Use tax increase proposed in Mt. CB

“The town is leaving a lot of money on the table”

In an effort to generate additional income for the town of Mt. Crested Butte from future construction and building, the Community Development Department is asking the Town Council to revisit its use tax regulations. Community development director Bill Racek brought the issue before the council during its meeting Tuesday night.

Use tax, as a function of building permit fees, is a tax for the privilege of storing, using or consuming within the town, any construction or building materials purchased at retail. Essentially, once the applicant pays the use tax as part of the building permitting process, they are exempt from paying local sales tax, whether buying roofing materials in Montrose or 2x10s at Alpine Lumber.
According to a memo to the council from Racek, the use tax rate is 3 percent of the estimated value of the cost of construction and building materials at the time permits are issued for building or construction. The current ordinance governing use tax was passed in 1980. According to Racek, the disconnect occurred in 1982 when the town raised sales tax from 3 percent to 4 percent, but didn’t include the use tax.
The town currently uses $188.44 per square foot as the overall cost of constructing a new home. According to Racek, the actual cost for constructing a new home in Mt. Crested Butte varies from $300 to $600 per square foot and as high as $750 in some circumstances. In 2006, the town collected $396,505 in use tax on 39 major permits valued at $26,297,372.
“The town is leaving a lot of money on the table,” said Racek. He recommends that the town revise its ordinances to require the permit application to provide costs for both materials and labor. Those figures would then be used to calculate use tax and other permitting fees. He’d also like to add “reconciliation” to the process within 90 days of occupancy, whereby the applicant presents all material invoices to the municipality, and the actual cost of materials is summed. The use tax would then be adjusted up or down based on those numbers.
Racek proposes drafting a new ordinance that changes the way value is determined, and hence material value, “where it’s closer to the $330 per square foot that people are actually charging to build houses.” Racek is also asking the council to include on the next available ballot (not November 2), the idea of raising the use tax to 4 percent from 3 percent.
“Right now, you get a big tax break because we undervalue you to start with, and only charge 3 percent of the material cost, rather than 4 percent, which is our standard municipal tax rate,” explained Racek.
According to Racek, if these measures were in place in 2006, the town would have collected $1,051,895, compared to the $396,505 with the existing ordinance.
The council was wary of raising the use tax from 3 percent to 4 percent, but open to discussing a change to the way value is calculated. Racek proposed that they shift “to an actual number that they [applicants] give us and we audit them. It will require a lot more work on my department’s part.” Essentially, the applicant would be responsible for providing the cost of materials—and receipts for those purchases—to the Community Development Department. Then it will be determined if the applicant underpaid, overpaid, or hit the number right on.
Regarding the tax increase, councilman Gary Keiser said, “I would be opposed to increasing the rate. I don’t think it’s time to go to the voters and ask to raise taxes. I might separate the two.”
Councilman Andrew Gitin concurred, “I agree with Gary on the taxes.”
“I think we can look at changing the method,” commented councilmember David Clayton.
“I would rather see our rate below other ski towns to encourage folks to build here,” added councilman Danny D’Aquila.
“Our rate is lower, and it hasn’t done that,” said Racek. “I have yet to have someone ask me to compare our rate to other municipalities.”
Mayor William Buck said, “I think its time we develop these aspects a little tighter and get that revenue stream back up.”
“By changing the method?” asked Clayton.
“If approved, most of the gain would be from changing how we calculate value,” confirmed Racek.
Mayor Buck said he was in favor of the idea of exploring the calculations component of Racek’s proposal.
Keiser said, “It seems like a good time since there isn’t any construction going on right now.”
“Two times nothing is still nothing,” posed Racek.
“But when it comes back it is something,” affirmed Keiser.
Racek will explore the possibilities further, and the council will take the issue up again at a future meeting.