10.A.
City Council Meeting
- Meeting Date:
- 01/07/2014
- From:
- Andy Wagemaker, Revenue Director
Information
TITLE:
Consideration / Adoption of Resolution No. 2013-33 and Ordinance No. 2013-26: A resolution of the City Council of the City of Flagstaff, Arizona declaring that certain document known as "The 2013 City Tax Code Amendments" as a Public Record, and providing for an effective date; and an ordinance of the City Council of the City of Flagstaff, Arizona, amending the Flagstaff City Code, Title 3, Business Regulations, Chapter 3-05, Privilege and Excise Taxes, by adopting “The 2013 City Tax Code Amendments” as set forth in that public record on file with the City Clerk; providing for penalties, repeal of conflicting ordinances, severability, authority for clerical corrections, and establishing effective dates.
RECOMMENDED ACTION:
1) Adopt Resolution No. 2013-33
2) Read Ordinance No. 2013-26 by title only for the final time
3) City Clerk reads Ordinance No. 2013-26 by title only (if approved above)
4) Adopt Ordinance No. 2013-26
2) Read Ordinance No. 2013-26 by title only for the final time
3) City Clerk reads Ordinance No. 2013-26 by title only (if approved above)
4) Adopt Ordinance No. 2013-26
Policy Decision or Reason for Action:
The Model City Tax Code is the City of Flagstaff’s guiding tax document. The Model CIty Tax Code has been updated by the Model City Tax Code Commission to conform with new laws adopted by the state legislature and to improve uniformity with state transaction privilege tax laws. No new taxes are being imposed by the City. Several new tax exemptions are being adopted. Many of the changes to the Model City Tax Code are retroactive and are already recognized by the City.
When changes are made to the Model City Tax Code, the City is required to align the City Code with the Model City Tax Code. In addition, by adopting the proposed ordinance, the City is doing its part to help in the Governor's Transaction Privilege Task Force's efforts to make the Model City Tax Code more uniform. Subsidiary Decisions Points: None.
When changes are made to the Model City Tax Code, the City is required to align the City Code with the Model City Tax Code. In addition, by adopting the proposed ordinance, the City is doing its part to help in the Governor's Transaction Privilege Task Force's efforts to make the Model City Tax Code more uniform. Subsidiary Decisions Points: None.
Financial Impact:
The loss in revenue for the new Commercial Property Rental exemption was anticipated during the FY14 budget process and estimated at approximately $172,000 ($100,000 general fund, $72,000 transportation funds) total. This reduction in revenue was planned and incorporated into the FY14 budget approved by Council. It is anticipated that other changes will have a minimal effect, if any, on City transaction privilege tax revenues.
Connection to Council Goal:
Effective governance.
Has There Been Previous Council Decision on This:
The City Council held a Public Hearing at their Regular Meeting of December 17, 2013, read Resolution No. 2013-33 by title only, and held first reading of Ordinance No. 2013-26.
Options and Alternatives:
1) Adopt the proposed ordinance. If the City adopts the proposed ordinance, the City of Flagstaff will incorporate the most recent changes to the Model City Tax Code into the City Code.
2) Do not adopt the proposed ordinance. If the City chooses to not adopt the proposed ordinance, the most recent changes to the Model City Tax Code will not be incorporated into the City Code. City staff will abide by the most recent changes to the Model City Tax Code; however, but the City Code will not be uniform to the Model City Tax Code
2) Do not adopt the proposed ordinance. If the City chooses to not adopt the proposed ordinance, the most recent changes to the Model City Tax Code will not be incorporated into the City Code. City staff will abide by the most recent changes to the Model City Tax Code; however, but the City Code will not be uniform to the Model City Tax Code
Background/History:
Model City Tax Code
In 1987 the City of Flagstaff and other Arizona cities and towns adopted the Model City Tax Code. The Model City Tax Code enables businesses to be taxed uniformly. Cities have the option of establishing the rate (%) of tax applied to taxable income, and there are model and local options under the Model City Tax Code which cities may adopt. The City’s base tax rate is currently 1.721% and there is an additional voter approved 2% BBB tax levied on the restaurant/bar and the hotel/motel classifications.
The City of Flagstaff is required to adopt all changes to the Model City Tax Code issued by the Municipal Tax Code Commission.
Municipal Tax Code Commission Proposed City Tax Code Changes
The attached ordinance contains the approved changes from the past four Municipal Tax Code Commission meetings. The changes fall into 3 broad categories:
1) Statutory changes passed by the state legislature during the last legislative session;
2) Municipal Tax Code Commission changes approved as part of the transaction privilege tax simplification effort;
3) Miscellaneous cleanup changes (grammar, spelling, numbering, verbiage, etc.).
2) Municipal Tax Code Commission changes approved as part of the transaction privilege tax simplification effort;
3) Miscellaneous cleanup changes (grammar, spelling, numbering, verbiage, etc.).
