Our View: Attempting to solve the tax question

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June 17, 2011: Tax board weighs Steamboat property tax

— The second incarnation of the Tax Policy Advisory Board has been meeting since late last year to consider whether to recommend a change in Steamboat Springs’ tax structure. The easiest course of action would be to recommend no change at all — that the city simply continue to rely on sales, building use and accommodation taxes to fund city government. And perhaps that’s ultimately the best decision.

Regardless of the outcome, we appreciate the time and thought being dedicated to the issue by the volunteer group. We wrote in October that the Steamboat Springs City Council ought to be wary of assembling another Tax Policy Advisory Board, particularly if there’s no public appetite for a potential change in our tax structure — such as a property tax to replace some portion of the city’s existing sales tax. Keep in mind that any changes to our taxes would have to be put to a vote of residents.

We’ve previously cautioned the Yampa Valley Housing Authority and the Steamboat Springs School Board against moving forward with tax questions given the state of the economy and the dire financial straits experienced by many in our community.

Of course, it’s the economy that led to the current analysis being conducted by the Tax Policy Advisory Board. The previous board, established in 2004, recommended to the city in 2005 that no significant change to our sales-tax-dependent revenue structure was needed. A key reason for that conclusion was that the state’s Taxpayer’s Bill of Rights and Gallagher Amendment work in such a way that a disproportionate burden of property taxes is placed on commercial properties — i.e., local businesses.

TABOR and the Gallagher Amendment haven’t changed. But unlike 2005, our business community is under significantly more stress.

But there is something particularly alluring about a city property tax, and it’s why the tax structure conversation continues to resurface. Second-home owners pay very little toward city services even though their properties make up about 48 percent of all Steamboat residential units, according to a 2008 study. Second homes also accounted for 62 percent of all residential assessed value at that time.

Tax Policy Advisory Board member Paul Hughes, the former city manager, cited those figures as reason for swapping a 4 percent city tax on food and utilities for a property tax that would generate a corresponding amount of revenue. Hughes said the plan, which is supported by at least a few other members of the group, seeks to be revenue-neutral, meaning the city wouldn’t collect more tax revenues than it currently does.

Additionally, the proposal offers a measure of protection to small businesses and homes of moderate value by including a temporary tax credit on the first $100,000 of actual value on all nonexempt real property. Its supporters say that will lessen the burden on full-time residents and commercial property owners while still ensuring that second-home owners foot more of the city tax bill. The group also is contemplating whether the plan, if supported by council and sent to the voters, should have a five-year sunset and then return to voters for an extension.

Tax Policy Advisory Board members, not surprisingly, are split on the proposal. The group soon will make its recommendation to the City Council, and it could suggest at least two very different plans. Whether one is the proposal presented by Hughes last week remains to be seen. And while we’re anxious to see the report, we’re also skeptical that there’s any real motivation for change in our community.  

Comments

Scott Wedel 3 years, 5 months ago

How about mentioning the second part of the original tax board's recommendations which mentioned the importance of building up suitable reserves since revenues were volatile?

These tax advisory boards are formed for the simple reason of giving political cover. What is remarkable is that the first tax board refused to do what was requested and instead said the current system was fine.

The thing is that while sales tax is regressive, that SB's sales tax is not that high. And SB is not an inexpensive place to live. So those for which the few dollars a month that a reduction in sales tax would make a real difference already are not living in SB.

If SB was truly interested in being fair to the less well off then they should be searching for a way to transfer sales tax revenues to Hayden, Oak Creek and Yampa for what their residents spent in SB.

Of course, fairness is not the real issue, the real issue is creating another tax revenue stream to feed the beast.

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Steve Lewis 3 years, 5 months ago

Please report both sides of this argument more fully, Pilot. In this viewpoint, as in Friday’s article, the significant downsides of Hughes proposal are not described in any quantitative, or useful way. So far, I don’t get it.

