14.B.
City Council Meeting - FINAL
- Meeting Date:
- 06/18/2019
- From:
- Sandy Corder, Revenue Director
Information
TITLE:
Consideration and Adoption of Ordinance No. 2019-13: An ordinance of the City Council of the City of Flagstaff, Arizona, amending Flagstaff City Code, Title 3, Business Regulations, Chapter 3-05, Privilege and Excise Taxes, Division 3-5-006, Use Tax, by increasing the use tax rate from 1% to 2.281%; providing for penalties, repeal of conflicting ordinances, severability, and establishing an effective date.
STAFF RECOMMENDED ACTION:
At the June 18, 2019 Council Meeting:
1) Read Ordinance No. 2019-13 by title only for the first time
2) City Clerk reads Ordinance No. 2019-13 by title only (if approved above)
At the July 2, 2019 Council Meeting:
3) Hold Public Hearing
4) Read Ordinance No. 2019-13 by title only for the final time
5) City Clerk reads Ordinance No. 2019-13 by title only (if approved above)
6) Adopt Ordinance No. 2019-13
1) Read Ordinance No. 2019-13 by title only for the first time
2) City Clerk reads Ordinance No. 2019-13 by title only (if approved above)
At the July 2, 2019 Council Meeting:
3) Hold Public Hearing
4) Read Ordinance No. 2019-13 by title only for the final time
5) City Clerk reads Ordinance No. 2019-13 by title only (if approved above)
6) Adopt Ordinance No. 2019-13
Executive Summary:
In April 2019 during the Budget Retreat, Council proposed an increase the local use tax rate from 1% to 2.281% for the purpose of raising revenue to help pay for expenses of the City, including its unfunded liability for police and fire pension plans. If adopted, Ordinance No. 2019-13 will increase the use tax rate to 2.281%.
Financial Impact:
The proposed use tax rate increase from 1% to 2.281% (rate increase of 1.281%) is projected to generate revenues of approximately $900,000 annually, increasing current revenues of $700,000 to approximately $1.6 million annually.
Policy Impact:
None.
Connection to Council Goal, Regional Plan and/or Team Flagstaff Strategic Plan:
Regional Plan:
Team Flagstaff Strategic Plan - 2018:
Strategic priority #3: Foster a resilient and economically prosperous city
Enhance the organization’s fiscal stability and resourcefulness.
Deliver outstanding services through a healthy environment, resources and infrastructure.
Team Flagstaff Strategic Plan - 2018:
Strategic priority #3: Foster a resilient and economically prosperous city
Enhance the organization’s fiscal stability and resourcefulness.
Deliver outstanding services through a healthy environment, resources and infrastructure.
Previous Council Decision on This:
Yes:
Council discussed a possible use tax rate increase multiple times at public meetings during the FY20 Budget Retreat.
Council adopted Ordinance No. 2014-16 establishing a 1% use tax rate. Discussions were held on July 1, 2014 (first reading), and July 5, 2014 (adoption).
Council discussed a possible use tax rate increase multiple times at public meetings during the FY20 Budget Retreat.
Council adopted Ordinance No. 2014-16 establishing a 1% use tax rate. Discussions were held on July 1, 2014 (first reading), and July 5, 2014 (adoption).
Options and Alternatives:
1. Adopt the proposed use tax rate increase effective August 2019.
2. Do not adopt the proposed use tax rate increase, and direct staff to make budget adjustments.
2. Do not adopt the proposed use tax rate increase, and direct staff to make budget adjustments.
Background and History:
Pursuant to A.R.S. § 42-6001 et seq, the City Council has authority to levy local transaction privilege tax ("sales tax"), use, excise, and similar taxes. Any local sales tax is subject to approval by a majority of the qualified electors voting in the regularly scheduled general election, per City Charter, Article VI, Section 2(b). A use tax does not require voter approval.
The City and other Arizona cities and towns have adopted, the Model City Tax Code ("MCTC"), a uniform tax code that includes several options for the imposition of a local transaction privilege tax, use tax, and some exemptions. The MCTC is updated on a regular basis to comply with changes in the law. Each city has the right to set its own tax rates. A copy of all MCTC options is located on the Arizona Department of Revenue website, modelcitytaxcode.az.gov/ The City of Flagstaff's adopted version of the MCTC is reflected in Chapter 3-05 of the City Code and can be accessed on the City website, www.codepublishing.com/AZ/Flagstaff/.
