Earlier this week, Craig City Council wavered on how to handle a state sales tax exemption, but local leaders may not have a choice with new fees being implemented on single-use plastic bags and retail deliveries statewide.

According to city Finance Director Katy Burns, there are three new issues being passed down that Craig, as a home-rule city, will need to decide what to do with.

Because all three issues have been passed at the state level, the city will have to modify its tax ordinance to specify whether Craig is accepting these changes.

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City Council discussed the changes at a workshop on Tuesday evening, July 26, in the council chambers. No decisions were made, and the changes will have to go through a tax-ordinance process with several meetings and a public hearing before they can be adopted. 

The first of the changes is a tax exemption on essential personal hygiene products including diapers, incontinence products and menstrual products.

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Burns estimates that the city receives about $43,000 annually from taxes on personal hygiene products, and the recommendation from city staff would be not to exempt sales tax on these items. 

“It kind of sets a precedent as a home-rule community. We have local control on a lot of sales tax issues,” City Manager Peter Brixius said. “I think it’s a precedent we don’t want to set. If we have the authority to not exempt these sales taxes, I think we should stick with that. We want to maintain our sales tax profile as long as we can.”

Some council members voiced initial support for the tax exemption because of potential economic benefits to Craig residents, although there were concerns about how the exemption would be implemented and what kind of message it might send the community if the city chose not to exempt sales tax on personal hygiene items.

“I am actually in favor of the exemption with the interesting times we are seeing — really anything we can do to make it easier on people right now — because of inflation and the fact that we have not seen the end of inflation,” council member Paul James said.

Councilman Chris Nichols agreed that Americans and the people of Craig need a break, but he said it’s his personal opinion that people need to do it at the ballot box.

“This is another one of the state’s unfunded mandates that is going to pull revenue away from the city,” Nichols said. “And this is an opportunity where — because we are home-rule — we don’t have to follow it and we can keep our local control.”

Brixius made the point that sales tax is the city’s primary source of revenue, and the city provides many different services with that revenue. Brixius said he thinks the city would be looking at closer to $50,000 to $100,000 in lost revenue with this exemption.

“People need to realize that the city is three-fifths sales tax funded, so if you start eroding that tax, sooner or later you’ll have to start cutting services,” Nichols said. “I would just hate to start eroding that.”

Nichols was also concerned about the erosion of local control, to which James said that he doesn’t think agreeing to this exemption would send the message that the city will follow all of the state’s home-rule ordinances.

The timeliness of the state tax exemption is questionable as well, as it is coming at the same time that the state is introducing two mandatory fees. James questioned the sincerity of the personal hygiene exemption with the introduction of the bag and delivery fee.

Burns explained the first mandate is a single-use plastic bag fee that the city will be required to collect, and the second is a retail delivery fee, which the state said will be used toward road maintenance and infrastructure costs. 

Because these are state-mandated fees — not taxes — Burn said council needs to decide whether to tax the fees. The state recommends not taxing them, and there is a model ordinance that the state recommends to exempt the bag and delivery fees from being taxed. 

Burns said the plastic bag mandate requires the city to collect a minimum of 10 cents on every plastic bag sold by retailers, although the city can choose to charge more. Four cents of the fee will go to the retailer that collects the fee, and six cents will go to the city to be used for education or enforcement of the fee.

The city can also use revenue from the plastic bag fee to fund recycling, compost or waste diversion programs. City officials suggested the fee could possibly go to fund the city cleanup day or a potential recycling program. 

James suggested that, as a home-rule community, Craig should opt not to accept the state’s plastic bag fee mandate. Because it’s a state mandate, that could spark a battle against the state, which the rest of council didn’t see as an option.

“I think many people are irritated with plastic bags being taxed, but in the end, we have to figure out how to manage this thing,” council member Tom Kleinschnitz said. “I think some revenue could come back to us to help us help some people recycle, and I think there is value in getting everybody in the mentality of carrying their bags with them to the store.”

Nichols said he’s not in favor of charging a tax on top of the fees even though the consumer ultimately has a way of avoiding this fee.

“The choice is bringing your own reusable bags to the store,” Nichols said. 

The retail delivery fee will be 27 cents added to almost any items that are delivered by motor vehicle, including online orders and restaurant food deliveries.

The fee will be collected by the retailer at the time of purchase and submitted to the Colorado Department of Revenue. 

For the next step in determining how to handle the tax exemption and fees locally, city staff will draft an updated ordinance that will have to go through City Council for multiple readings and public comments before it can be enacted.