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Home My WebLink AboutWORK SESSION SUMMARY-04/12/2022-Work Session 1 Finance Administration 215 N. Mason Street PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com MEMORANDUM DATE: April 15, 2022 TO: Mayor and City Councilmembers THROUGH: Kelly DiMartino, Interim City Manager Travis Storin, Chief Financial Officer FROM: Jennifer Poznanovic, Sr. Revenue Manager Ginny Sawyer, Sr. Project Manager RE: April 12, 2022, Work Session Summary - Sustainable Funding Plan Attendees: All Councilmembers were present. Travis Storin, Jennifer Poznanovic and Ginny Sawyer provided the presentation. The meeting was conducted via the Zoom platform. Staff discussed specific identified funding needs as a first step in determining potential revenue sources. Four specific needs were discussed: parks and recreation, transit, housing, and climate. Identified annual shortfalls range from six to ten million per need annually. Staff also provided background information on the City’s revenue, trends, and external forces. Councilmembers highlighted the following: x Supportive of continued Council Finance meetings on funding mechanisms and implementation timeline options prior to a future Council work session x The need for a better understanding of park standards and the appropriate levels of service in Fort Collins x Suggested looking into Housing as infrastructure x Found the “what would the revenue be used for” sections in the AIS on Housing and Climate informative and would like to see a similar format for Transit, Parks and Recreation Next Steps: x Staff will continue to refine both the funding needs and the options for additional revenue x The next discussion will be at the Council Finance Committee on June 2, 2022 followed by a work Session sometime in Q3 In response to the inquiry about the impact of the Wayfair decision, below is additional information on the impact of marketplace facilitators and economic nexus on City sales and use tax revenue: x Marketplace and Economic Nexus Ordinance effective November 1, 2020 o Impact to November 2020 tax returns, December 2020 collections x Of the City’s 18 categories of sales tax “Miscellaneous Retailers” increased 94% from 2019 to 2021 ($9 million) o Most online retailers are in the City’s “Miscellaneous Retailers” category x “Miscellaneous Retailers” went from the fifth largest sales tax category in 2019 to the second largest category, after “Restaurants, Caterers and Bars”, in 2021 x Also attached is the presentation from the Marketplace & Economic Nexus Update to Council Finance in March of 2021 Sales Tax Collections by Category: 1 Marketplace & Economic Nexus Update March 15, 2021 Council Finance CommitteeDocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84 Agenda •Wayfair Background •Marketplace & Economic Nexus Ordinance Impacts •Council Finance Committee Discussion & Questions 2 DocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84 Wayfair Decision June 2018 The Supreme Court held that an out-of-state retailer does not need a physical presence in a state before the state can require the retailer to collect and remit sales tax. However, a substantial nexus is needed. The Supreme Court held that South Dakota’s tax law properly identified when a retailer had a substantial nexus with the state for tax purposes: •Annual minimum sales of $100,000; or •A minimum of 200 separate sales transactions of any amount 3 DocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84 Colorado Department of Revenue Implementation of Wayfair 4 Remote sellers above the de minimis level (same as South Dakota) The State of Colorado collects state sales tax and local sales tax for entities it collects for Responsible for approx. 265 jurisdictions 150 statutory cities All but two counties 24 home rule (state collected) DocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84 Colorado Department of Revenue Implementation of Wayfair 5 State House Bill 19-1240 (July 2019) •Establishes economic nexus for purposes of retail sales made by retailers without physical presence •Codifies destination sourcing •Establishes an exception to destination sourcing •As of October, requires marketplace facilitators to collect and remit sales tax on behalf of marketplace sellers https://leg.colorado.gov/bills/hb19-1240 Marketplace Facilitator •An individual or legal entity that operates a marketplace •May have physical nexus Marketplace Seller •Someone who sells goods through a marketplace facilitator DocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84 6 •Economic Nexus •Definition of engaged in business •Who is taxed and who is compelled to collect the tax •Marketplace Facilitator •Definition of retailer •Who collects the tax Self-Collecting Municipalities & Implementation of Wayfair SUTS System State’s single point of remittance software •Remote sellers with economic nexus can file & pay via the SUTS System •Available for any business not just those with economic nexus only •Businesses with physical presence would still need to have a Fort Collins sales tax license Model Ordinance Colorado Municipal League DocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84 7 Fort Collins an early adopter of both Model Ordinance and SUTS System Self-Collecting & Wayfair What are other cities doing? City Model Ordinance SUTS Aurora Marketplace only Effective August 1, 2020 Not yet participating Golden Effective September 1, 2020 Participating C. Springs Effective September 1, 2020 Participating Fort Collins Effective November 1, 2020 Participating Boulder Marketplace only Effective November 1, 2020 Not yet participating Lakewood Effective January 16, 2021 Participating Denver Effective February 1, 2021 Participating Thornton Not yet adopted Not yet participating Source: Department or Revenue, March 5, 2021Source: Colorado Municipal League, March 8, 2021 DocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84 Fort Collins & Wayfair 8 Marketplace Facilitators and Economic Nexus Ordinance effective November 1, 2020 Impact to November tax returns, December collections DocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84 Top Internet Retailers Licensed in Fort Collins 9 Nationally e-commerce represents 14.0%* of total retail sales Retailer**Ecommerce Share Licensed Amazon 49.1%Yes eBay 6.6%Yes Apple 3.9%Yes Walmart 3.7%Yes The Home Depot 1.5%Yes Best Buy 1.3%Yes QVC Group 1.2%Yes Macy’s 1.2%Yes Costco 1.2%No Wayfair 1.1%No *U.S. Census Quarterly Retail E-Commerce Sales 4th Quarter 2020 **Top 10 US companies based on % of e-commerce sales, eMarketer, July 2018 Other licensed ecommerce retailers: •Airbnb •Bonobos Inc •Chegg Inc •Chewy Inc •Google •IKEA •Intuit •Netflix •Nike •Overstock.com •Shipt Inc •Spotify •Zappos.com Inc •Zulily DocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84 City Sales Tax Collections By Category 10 Marketplace & Economic Nexus •Effective Nov ’20 •Tax due Dec ‘20 •19% in 2020 ($1.8M) •79% in Dec ($650k) Fort Collins Sales Tax Collections by Category Most online retailers in City’s “Miscellaneous Retailers” category DocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84 Sales Tax Collections & Miscellaneous Retailers 11 2020 Misc. Retailers Sales Tax Collections •Marketplace & Economic Nexus •Effective Nov ‘20 •Tax due Dec ‘20 •Majority of online retailers in City’s “Miscellaneous Retailers” category •79% in Dec ($650k) •66% in Jan ($850k) •71% in Feb ($550k) DocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84 Questions & Discussion 12 DocuSign Envelope ID: 53D4913A-D343-47D9-B38E-389E1CAD7B84