HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 09/01/2015 - SECOND READING OF ORDINANCE NO. 097, 2015, AMENDINAgenda Item 7
Item # 7 Page 1
AGENDA ITEM SUMMARY September 1, 2015
City Council
STAFF
Peggy Streeter, Senior Sales Tax Auditor
Mike Beckstead, Chief Financial Officer
SUBJECT
Second Reading of Ordinance No. 097, 2015, Amending Provisions in Articles III and IV of City Code Chapter
25 Concerning the Exemption of Charitable Organizations from the City's Sales and Use Tax and Lodging Tax.
EXECUTIVE SUMMARY
This Ordinance, unanimously adopted on First Reading on August 18, 2015, amends the definition of
“charitable organization” as used in the City Code’s sales and use tax and lodging tax provisions in order to
mitigate the impact of current Colorado case law on a substantial number of the City’s current tax exempt
charitable organizations.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on Second Reading.
ATTACHMENTS
1. First Reading Agenda Item Summary, August 18, 2015 (w/o attachments) (PDF)
2. Ordinance No. 097, 2015 (PDF)
Agenda Item 13
Item # 13 Page 1
AGENDA ITEM SUMMARY August 18, 2015
City Council
STAFF
Peggy Streeter, Senior Sales Tax Auditor
Mike Beckstead, Chief Financial Officer
SUBJECT
First Reading of Ordinance No. 097, 2015, Amending Provisions in Articles III and IV of City Code Chapter 25
Concerning the Exemption of Charitable Organizations from the City's Sales and Use Tax and Lodging Tax.
EXECUTIVE SUMMARY
The purpose of this item is amend the definition of “charitable organization” as used in the City Code’s sales
and use tax and lodging tax provisions in order to mitigate the impact of current Colorado case law on a
substantial number of the City’s current tax exempt charitable organizations. Colorado case law was recently
discovered to have a substantial impact on staff’s interpretation of the charitable organization definition. Code
changes related to the City’s sales and use taxes were discussed with the Council Finance Committee on June
23, 2015, and the Committee concurred with the recommendation and supported staff bringing an ordinance to
Council.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on First Reading.
BACKGROUND / DISCUSSION
Chapter 25 of the City Code allows organizations that meet the definition of a “charitable organization” to
purchase tangible personal property for use in the organizations’ activities free from the City’s sales and use
taxes and lodging tax.
CURRENT CITY CODE LANGUAGE
General Information
City Code Section 25-71 defines a “charitable organization” as:
“Charitable organization shall mean any entity which: (i) has been certified as a not-for-profit
organization under Section 501(c)(3) of the Internal Revenue Code; and (ii) is a religious or charitable
organization. As used in this definition, a "charitable organization" is an organization which exclusively,
and in a manner consistent with existing laws and for the benefit of an indefinite number of persons,
freely and voluntarily ministers to the physical, mental or spiritual needs of persons, and which thereby
lessens the burdens of government.”
The City currently has 295 charitable organizations that hold an “exempt organization license” issued by the
City. In general terms, the Code allows these organizations to make purchases free of sales and use tax but
does not exempt them from collecting sales tax on transactions. For example, if a charitable organization, as
defined by City Code, purchases materials for use in its activities, it does not pay sales tax. However, if the
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organization sells tangible goods, for example in a book sale, it is generally still required to collect and remit
the tax to the City. This is an important distinction.
The process to become an exempt organization with the City is as follows:
Application submitted with following documents:
o List of officers
o Articles of Incorporation
o 501(c)3 letter
o Bylaws
o Colorado Certificate of Incorporation
o Copy of State exemption certificate
o Financial statements
Application reviewed by staff for completeness and determines if organization meets definition of
“charitable organization”
Application approved or denied (3 year renewable period). If denied, organization can request a hearing
with the Financial Officer or designee
The City’s lodging tax provisions, in Article IV of City Code Chapter 25, do not define “charitable organization.”
Instead, Code Section 25-243(2) generally exempts “religious, charitable and eleemosynary corporations,”
without definition, from payment of the lodging tax.
PROPOSED CODE AMENDMENT:
This Ordinance will amend City Code to exempt any entity from the City’s sales and use taxes and lodging tax,
whether religious or secular, that has been granted a sales tax exemption by the State of Colorado based on
C.R.S. Section 39-26-718(1)(a), which reads:
“(1) The following shall be exempt from taxation under the provisions of part 1 of this article:
(a) All sales made to charitable organizations, in the conduct of their regular charitable functions and activities;
except that any veterans' organization that qualifies as a charitable organization pursuant to section 39-26-102
(2.5) shall be exempt from taxation under the provisions of part 1 of this article only for the purpose of
sponsoring a special event, meeting, or other function in the state of Colorado that is not part of the
organization's regular activities in the state;”
The State of Colorado defines “charitable organization” in C.R.S. Section 39-26-102(2.5) as:
"Charitable organization" means any entity organized and operated exclusively for religious, charitable,
scientific, testing for public safety, literary, or educational purposes, or to foster national or international
amateur sports competition (but only if no part of its activities involve the provision of athletic facilities
or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of
which inures to the benefit of any private shareholder or individual, no substantial part of the activities
of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does
not participate in, or intervene in (including the publishing or distributing of statements), any political
campaign on behalf of any candidate for public office, or any veterans' organization registered under
section 501 (c) (19) of the "Internal Revenue Code of 1986", as amended, for the purpose of
sponsoring a special event, meeting, or other function in the state of Colorado so long as such event,
meeting, or function is not part of such organization's regular activities in the state.”
