Craig City Council weighs options for November sales tax measure
July 13, 2017
Craig City Council will be putting a sales tax question on the November ballot after failing to pass a 1.25-percent sales tax increase in the April election. Exactly what form the question will take is still up for debate, but councilmembers narrowed down their options Tuesday evening in a workshop before their regular meeting.
Among the options discussed were the percentage increase, whether to include a use tax on vehicles purchased outside of Craig, and whether to exempt motor vehicle dealers and the lodging industry.
Currently, City of Craig sales tax is lower than neighboring municipalities at 2.25 percent.
Councilmembers studied the revenues associated with each set of options and loosely consented to consider a 1.75-percent sales tax increase that exempts motor vehicle dealers from city sales tax completely, exempts the lodging industry from the tax increase and ditches the use tax entirely.
At only a 1.25-percent increase, the city would lose a total of about $525,00 annually in sales tax by granting exemptions to the vehicle dealer and lodging industries.
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Ditching the use tax
"This community will not accept a use tax," said Mayor John Ponikvar Tuesday, with Councilwoman Andrea Camp noting that the use tax caused a lot of confusion among voters in the April election.
The use tax, applied to vehicles purchased outside Craig to match the sales tax charged inside Craig, was said to level the playing field for local car dealers. Under the current tax structure, buyers can save hundreds or thousands of dollars by skipping out on local sales tax when they buy vehicles outside Craig.
Nonetheless, councilmembers agreed it would be a hard sell, and opted instead to level the playing field for both car dealerships and off–road vehicle dealers by exempting them from city sales tax, modeled after an approach taken by the town of Silverthorne.
This means car buyers in Craig would not pay sales tax on vehicle purchases.
Seeking a 1.75-percent increase
Councilmembers reached a loose consensus to seek a higher percentage sales tax increase — 1.75 percent instead of 1.25 percent — to balance out lost revenue and additional expenses associated with creating exemptions.
At only a 1.25-percent increase, the city would lose a total of about $525,00 annually in sales tax by granting exemptions to the vehicle dealer and lodging industries, according to calculations provided by City Finance Director Bruce Nelson.
The lodging industry fought the sales tax increase in April on account of the additional 1.9-percent lodging tax and 4-percent Local Marketing District tax they already charge guests, which puts their sales tax total at 13.05 percent. That percentage is higher than most surrounding areas. The exemption would allow their tax rate to remain the same.
However, the exemptions would add costs, too, as a city is only allowed to exempt specific industries from local sales tax if it collects its own sales tax. Craig's local sales tax is currently collected by the state and remitted to the city, but to allow exemptions, the City of Craig would have to hire a new employee to collect the tax.
With salary, benefits and other administration costs, the move would cost the city about $121,000, according to numbers provided Tuesday by Nelson.
A 1.25-percent increase would generate about $2 million in additional revenue, but all told, the exemptions would eliminate nearly $650,000 from those revenues, leaving the city with about $1.35 million to work with. With the budget deficit the city faces, Nelson estimates it needs to raise an additional $1.75 million annually to maintain services and capital projects.
"If we don't exempt, I'm fine with 1.25 percent," said Councilman Derek Duran. "If we do exempt, we've got to bump it up to make up difference and explain how we're going to use it."
City Council did not make any final decisions on the options discussed, and must still vote on a resolution to add the measure to the ballot, which will allow for more debate on how to move forward. Council is also considering designating portions of the funds raised for specific departments, like parks and recreation.
Contact Lauren Blair at 970-875-1795, lblair@CraigDailyPress.com or Twitter @LaurenBNews.