The changes to the Model City Tax Code are noted in the proposed ordinance document. Below are three major changes that are included in this update.
•Food for Home Consumption: In general terms, this tax is called the grocery tax. Prior to the current code changes, this item was a separate option, Model Option 2. This option was contained within the retail sales tax category. With the change, cities may now levy a tax on the specific category of food for home consumption. The City does not currently tax food for home consumption transactions, therefore, the rate for this category will be set at 0%.
•Wastewater Services: Prior to the current code changes, this item was a separate “green sheet” tax item because it was not contained in a specific tax classification within the Model City Tax Code. It was only levied by a few Arizona cities that requested the green sheet item. As part of the tax code simplification process of 2013, this category was added as an entirely new category. With the change, cities may now levy a tax on the specific category of wastewater services and not maintain a green sheet item. The City does not currently tax wastewater services, therefore, the rate for this category will be set at 0%.
•Commercial Property Rental Exemption: Prior to the current code changes, municipalities taxed Commercial Property Rental transactions between two legally different entities, except affiliated corporations. As part of the 2013 legislative session, lawmakers exempted all transactions between two legally different entities that had the same common ownership.
•Wastewater Services: Prior to the current code changes, this item was a separate “green sheet” tax item because it was not contained in a specific tax classification within the Model City Tax Code. It was only levied by a few Arizona cities that requested the green sheet item. As part of the tax code simplification process of 2013, this category was added as an entirely new category. With the change, cities may now levy a tax on the specific category of wastewater services and not maintain a green sheet item. The City does not currently tax wastewater services, therefore, the rate for this category will be set at 0%.
•Commercial Property Rental Exemption: Prior to the current code changes, municipalities taxed Commercial Property Rental transactions between two legally different entities, except affiliated corporations. As part of the 2013 legislative session, lawmakers exempted all transactions between two legally different entities that had the same common ownership.
Model Option 14B Proposed City Tax Code Change
In addition to the changes proposed through the Municipal Tax Code Commission, staff also recommends un-electing Model Option 14B. In 1988, the City of Flagstaff adopted Model City Tax Code Model Option 14B, which reduces criminal penalties in the tax code from a Class One Misdemeanor to a Petty Offense. Staff proposes removing this option and using the standard language of the Model City Tax Code, imposing a Class One Misdemeanor.
The change is requested for two reasons: tax code simplification and alignment with other city codes.
In addition to the changes proposed through the Municipal Tax Code Commission, staff also recommends un-electing Model Option 14B. In 1988, the City of Flagstaff adopted Model City Tax Code Model Option 14B, which reduces criminal penalties in the tax code from a Class One Misdemeanor to a Petty Offense. Staff proposes removing this option and using the standard language of the Model City Tax Code, imposing a Class One Misdemeanor.
The change is requested for two reasons: tax code simplification and alignment with other city codes.
•Tax Code Simplification: As noted in previous memos, council meetings, and general discussions, the state is currently undergoing a tax code simplification process. Staff's proposal is one more step to help simplify the Model City Tax Code. There are currently only 4 municipalities (out of 91) within Arizona that have elected Model Option 14B. Adopting the standard language of the Model City Tax Code will help align the City’s code with other cities in Arizona.
•Alignment with Other City Codes: When the City adopted the Model City Tax Code in 1988, the City adopted a model option for criminal penalty for tax code violations that places the language in Section 3-05-005-0580 (b) as “reserved” and adopted a regulation which includes a tax exemption form which notifies taxpayers that fraudulently claiming a tax exemption is a petty offense. The intent of the language “reserved” as explained in notes to the Model City Tax Code is to establish tax code violations as a petty offense. However, the notes are not considered a part of the Model City Tax Code. Therefore, this intent is not expressly stated in the language of the above referenced City Tax Code Section. In 1989 the City adopted the general penalty clause found in Section 1-04-001-0001 of the City Code. The City Tax Code is part of the City Code and therefore the general penalty clause applies to tax code violations when there is no explicit language for penalty in the tax code. The City Prosecutor’s Office currently cites tax code violations as misdemeanors.
Key Considerations:
The City of Flagstaff and other Cities in the State of Arizona abide by the rules and regulations found in the Model City Tax Code. If the City chose not to adopt the ordinance, the City Code would not mirror the revised Model City Tax Code.
Expanded Financial Considerations:
None.
Community Involvement:
Inform.
The third major change listed above, regarding the Commercial Property Rental exemption, was effective on July 1, 2013. All known taxpayers under the Commercial Property Rental category were notified by the City of the changes. All other changes to the Model City Tax Code proposed in this update do not materially affect any known customers within the City of Flagstaff.
The third major change listed above, regarding the Commercial Property Rental exemption, was effective on July 1, 2013. All known taxpayers under the Commercial Property Rental category were notified by the City of the changes. All other changes to the Model City Tax Code proposed in this update do not materially affect any known customers within the City of Flagstaff.