City to propose sales tax increase and use tax on April ballot
December 15, 2016
Craig — Craig and Moffat County elected officials are grappling with decreasing revenues on both the city and county levels, and Craig City Council hopes voters will boost the budget with a proposed tax increase on the April ballot.
On Tuesday, the council unanimously voted to put the question before voters in April whether to raise sales tax by 1.25 percent to a total of 3.5 percent, and initiate a use tax of 3.5 percent on vehicles purchased outside the City of Craig. The two taxes will appear together as one measure on the ballot.
The tax hike would generate nearly $2.5 million in additional estimated revenue in 2018 that could be used for capital improvements and general fund purposes. The revenue would compensate for a drop in other revenue streams since 2008.
"In our budget reviews, we've found that since 2008, the general fund has lost $2 million in revenue," said Finance Director and Interim City Manager Bruce Nelson. "Severance tax and sales tax has dropped off… We've cut back on our budget as much as we can. We're actually just slightly over what we spent in 2008."
Currently, Craig residents who purchase a car outside of Craig pay state sales tax but no city or county sales tax. The tax is based on a customer's place of residence, not the location of the car dealership. A use tax would mean that a Craig resident would pay the same 3.5 percent sales tax regardless of whether their vehicle purchase took place in or outside of Craig.
"The current sales tax kind of disadvantages our car dealerships in town," said Councilmember John Ponikvar at Tuesday's meeting.
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In other words, Craig residents can currently save more than $1,000 on a $25,000 car purchase by buying outside the county and skipping out on city and county sales tax, which puts local dealerships at a competitive disadvantage. Victory Motors co-owner Steve Maneotis thinks a use tax makes sense from a city services perspective, too.
"Let's say I buy a car in Craig and my taxes are used to support city services such as trash removal and maintaining the roads we drive on," Maneotis said. "The citizen that goes out of town to buy enjoys those same services in the city, but they're not paying their fair share of tax on the automobile purchase."
More than $13.7 million in new and used vehicle purchases were made outside the city and county in 2015, compared to just shy of $9 million in sales by local Craig dealers.
"People can choose where they want to purchase their vehicle, but if those vehicles are going to be used here locally, they can at least pay their fair share of taxes," said City Attorney Sherman Romney at the meeting.
Craig voters repealed a former use tax in 1993 partially because it also applied to building materials, which sometimes resulted in builders paying double sales tax. Use taxes are common in other Western Slope municipalities, including Steamboat Springs, Rifle, Glenwood Springs and Grand Junction, and do not result in a double sales tax on vehicles.
As for the city's sales tax, the rate hasn't been raised since 1991 except for a quarter percent increase in 2001 after the county cut its tax contribution to the city in half. Even after voters approved the quarter percent increase, the city experienced a net loss of approximately $250,000 that year and unknown amounts in years since following the slash in their portion of county sales tax, Nelson said.
For now, the city is getting by on reserves and carryover from the previous year, but if the sales tax increase doesn't pass, the 2018 budget will require about $1.4 million in cuts to city staff and services, Nelson said.
"We have to look at tax as a good thing," Ponikvar said, noting that he's hearing a shift in perspective from the new Yampa Valley Young Professionals. "I love these young professionals and their attitude because tax in Craig has always had negative connotation, but its what gives us a great place to live… We can't diversify and grown unless we're able to enhance what we have."