Sales tax challenges

The City of Salida depends on sales tax. When business is down for our local vendors, the city’s budget for capital investments and operations suffers. This is a major challenge in our financial structure.

The city imposes no property taxes. In many parts of the country, property taxes provide a more stable source of revenue for municipal governments. The finances of Salida and other Colorado municipalities largely depend on the residents and visitors who buy goods within the city limits.

If you use the roads and public facilities in Salida but don’t shop here, you are passing a financial burden to someone else. Residents who chose to make their purchases on-line in a nearby major city are contributing to leakage from the city budget. Similarly, if you are a local merchant who is not collecting and/or reporting all taxes owed, someone else must make up for that shortfall.

Vendors collect sales tax from residents and visitors and send in the total amount (less a collection fee) to the state. In turn, the state processes the sales tax filing and disburses the local taxes to the counties and municipalities where the sales took place.

Each month, I review a distribution report that shows the amount reported by filing period and vendor. In any given month, the actual amount collected is not a perfect reflection of actual economic activity for that month. “Out of period” collections are noted so we can report the year over year change as a more accurate reflection of the actual economic activity for that period.

In January, collections of $272,373 tax were primarily for sales reported for the month of November 2009. As adjusted, we experienced a revenue decrease of 8% compared to November 2008.

The difference between the amount of funds received by the city and the true economic picture for that month can result from various reporting errors. For example:

  • Filing after the deadline
  • Reporting less tax than actually collected
  • Failing to report the value of “trades” with other vendors
  • Registering with a primary location outside of Salida and reporting tax collected here as a sale in another jurisdiction
  • Not registering the business with the state and failing to report at all

One argument for a “home rule” charter is that sales tax collections will increase. A primary reason for increase in tax revenue is a perception the city then has greater visibility to local sales activity. However, sales tax collections are reviewed locally today. Although vendors mail their tax payment to Denver, it comes right back here the following month to support the local community.

City staff pays close attention to sales tax. The local review of tax reports also serves as a basis for requesting investigations by state officials into unusual sales tax reporting patterns. State collections officials regularly follow up on missing tax filings. They also seek input from the local government regarding which businesses should be investigated.   

From time to time, residents make statements about businesses that are not paying local taxes. If that is the case, these situations should be reported to me.

We recognize that some businesses that remit sales tax late do so because of financial difficulties. However, the use of sales tax collected from a customer to pay other business expenses is not appropriate. Under reporting of taxes paid by customers for the business owners’ financial gain is clearly not legal or ethical.

We appreciate business owners for many reasons including the significant role they play in supporting the community. The city is striving to work in partnership to keep Salida the vibrant community that residents appreciate so much. The city has a “local vendor” preference policy for its own purchasing needs.

We encourage residents to support local businesses. The success of local businesses is essential to the city’s budget. A 1% decrease in taxable sales equates to approximately a $47,000 budget shortfall. For 2009, the 5% sales tax shortfall equated to approximately $235,000 less in revenue to pay for committed expenditures and capital investments. The 2010 budget assumes sales would be the same as 2009.