The local sales tax applies to gross income on the privilege of engaging in taxable business activities in the CIty. This is a tax on certain business activities. Although the tax may be passed through to the customer, the business is responsible for paying the tax to ADOR. The City's base local sales tax rate will be 2.281%, effective July 1, 2019, and there is an additional voter-approved 2% levied on the restaurant/bar and the hotel/motel (transient lodging) classifications ("BBB Tax").
The local use tax is a tax on storage or use of tangible personal property in the City. The use tax is similar to the local sales tax but is an "affiliated excise tax." A use tax is typically imposed in the situation where a person has purchased tangible personal property outside the City, has not paid a comparable sales tax, and then uses, stores, or consumes the item within the City. The City will not collect a use tax from anyone who has already paid an equivalent local sales tax. In many cases, a use tax helps create a level playing field for Flagstaff businesses competing with businesses in jurisdictions that charge a lower sales tax or no sales tax. For example, if a car is purchased in Oregon (no sales tax), and moves to Flagstaff, the owner will need to pay the local use tax on the car.
The City and other Arizona cities and towns have adopted, the Model City Tax Code ("MCTC"), a uniform tax code that includes several options for the imposition of a local transaction privilege tax, use tax, and some exemptions. The MCTC is updated on a regular basis to comply with changes in the law. Each city has the right to set its own tax rates. A copy of all MCTC options is located on the Arizona Department of Revenue website, modelcitytaxcode.az.gov/ The City of Flagstaff's adopted version of the MCTC is reflected in Chapter 3-05 of the City Code and can be accessed on the City website, www.codepublishing.com/AZ/Flagstaff/.
The local sales tax applies to gross income on the privilege of engaging in taxable business activities in the CIty. This is a tax on certain business activities. Although the tax may be passed through to the customer, the business is responsible for paying the tax to ADOR. The City's base local sales tax rate will be 2.281%, effective July 1, 2019, and there is an additional voter-approved 2% levied on the restaurant/bar and the hotel/motel (transient lodging) classifications ("BBB Tax").
The local use tax is a tax on storage or use of tangible personal property in the City. The use tax is similar to the local sales tax but is an "affiliated excise tax." A use tax is typically imposed in the situation where a person has purchased tangible personal property outside the City, has not paid a comparable sales tax, and then uses, stores, or consumes the item within the City. The City will not collect a use tax from anyone who has already paid an equivalent local sales tax. In many cases, a use tax helps create a level playing field for Flagstaff businesses competing with businesses in jurisdictions that charge a lower sales tax or no sales tax. For example, if a car is purchased in Oregon (no sales tax), and moves to Flagstaff, the owner will need to pay the local use tax on the car.
Key Considerations:
The proposed local use tax rate increase will help generate additional revenues to pay expenses of the City, including its unfunded liability for police and fire pension plans.
Community Benefits and Considerations:
City Council passed Ordinance No. 2014-16, imposing a 1% use tax on July 15, 2014, and began receiving revenue in November 2014. The use tax generates approximately $700,000 annually and the rate increase will increase revenues to approximately $1,600,000 for the fiscal year 2020.
The City budget includes an expense line item in the Police and Fire Departments' to provide for an additional $900,000 contribution, $450,000 each, to the Public Safety Personnel Retirement System plans. If approved, staff will make this estimated payment and the amount will true up to actual increased revenues received at the end of the fiscal year.
The City budget includes an expense line item in the Police and Fire Departments' to provide for an additional $900,000 contribution, $450,000 each, to the Public Safety Personnel Retirement System plans. If approved, staff will make this estimated payment and the amount will true up to actual increased revenues received at the end of the fiscal year.
Community Involvement:
Team Flagstaff Strategic priority #4: Work in partnership to enhance a safe and livable community
- Foster a safe, healthy, equitable and accessible community.
- Cultivate community partnerships through civic engagement and participation.
Expanded Options and Alternatives:
At the July 2, 2019, Council Meeting there will be a public hearing on the proposed use tax rate increase. Notice of the proposed use tax rate increase and the public hearing was posted on the City website on May 2, 2019 (at least 60 days prior to proposed adoption). This Notice was published on June 6, 7, 8, 9 in the local daily newspaper, the Arizona Daily Sun (at least 15 days prior to the public hearing). City staff is endeavoring to provide outreach to the business community prior to the public hearing.