Yes Hughes' plan would take more from second home owners. But if I’ve got the math right, 2nd homeowners, being 62% of residential valuation here would pay 62% of the total residential 45% (Gallagher) tax share. - i.e 2nd homeowners would pay 28% of these new City property taxes.

http://www.realestatecolorado.net/realestateblog/2009/07/08/property-tax-revolt-brought-about-the-gallagher-amendment/

And when Hughes trades our sales tax for a property tax, approximately 50% of sales tax contribution that non-residents make would go away. That's a worthwhile trade? Give away 50% from non-residents to get 28% from non-residents?

And the real pain for locals: via Gallagher, 55% of this new tax would come from local businesses. You cannot get around that. In order to tag second homes with a tax, you’ll tag local businesses with twice that tax.

I don’t get it. What did I miss?

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addlip2U 3 years, 5 months ago

Unless the property tax proposal has a means to be revenue neutral going forward, Paul Hughes' proposal should be DEAD on arrival.

The idea to swap the 4 percent city sales tax on food and utilities for a citywide property tax that would generate a corresponding amount of tax revenue only in year one is unacceptable.

Does Paul Hughes propose to adjust the mill level each year to ensure that the tax revenue from the property tax is the same amount that would be generated by the 4 percent city sales tax? If not, as property value rise the property tax may well generate more revenue than the sales tax on food and utilities.

If this is simply a way to increase tax revenues in the future...forget it!

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Scott Wedel 3 years, 5 months ago

Here is the discussion from 2005 and the previous tax advisory board. Note that then they appeared to actually do research to try to determine how much sales tax was paid by tourists. Rest of the debate remains the same.

http://www.steamboattoday.com/news/2005/mar/08/property_tax_thrown/

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Steve Lewis 3 years, 5 months ago

That link is a worthwhile read Scott. Thanks.

I was an alternate on that previous TPAB. There was early agreement on that board that sales taxes are regressive compared to property taxes. But those considerations could not overcome the increasingly stiff tax factor that the Gallagher amendment brings to Colorado businesses. For similar valued property commercial properties now pay 4x the tax of residential owners.

In their quotes to the Pilot, TPAB members should be up front with the commercial property tax costs they are proposing. How much will business properties pay? How can one advocate as "fairness" any policy that will amplify such huge inequity?

http://www.springsgov.com/units/boardscomm/sustainableFunding/15GallagherAmendment.htm

"... under Gallagher, the assessment rate for nonresidential property is fixed at 29%. That means that of the total market value of the property, 29% is subject to taxation.

The residential property assessment rate floats each year in order to meet the 45/55 split mandated by Gallagher. Because of rapidly increasing residential property values, the residential assessment rate has sunk from approximately 21% in 1982 to around 7% today."

"... residential property, which made up only 45% of the state’s total property value in 1982, today accounts for 75% of the state’s total property value. However, due to the Gallagher Amendment, residential property is only responsible for 45% of the state’s total property tax burden. Conversely, commercial property, which now accounts for only 25% of total property value in the state, is still responsible for 55% of the state’s total tax burden."

There also was, and still is, another convincing argument to keep sales taxes - the property tax constraints of TABOR mean that over time, a city fairs better using sales tax revenues than they would from property tax revenues.

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pitpoodle 3 years, 5 months ago

Once again, you don't punish local businesses with higher taxes so that short-term tourists can have a tax break. Who thinks of this stuff?

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JLM 3 years, 5 months ago

This debate illustrates why English majors should never be allowed to deal with numbers.

Lewi has it completely, absolutely and perfectly right. He is an engineer and can do the damn math. Well played.

Nobody likes taxes. And nobody should be reluctant nor embarrassed or unwilling to express this dislike.

In the to-ing and fro-ing as to whether the natives or the outliers should shoulder the greater burden what is lost is simply this --- regardless of who is doing the paying, the taxes --- sales or property --- are too damn high.

Both sales and property taxes are regressive; and, both are onerous.

Stop putting your own neck in the noose.

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