To: Honorable Mayor and Members of Town Council
From: Pete Mangers, Revenue Manager
Kristin Zagurski, Assistant to the Town Manager
Title
Discussion/Direction: Sales Tax Task Force
Body
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Executive Summary
Sales tax is an important revenue source for the Town of Castle Rock, comprising 26.1% of Townwide revenue and 64% of General Fund revenue in the Proposed 2018 Budget.
The Colorado General Assembly during its 2017 session created a Sales and Use Tax Simplification Task Force to study “simplification between the state and local governments, including home rule municipalities, to identify opportunities and challenges … to adopt innovative, revenue-neutral solutions” that explore:
• Having a third-party entity responsible for state and local sales and use tax administration, return processing and audits
• Making audits of retailers more uniform for all state and local taxing jurisdictions in the state
• Utilizing certified software for sales and use tax administration and collection of state and local sales and use taxes
• Utilizing a single sale and use tax return for state and local taxing jurisdictions
Staff has been monitoring the Task Force’s activity since it began meeting in July. The group’s August meeting focused on State collection of sales tax, which staff believes would impact Town revenues and, thereby, its ability to deliver core community services. The purpose of this item is to provide Council an update on this important issue and to gauge whether Council would like to send a letter to the Task Force, stressing the importance of the Town retaining local control with regard to sales tax collection and auditing functions.
Discussion
Prior to 2003, the State collected sales and use taxes on the Town’s behalf. The Town transitioned to local sales tax collection and auditing in July of that year, and delinquencies in sales tax payments by businesses were well above 10%. Self-collecting and auditing sales tax contributed to a revenue
increase between 2003 and 2004 of $2.5 million, or 14.9% - the majority of which can be attributed to having local control in these areas.
Self-collection of sales tax offers the Town several advantages:
• It provides the Town the greatest level of oversight over its most important revenue source
• It allows the Town to more accurately forecast its revenues because it has available more detailed historical information
• It enables the Town to work with local business owners to resolve issues, including hardships such as were faced during the Great Recession
Sales tax payment delinquencies in Castle Rock have declined significantly since the Town began self-collection and now average 2.5%. This compares to the Front Range average of 5-9% among other self-collecting home rule municipalities. That the Town’s delinquency rate is so low is a testament to the effectiveness and efficiency of our local operations in this area. The Town’s auditing team brings in roughly $500,000 annually, which may not be collected under a Statewide system.
Local control of sales tax collection and auditing benefits residents, businesses and all taxpayers. Collections are conducted in a business-friendly manner, and common sense solutions are sought when issues arise. Staff aims to partner with the business community and address questions relative not only to taxes but also with regard to other Town issues. Enforcement only is used to collect what is rightfully due to the Town.
The group Simplify Colorado Sales Tax, which represents the business community, worked with legislators to establish the Sales and Use Tax Simplification Task Force. The 15-member Task Force is composed of:
• Two members of the State House of Representatives (Reps. Tracy Kraft-Tharp, D-Arvada, and Lang Sias, R-Arvada) two members of the State Senate (Sens. Tim Neville, R-Littleton, and Cheri Jahn, D-Sterling)
• One employee from the Colorado Department of Revenue
• One representative from the Colorado Municipal League and one representative from Colorado Counties Inc.
• One representative from a statewide association of small businesses
• One representative of a statewide chamber of commerce
• One private tax practitioner
• The executive director of the Simplify Colorado Sales Tax Governing Board
• Four representatives from self-collecting home rule municipalities, including one from the City of Lone Tree
The Task Force’s next meeting is on September 15; its deadline to make requests for draft legislation for the 2018 legislative session is September 22. Given the tone of the most recent meeting - and the detrimental effects Statewide collection could potentially have on Town revenues - staff recommends Council take a position on this issue and communicate that position to the Task Force.
Staff Recommendation
Staff recommends that Council authorize Mayor Green to send the Task Force a letter on Council’s behalf, stressing the importance of the Town retaining local control with regard to sales tax collection and auditing functions. A draft letter is attached for Council’s consideration. If approved, the letter also would be sent to Castle Rock’s State representatives, as well as the Metro Mayors Caucus and the Colorado Municipal League.
Proposed Motion
“I move to authorize staff to finalize the draft letter as discussed tonight for the Mayor’s signature and send it to the Sales and Use Tax Simplification Task Force.”
Attachment
Attachment A Draft Letter to Sales and Use Tax Simplification Task Force