CITY FINANCIAL IMPACTS
There will be minimal revenue loss; however, the amount is difficult to quantify. In many cases the City is not
capturing the revenue because vendors accept the State’s exemption certificate for City sales and lodging
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taxes when purchases are made regardless of whether the organization has an exempt organization license
from the City. Based on organizations who have been denied exemption based on the current interpretation of
the definition, we would estimate revenue loss to be approximately $30K per year.
BOARD / COMMISSION RECOMMENDATION
The proposal to amend the definition was presented to the Council Finance Committee (CFC) on June 23,
2015. Three options were presented and CFC supported the option presented in this Ordinance as related to
sales and use taxes. The lodging tax was not discussed with the CFC, but staff is recommending that the
same definition for “charitable organization” be used for lodging tax to be consistent with the City’s sales and
use taxes.
ATTACHMENTS
1. Council Finance Committee minutes, June 23, 2015 (PDF)
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ORDINANCE NO. 097, 2015
OF THE COUNCIL OF THE CITY OF FORT COLLINS
AMENDING PROVISIONS IN ARTICLES III AND IV OF
CITY CODE CHAPTER 25 CONCERNING THE EXEMPTION OF CHARITABLE
ORGANIZATIONS FROM THE CITY’S SALES AND USE TAXES AND LODGING TAX
WHEREAS, under City Code Sections 25-73(c)(6), 25-74(b)(9) and 25-94(a), a
“charitable organization,” as this term is defined in Code Section 25-71, that obtains a “exempt
organization license” from the City is exempt from the City’s sales and uses taxes for the
organization’s purchases and its use in the City of tangible personal property and taxable
services; and
WHEREAS, Code Section 25-71 currently defines a “charitable organization” as any
religious or secular entity that meets all of the following requirements: (i) it is a non-profit
organization; (ii) it is recognized under the Internal Revenue Code as a Section 501(c)(3)
organization; and (iii) it is an organization that “exclusively, and in a manner consistent with
existing laws and for the benefit of an indefinite number of persons, freely and voluntarily
ministers to the physical, mental or spiritual needs of persons, and which thereby lessens the
burdens of government;” and
WHEREAS, the City’s past interpretation and application of this definition has resulted
in 295 organizations currently having a valid exempt organization license issued by the City,
which license must be renewed by the organization every three years; and
WHEREAS, in a 2009 decision the Colorado Supreme Court considered this same
definition of “charitable organization” used by the City of Pueblo in its sales and use tax code
and interpreted and applied it much more narrowly than Fort Collins has previously done; and
WHEREAS, under the Supreme Court’s interpretation and application of the City’s
current definition, a significant number of the 295 organizations that have a exempt organization
license from the City would no longer qualify for this license and, consequently, would no longer
be exempt from payment of the City’s sales and use taxes; and
WHEREAS, in light of the Supreme Court’s interpretation, City staff is recommending
that the City’s definition of “charitable organization” be amended to insure that the organizations
in the City that currently have an exempt organization license continue to qualify for it and that
the new definition allow for the ease of the City’s administration in its issuance of exempt
organization licenses; and
WHEREAS, to accomplish this, City staff is recommending that the City’s definition be
amended to be consistent with the State of Colorado’s definition for “charitable organization” as
used in its sales and use tax statutes, and to do this by defining “charitable organizations” as any
entity that has and maintains a current sales tax exemption certificate from the Colorado
Department of Revenue; and
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WHEREAS, at its June 13, 2015, meeting, the Council Finance Committee considered
these recommendations, as well as other options presented to it by City staff, and the Committee
directed staff to bring forward to City Council an ordinance that would amend the City’s
definition as recommended by staff; and
WHEREAS, staff is also now recommending that this new definition for “charitable
organization” be included and used for those “religious, charitable and eleemosynary
corporations” now exempt from the City’s lodging tax in City Code Section 25-243(2), so that
the charitable organizations exempt from the City’s lodging tax are consistent with those exempt
from the City’s sales and use taxes; and
WHEREAS, the Council finds that it is in the best interest of the City and its citizens that
the City amend its definition of “charitable organization” for sales and use tax and lodging tax
purposes to be consistent with the definition used for this term by the State of Colorado in its
sales and use tax statutes.
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF
FORT COLLINS as follows:
Section 1. That the definition of “charitable organization” contained in Section 25-71
of the Code of the City of Fort Collins is hereby amended to read as follows:
Charitable organization shall mean any entity that has and maintains a current sales tax
exemption certificate from the Colorado Department of Revenue.
Section 2. That Section 25-94(b) of the Code of the City of Fort Collins is hereby
amended to read as follows:
(b) The application for an exempt organization license shall include copies of
the organization’s current certificate of incorporation, bylaws, financial
statements showing sources of revenues and expenditures, and the organization’s
current sales tax exemption certificate from the Colorado Department of Revenue
and, if the organization has been issued one, a copy of the Internal Revenue
Service’s letter of determination recognizing the organization as a tax-exempt
organization under Section 501(c)(3) of the Internal Revenue Code.
Section 3. That Section 25-241 of the Code of the City of Fort Collins is hereby
amended by the addition of the defined term “charitable organization” to read as follows:
Charitable organization shall mean any entity that has and maintains a
current sales tax exemption certificate from the Colorado Department of Revenue.
Section 4. That Section 25-243(2) of the Code of the City of Fort Collins is hereby
amended to read as follows:
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Sec. 25-243. Transactions exempt from tax.
The following lodging transactions are exempt from taxation under this Article:
…
(2) All lodging accommodations provided to charitable organizations.
Introduced, considered favorably on first reading, and ordered published this 18th day of
August, A.D. 2015, and to be presented for final passage on the 1st day of September, A.D.
2015.
__________________________________
Mayor
ATTEST:
_______________________________
City Clerk
Passed and adopted on final reading on the 1st day of September, A.D. 2015.
__________________________________
Mayor
ATTEST:
_______________________________
City Clerk