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Home My WebLink AboutCOUNCIL - AGENDA ITEM - 11/06/2007 - FIRST READING OF ORDINANCE NO. 130, 2007, AMENDINGORDINANCE NO. 130, 2007 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 THE VENDOR FEE FOR COLLECTING AND REMITTING SALES TAX WHEREAS, Section 25-123(c) of the Code of the City of Fort Collins (the “Code”) authorizes retailers to retain 3% of the first $3000 of the amount of sales tax they collect for the City (the “vendor’s fee”); and WHEREAS, the ability to retain this vendors’ fee is in recognition of the time and effort expended by retailers to collect the City’s sales tax from their customers; and WHEREAS, the total amount currently retained by retailers is approximately $700,000 per year; and WHEREAS, the loss of this amount of sales tax revenues has a significant negative effect upon the City and its citizens given the recent budget constraints; 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 revenue and to deposit any additional revenues collected by the City as a result of that reduction into the General Fund; and WHEREAS, City staff has recommended limiting the vendor fee to 1% of the first $4500 in sales tax collected by the retailers; and WHEREAS, City staff has also identified references in Section 25-123(d) where it is not clear that sales tax is the tax referred to and the intent of the section would be clarified by the suggested amendments; 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) and (d) 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) one (1) percent of the first three thousand dollars ($3,000.)four thousand five hundred dollars ($4,500.) of the amount of the sales tax to be remitted by him or her under this Article for the collection and remittance of the sales tax. However, if the remission of the sales tax by the retailer is delinquent, the retailer may not retain any amounts for collecting and remitting the sales tax unless the retailer demonstrates reasonable grounds for the delinquency acceptable to the Financial Officer. (d) If any retailer shall, during any reporting period, collect as a sales tax an amount in excess of the rate stated in § 25-75, the retailer shall remit to the Financial Officer the full amount of the sales tax imposed and such excess. Section 2. That this Ordinance shall become effective on January 1, 2008. Introduced, considered favorably on first reading, and ordered published this 6th day of November, A.D. 2007, and to be presented for final passage on the 20th day of November, A.D. 2007. _________________________________ Mayor ATTEST: _____________________________ City Clerk Passed and adopted on final reading on the 20th day of November, A.D. 2007. _________________________________ Mayor ATTEST: _____________________________ City Clerk AGENDA ITEM SUMMARY FORT COLLINS CITY COUNCIL ITEM NUMBER: 11 DATE: November 6, 2007 STAFF: Mike Freeman Chuck Seest SUBJECT First Reading of Ordinance No. 130, 2007, Amending Section 25-123(c) of the City Code Relating to the Vendor Fee for Collecting and Remitting Sales Tax. RECOMMENDATION Staff recommends adoption of the Ordinance on First Reading. FINANCIAL IMPACT This Ordinance amends the Code to modify the formula used in calculating the vendor fee paid to merchants who collect City sales and use tax. The modification to the fee will result in the City receiving an additional $390,000 per year in sales tax collections. These collections will be an ongoing revenue source. On October 16, 2007, City Council adopted the 2008-2009 Final Budget on First Reading with the assumption that this change to the vendor fee would be adopted. The additional $390,000 per year in revenue was appropriated in the budget ordinance. EXECUTIVE SUMMARY This Ordinance will modify the formula used to calculate the vendor fee for sales and use tax licensees. The proposed modification will result in $390,000 of ongoing additional revenue being available for General Fund uses. This change will not increase taxes or fees charged, but will lower the amount of City sales and use taxes that vendors are allowed to retain in exchange for the service they provide in collecting City taxes. Currently, vendors are allowed to retain 3% of sales and use taxes collected, up to a maximum of $90 per reporting period. Under the proposed fee, vendors will retain 1% of the tax, up to $45 per reporting period. BACKGROUND History The vendor fee is a service fee that is retained by sales tax licensees in recognition of their work in collecting the City’s sales and use taxes. The fee was originally established to acknowledge that November 6, 2007 -2- Item No. 11 merchants incurred a cost for collecting sales taxes including accounting work and the completion of paper forms for remitting the sales tax collection. With increasingly automated accounting processes, the cost incurred by vendors has decreased as their “point of sale” software makes these calculations for the vendor. In the past, the vendor fee has been paid at different rates. The original vendor fee of 3% with no cap was first changed in 1989. The 1989 change limited vendors to 3% of the first $3,000 in sales tax they collected, plus 1% of all taxes thereafter. In April 2004, the vendor fee was further reduced to the current formula, with a cap of $90 per reporting period. The current vendor fee allows licensees to keep 3% ($90) of the first $3,000 of sales tax collected during each reporting period as a service fee for collecting the tax. The fee may be retained only if the return is filed and paid on time. In order to keep the full vendor fee of $90 each reporting period (monthly/ quarterly /annually), a vendor must reach at least $100,000 in net taxable sales. Generally, the top 250 vendors reach the $90 vendor fee cap each month. There are approximately 9,800 active sales tax licenses. Less than 5% of vendors reach the sales volume needed to keep the full vendor fee each month. Over time, the changes in the vendor fee have resulted in businesses retaining a smaller amount of City sales and use tax as a service fee. The following chart illustrates the history of the vendor fee taken by businesses: November 6, 2007 -3- Item No. 11 Recommended Change to the Vendor Fee Currently, approximately $700,000 is retained each year by businesses as a vendor fee. Staff is proposing that the vendor fee be further reduced to 1%, yielding approximately $390,000 of additional revenue available to the City General Fund. The proposed vendor fee will allow vendors to keep 1% ($45) of the first $4,500 in tax collected. Vendors will keep approximately $310,000 annually, which will result in the City realizing a greater share of the actual sales and use tax collected. This does not change the sales tax rate that residents pay, but rather recoups a greater amount of it from the vendors who collect the taxes on the City’s behalf. The top 250 vendors currently keep 40% of the total vendor fee. The proposed vendor fee will allow these vendors to keep 30% of the total. Thus, more than 9,000 vendors with active sales tax licenses will keep a greater share of the vendor fee under the proposed changes. Comparison of Proposal to Other Municipalities In reviewing the proposed vendor fees of other regional municipalities, the City’s revised fee will be average. Others have higher fees, while several neighboring communities pay no fee to vendors. The chart shows the vendor fees of comparable cities compared to the recommended vendor fee for Fort Collins. Vendor Fee Distribution $217,000 $280,000 $93,000 $420,000 $- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 Current Vendor Fee Proposed Vendor Fee Top 250 Vendors All Other Vendors November 6, 2007 -4- Item No. 11 City Vendor Fee City Vendor Fee 1 Boulder 0.00% 9 Westminster 2.50% 2 Greeley 0.00% 10 Arvada 3.00% 3 Lakewood 0.00% 11 Centennial 3.00% 4 Pueblo 0.00% 12 Longmont 3.00% 5 Aurora 0.50% 13 Thornton 3.00% 6 Denver 0.50% 14 Grand Junction 3.33% 7 Fort Collins 1.00% 15 Loveland 3.33% 8 Colorado Springs 2.00%