Editorial Board, September 2008
- Suzanne Schlicht, general manager
- Brent Boyer, editor
- Mike Lawrence, city editor
- Tom Ross, reporter
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The Steamboat Springs City Council should reject a proposed ordinance that would prevent the city from collecting millions in building use taxes owed to its citizens.
At a time of significant budget cuts and economic uncertainty, it is unfathomable that a majority of council members would act in anything but the best interest of the community at large. But by passing an ordinance Tuesday that would prevent the city's Finance Department from forcing builders to settle up with the city - as has long been mandated by city code - the council is poised to take that step.
At issue is a proposed ordinance that would revise the existing municipal code to preclude the city from forcing builders to reconcile use tax estimates paid on all open building permits dating back three years. The municipal code requires builders to pay taxes on all building materials used for projects within city limits. To be issued a building permit, builders estimate the amount of building materials use tax their project will owe, and they pay a deposit to the city. City code makes clear that before a final building inspection and certificate of occupancy is issued, builders must pay the total use tax owed to the city. The code also makes clear the city can audit the use tax payments.
The shameful and embarrassing reality is that the city has failed to enforce its own use tax code since its adoption 35 years ago and revision 17 years ago. In so doing, the city has lost out on untold millions in use tax payments. Blame falls on many past and present city staffers, department heads, city managers and city councils.
But the building community also is at fault. For years, builders have paid the use tax deposit in order to receive a building permit. And for years, builders have known the city wouldn't audit their use tax estimates or force them to reconcile with the city before a final inspection and certificate of occupancy was issued.
Former City Manager Alan Lanning and other city staffers recognized the problem and set out to resolve it. In early March, the city sent a letter to builders informing them the city actually would enforce its use tax code.
After complaints from the building community, the city adjusted its stance and said it would require reconciliation only on open building permits issued in the past three years - in other words, those projects for which a final inspection and certificate of occupancy had not been issued. All new building permits issued after March 10 also will be subject to reconciliations and audits.
City Finance Director Lisa Rolan estimates the city could be owed as much as $4.6 million in unpaid use tax on those open permits, although the accuracy of that number is debatable.
Some council members and members of the building industry say forcing the reconciliation of open permits amounts to retroactively punishing builders who simply were doing business as it always has been done. They say they might not be able to collect unpaid use taxes from buyers who already have signed purchase contracts. They agree, however, that it's fair for the city to reconcile all permits issued on or after March 10.
It's hard to be sympathetic when the rules never have changed. If builders were accurately estimating their use taxes at the time they applied for building permits, any difference in actual use tax payments should be minimal. Builders who work under cost-plus agreements with their clients should be able to collect any additional use taxes when they settle up.
The City Council has responded by drafting an ordinance that would amend the city's use tax code to exempt builders with open building permits issued before March 10 from having to pay the taxes owed to the citizens of Steamboat.
Meanwhile, council members spent hours last week debating significant budget cuts across all departments as well as to community support funding. The city's Capital Improvements Plan - where building use tax revenues are allocated - is expected to spend $10 million from its reserves next year.
Some council members say the ordinance revising the use tax code and preventing the reconciliation of use taxes paid on open building permits is what's fair and equitable. In a hint of irony, during a discussion last week about illegal secondary dwelling units and the planning director's decision not to fine a property owner found to have violated city codes, Councilman Jon Quinn said: ": but the message I'm concerned about is the message to the rest of the community."
If they approve the ordinance amending the city's use tax code, Quinn and his fellow council members must live with the message such a vote would send the rest of the community. And they must explain to their constituents why the city failed to collect millions it is owed while at the same time slashing the budget and continuing to spend from its dwindling reserves.