Use tax calculations revamped

3% tax on estimated construction cost

When the prospect of changing the use tax calculations for new construction was raised in an October Mt. Crested Butte Town Council meeting, the council directed town staff to research further and report back. After a couple of months of vetting the details, the council held a public hearing on the proposed changes December 21, and then approved an ordinance during the regular meeting that determines use tax calculation for the town. There will be a second reading of the ordinance at the council’s January 4 meeting.

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, he or she is exempt from paying local sales tax, whether buying roofing materials in Montrose or 2×10’s at Alpine Lumber.
Currently, 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. In the ordinance there are provisions directing permit applicants to provide the estimate of value of the construction project and the cost of construction and building materials, the idea being that estimate will result in the more accurate determination of building permit fees, and use tax.
Carlos Velado, Mt. Crested Butte’s community development coordinator, explained the reason behind the proposed changes. “The ordinance is being considered because the town feels that the current method of determining the value of construction projects and the method of estimating the cost of construction and building materials contained within the town code is inaccurate. Staff came to these conclusions based on speaking with other municipalities about how they determine these valuations and by also speaking with two separate local contractors and comparing their actual building/material costs to our calculated valuations.”
Previously, use tax for new construction was based on an equation in which a project’s square footage was plugged into a table with a number of multipliers. Now, contractors will be asked to provide an estimate of the cost of construction and building materials, and the 3 percent use tax will be applied to that number. The same system is currently used for smaller projects like renovations and additions.
A public hearing was held at the opening of the meeting, and no one from the public commented on the changes. During the regular meeting, council members raised a few questions.
Councilman Chris Morgan asked, “The net effect will be an increase?”
Velado responded, “More than likely.”
Morgan then proposed making the new use tax effective in September or October. “I suspect we’re not going to get overrun with building permits next year. Make it effective in September/October and give them incentive to start earlier and start a project this coming building season.”
Councilman Gary Keiser asked, “Do you really think it will sway people either way?”
“It cost me $1,500 to build a deck in taxes and fees,” said Morgan.
Then a few jokes were cracked by Morgan’s fellow councilmembers about how a person could land a plane on Morgan’s deck.
Despite Morgan’s proposal for pumping up construction this spring, the council decided to make the use tax calculation changes effective immediately.
Contractors will be required to provide their own estimate of the cost of construction and building materials, and pay the town of Mt. Crested Butte 3 percent use tax on that estimate. If their estimate is too high, there will be an opportunity to recoup excess payment later in the process. The town can also perform an audit of the numbers if it feels the estimate is too low.