on manufacturing equipment.
Mike Freeman stated that currently, the amount of revenue the City obtains from this tax is
minimal, and even then, some of that amount is rebated back to manufacturers. He also
advised the fact that this tax exists causes a perceived negative among new/prospective
rt� Collins
business looking at Fort Collins. Additionally, it requires a large amount of administrative
time for a fairly small return.
Darin Atteberry clarified that this would only eliminate the tax on manufacturing equipment
but not the entire Use Tax. Currently no other municipality charges a Manufacturer's Use
Tax. The Committee agrees that this topic be presented to City Council for a vote.
Kelly Ohlson also suggested that if this is done, a press release or announcement could be
issued to let people know that the City eliminated a tax.
ATTACHMENT 4
Manufacturing Equipment Use Tax
Rebate Program
• Manufacturing equipment is subject to City use tax .
• A manufacturing equipment use tax rebate program
was established in 1996 .
• The goal of the program was to maintain the local
economic base by providing modest tax relief to
manufacturing concerns in Fort Collins .
• Manufacturing equipment eligible for the use tax
rebate program was exempted from the 2B . 85 %
tax increase .
Fort Collins
1 ,1-
Manufacturers Use Tax Rebate
Program ( cont . )
• In August 2010 , City Council directed the City
Manager to review the program and provide a
recommendation to the City Council .
• Staff have conducted this evaluation and
recommends eliminating the use tax rebate
program and instead exempting manufacturing
equipment from all use tax
• Manufacturing equipment would continue to be
subject to sales tax .
Fort Collins
2 l—
1
Factors Considered
• The average lost revenue is minimal —
approximately $ 192K per year
• The perceived and real marketing disadvantage to
the City as Fort Collins is one of the few regional
entities that taxes manufacturing equipment
• The desire of the business community to
discontinue this tax
of
3 Fortes is
Impact of Elimination of Use Tax on
Manufacturing Equipment*
Amount of Use Tax Paid
Manufaturing on
Purchases Subject Manufacturing Rebate
Year to Use Tax Equipment Issued
2005 7,027 ,223 210 , 817 105,408
2006 4,729,511 141 , 885 70,943
2007 9,4701548 284 , 116 142,058
2008 8,938 ,693 268 , 161 132, 702
2009 1 , 847, 505 55 ,425 68,025
32,0131480 960 ,404 51 % 136
5 years 15 years / 5 years
Average for past 5 years 6,402, 696 192,081 103, 827
*Manufacturing as Defined in the rebate program only. F of
Collins
2
Taxability of Manufacturing
Equipment by Other Colorado
Municipalities
Municipality Sales Tax Use Tax
Boulder taxable taxable
Broomfield taxable taxable
Colorado Springs alternate rate alternate rate
Fort Collins - current taxable taxable - rebate program
Fort Collins - proposed taxable non-taxable
Greeley taxable - may be waived taxable - may be waived
Longmont taxable unless new business taxable unless new business
Loveland taxable non-taxable
Thornton taxable taxable
Westminster taxable taxable
Windsor taxable non�taxab�le of
(t15
u�r' �
5
Eligibility for Exemption
• The physical form of materials are changed ,
converted , or transformed into a different state or
form from which they previously existed .
• The business must be a manufacturing company as
defined by the 2007 North American Industrial
Classification System ( NAICS ) .
