Steamboat ordinance brings in fraction of 2008 building-use tax estimate | SteamboatToday.com

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Steamboat ordinance brings in fraction of 2008 building-use tax estimate

— A 2008 estimate of outstanding building-use taxes owed by developers to the city of Steamboat Springs was inflated.

The city reported in 2008 that it was owed $4.6 million that could be recouped through a reconciliation, or audit, process that was part of its municipal code for 17 years but never enforced.

Since then, the city has collected $676,393 in building-use taxes as a result of the process. Building-use taxes are the equivalent of sales tax on building materials. Contractors are required to estimate those taxes at the time they receive a building permit. The city has the ability, by ordinance, to confirm actual expense on building materials and adjust the final amount of the tax.

Kim Weber, the city's budget and tax manager, said an estimate for the remaining amount of outstanding building-use taxes couldn't be provided because each project is so different.

"There's a difference in commercial versus resident, high end versus low end," she said. "There's so many different variables that there's no way to estimate. … An estimate should not have been done at that time."

The 2008 estimate created a stir as the economic recession began and municipalities across the country were bracing for deep cuts. The same was true in Steamboat.

At the time, the city said a provision adopted in 1991 as part of its municipal code to permit reconciliations never was enforced. The practice that required developers to estimate the tax amount based on the valuation of their project when a permit was issued didn't change and remained operating as it had since the city started collecting building-use taxes in 1974.

But with the addition of a new staff member, the city sought to recoup the building-use taxes for open permits issued since 2005. Developers said they were fine with the change moving forward but objected to the reconciliations for open building permits issued previously.

Current City Manager Jon Roberts and Finance Director Deb Hinsvark had not assumed their roles with the city when the building-use tax issue first surfaced in 2008.

The original reaction from the Steamboat Springs City Council was mixed about whether to change a longstanding practice or start collecting back taxes owed to Steamboat. Council members in September 2008 defeated an ordinance, by a 4-3 vote, that would have prevented city staff from reconciling open building permits issued in the three years prior.

"We were told it would generate a lot of money for the city, that we'd go back and find this pot of gold," said City Council member Walter Magill, who opposed the 2008 ordinance. "I didn't think it was going to, and I think the process has shown it didn't."

Instead, Magill said he's heard good reports from developers and thinks it was a fair process, a good example of the government working with people.

Weber said the city has assessed $886,667 and refunded $210,274 in building-use taxes to date. She said that net figure of more than $676,000 could change.

Weber said the developers of the $128.7 million One Steamboat Place have requested a refund on an estimated $2.9 million in building-use taxes. Weber said the One Steamboat Place reconciliation, the city's largest project audit to date, isn't complete but likely would require a refund.

"It's a large refund request," she said, but wouldn't disclose the amount because the reconciliation wasn't finished. "At first glance, there's probably a refund due but not what they requested."

Weber said the reconciliation process requires developers to estimate how much to pay in building-use taxes. It's 50 percent of the project's valuation for materials, a number multiplied by 4.5 percent. The other half is estimated as labor costs.

The Routt County Regional Building Department determines valuations that vary based on square-footage, construction and occupancy type, Chief Building Official Carl Dunham said. After construction is complete, the reconciliation process starts when a developer requests a certificate of occupancy.

Weber said a refund could be issued if the project's scope was reduced during construction or if the cost of materials was less than half the project's cost.

Fox Construction owner Tom Fox, who has been building in the Yampa Valley for three decades, said the reconciliation process has worked well for developers and the city.

He said it ensures that developers pay their fair share.

"We as contractors don't want to deprive the city of sales tax revenue. If the city gets deprived of taxes, we all as citizens get deprived of taxes," Fox said about revenue that pays for city services. "We all lose out."

Not all developers view the process in the same light.

Homebuilder David Josfan, who has been building locally for 16 years, said the reconciliation process has just made building more difficult. He suggested the city waive the building-use taxes to entice some contractors to start building again.

"It just got a lot more cumbersome and expensive at a time when the economy needs all the help it can get, especially the construction industry, which has been almost nonexistent the last couple of years," Josfan said.

City Council member Jon Quinn, who opposed the 2008 ordinance that would have prohibited city staff from conducting reconciliations for permits issued since 2005, said he thought it's been a fair process.

Quinn said it allowed developers to get a refund if their costs came in at less than the estimate or the city to recoup what it was owed.

"There had been an outcry because there was a perception the development community was getting away with something," he said. "I think what we're seeing is that wasn't the case before and the process before yielded the same results. Even if the process doesn't yield more money or less money, at least we know everyone has paid their way."

To reach Jack Weinstein, call 970-871-4203 or email jweinstein@SteamboatToday.com