Every autumn, city councilors make the final call on what should be sacrificed, and spared, in the city budget.
Clemency is rare. This year's survivors include Amblicab and Silver Key transportation services for the disabled and elderly, youth programs at Deerfield Hills and Meadows Park community centers, recreational programs for seniors, and ... large retailers.
The 2009 proposed $237.8 million general fund budget called for the city to give less to large retailers like Wal-Mart, Home Depot and Phil Long, but Council was quick to reject that idea Monday, leaving the city with a brand-new $1.2 million shortfall to mend. That, by the way, is in addition to more than $25 million Council just bridged with cuts and layoffs.
By a 7-2 vote, Council refused to cap "vendor fees" the portion of sales tax that retailers are allowed to keep as partial compensation for the cost of collecting and remitting sales tax. The cap would have meant that a retailer couldn't keep more than $100 per reporting period, a move that would have impacted about 6 percent of sales tax-licensed businesses in the city the few that have sales greater than $200,000 a month.
Currently, Colorado Springs retailers keep $2 out of every $100 in sales tax they collect for the city. Many other large Colorado municipalities offer a lower fee (Denver's is 50 cents out of every $100 collected) or limit the fee (Fort Collins caps it at $45).
Nevertheless, most councilors say capping the vendor fee amounts to punishment for businesses, and during harsh economic times. That's a lot of sympathy coming from a Council that recently said nothing was sacred in light of a tight budget, including the jobs of 90 of its employees.
Vice Mayor Larry Small puts it this way: "$1.2 million is a pretty big hit to our local economy." He suggests capping the vendor fee would be discriminatory, comparing it to President-elect Barack Obama's plan to increase taxes only for those making more than $250,000 a year (another plan Small apparently doesn't care for).
Councilor Scott Hente says there's already a trend of big-box stores opening just outside city limits, where they can escape collecting city sales tax altogether.
"I don't want to encourage them to do more of that," Hente says.
The vendor fee is not enough to fully compensate any business for the time and cost expended in processing sales tax. But some businesses do better than others. Since large retailers sell more product, they collect more sales tax, and retain a larger fee. Interestingly, a 2006 study by PricewaterhouseCoopers, found large retailers also spend a smaller percentage of their money processing sales tax than small businesses.
"On a national basis," the study states, "... average sales tax compliance cost either as a percent of sales tax collections or as a percent of taxable sales is more than six times greater for small retailers than for large retailers."
Larger retailers usually benefit from more sophisticated systems to process sales tax collections, and they can also combine multiple retail locations in a single return, creating economies of scale, explains city sales tax manager Candice Bridgers. Car dealers prove an exception; they are required by law to follow more complex tax collection procedures and cannot collect vendor fees on all their sales.
Mayor Lionel Rivera hoped to cap vendor fees for all businesses except car dealers, but his idea never made it to the table. Only the mayor and Councilor Jan Martin had any interest in capping the fees.
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