• Specifically excludes industries currently excluded
from rebate program .
of
6 Fort'� Wt�
3
ORDINANCE NO . 0559 2011
OF THE COUNCIL OF THE CITY OF FORT COLLINS
AMENDING SECTION 25 -71 AND SECTION 25 -74(b) OF THE CODE OF THE
CITY OF FORT COLLINS TO EXEMPT MANUFACTURING EQUIPMENT
FROM THE CITY USE TAX AND REPEALING DIVISION 5 , ARTICLE II, OF
CHAPTER 25 REGARDING THE MANUFACTURING EQUIPMENT USE TAX REBATE
WHEREAS , Section 25 -74(a) of the City Code imposes a use tax on the full purchase price
of tangible personal property brought into and used in the City; and
WHEREAS , Section 25 -74(b) of the City Code exempts certain items and transactions from
the use tax; and
WHEREAS , while manufacturing equipment brought into the City is currently subject to
the use tax, qualifying manufacturers may seek a rebate through the City ' s manufacturing equipment
use tax rebate program; and
WHEREAS , continuation of the use tax on manufacturing equipment, even with the rebate
program, may present a real, or perceived, disadvantage to the City in terms of its ability to attract
and retain manufacturing businesses; and
WHEREAS , for this reason, City staff recommends that manufacturing equipment be exempt
from the use tax; and
WHEREAS , on February 28 , 2011 , the Council Finance Committee recommended approval
of the proposed exemption and directed that the proposal be presented to the City Council for its
consideration; and
WHEREAS , the elimination of the use tax on manufacturing equipment that currently
qualifies for participation in the rebate program will not cause a significant reduction in the City ' s
tax revenue ; and
WHEREAS , with the elimination of the use tax on manufacturing equipment, the
manufacturing equipment rebate program is no longer necessary.
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT
COLLINS as follows :
Section 1 . That Division 5 , Article II, of Chapter 25 of the Code of the City of Fort
Collins is hereby repealed effective June 30, 2011 .
Section 2 . That Section 25 -71 of the Code of the City of Fort Collins is hereby amended
by the addition of a new definition "Manufacturing" which reads in its entirety as follows :
Manufacturing shall mean a process in which the physical form of materials
is changed, converted, or transformed into a different state or form and where such
process is used by a business that is included in the industrial sectors identified in the
2007 North American Industrial Classification System (NAICS) as Sectors 31 -33 .
Manufacturing does not include publishing, metal-plating, metal heat treating or
polishing, milk bottling and pasteurizing, lapidary, printing, engraving, the making
of printing plates, fabrication of signs and advertising displays, wood preservers,
asphalt production, or ready mix concrete production.
Section 3 . That Section 25-71 of the Code of the City of Fort Collins is hereby amended
by the addition of a new definition "Manufacturing equipment " which reads in its entirety as
follows :
Manufacturing equipment shall mean tangible personal property that is
necessary, essential, and used directly in the manufacturing of other tangible
personal property to be offered for sale. Manufacturing equipment does not include :
items used in any activity other than the actual manufacturing process or items
merely useful or incidental to a manufacturing operation; items used in
administrative functions ; items used in the weighing, testing, or packaging of a
manufactured product; hand tools ; incidental parts and accessories for manufacturing
equipment; items used for repair or maintenance; machinery and equipment used for
transportation within the manufacturing facility (i. e . , forklift, conveyors, and
overhead cranes) ; items used for research and development; used manufacturing
equipment purchased when a business is acquired through sale or transfer of title or
possession; or leased or rented machinery or equipment.
Section 4. That Section 25 -74(b) of the Code of the City of Fort Collins is hereby
amended by adding a new subsection ( 15) which reads in its entirety as follows :
Sec. 25-74. Imposition of the use tax.
11 .
(b) Transactions and items exempt from the use tax. The use, storage,
distribution or consumption in the City of the following is hereby exempted from the
use tax :
( 15) Manufacturing equipment as defined in this Article.
Section 4 . That the amendment to Section 25 -74(b) of the Code of the City of Fort
Collins creating an exemption for manufacturing equipment is effective on July 1 , 2011 .
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Introduced, considered favorably on first reading, and ordered published this 19th day of
April, A.D . 2011 , and to be presented for final passage on the 3rd day of May, A.D . 2011 .
Mayor
ATTEST :
City Clerk
Passed and adopted on final reading on the 3rd day of May, A . D . 2011 .
Mayor
ATTEST :
City Clerk
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