Avon mulls construction material use tax for community housing revenue source
The use tax could make its way onto a ballot in the next two years
With affordable and available housing becoming increasingly difficult for residents in the valley to find, the town of Avon may consider a potential new use tax to help create a dedicated revenue stream for community housing.
At Tuesday’s Town Council meeting, officials discussed the potential of a construction material use tax. This tax coincides with the town’s community housing plan goals, which include seeking new opportunities for funding sources for the housing program.
A construction material use tax would be collected at the time a building permit was issued by the town and use a predetermined formula to calculate the construction value and therefore the tax. Commonly, construction use taxes calculate a use tax based off of 50% of the construction value. Once the use tax was collected, a build would be exempt from paying further sales taxes on materials related to the permit.
According to Scott Wright, the town’s assistant town manager and finance director, Avon is the only jurisdiction in Eagle County without a construction use tax. Eagle, Minturn and Vail all have a 4% use tax and Gypsum and Red Cliff both have a 3% use tax.
Timing is everything
In 2002, the town of Avon had a construction use tax on its ballot, which failed to pass. At the time, the tax was earmarked to fund transportation and recreation capital projects and services.
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In discussing whether the council wanted to place the construction use tax on an upcoming ballot, Council member Tamra Underwood urged town staff to evaluate the reasons this measure failed back in 2002.
“One of our main considerations needs to be the likelihood of success,” Underwood said. “We should not put something on the ballot that’s going to get defeated because that kills the concept for another 10 years. We need to be really sure that there’s an appetite for it.”
For this reason, the council discussed whether the staff should push for this to be on a ballot this year or hold off until the 2022 general election, where higher voter turnout and engagement could give the town a better chance at passing the tax.
According to Wright, there are two primary drivers of pushing the use tax onto a ballot this year. First, is that Avon has large developments on the horizon, which could lend itself to having a large financial impact on the town should a use tax be in place. The second driver is that town staff feel it’s important the town have that dedicated revenue source for community housing.
“Everyone is so on pins and needles for community housing,” Mayor Sarah Smith Hymes said.
Wright noted that the finance department also looked at a consumer use tax and a motor vehicle use tax in its evaluation of possible use taxes to support community housing. Staff, however, felt the construction material use tax had the best chance at passing in the town and had the best nexus with community housing as construction and housing seemingly go hand-in-hand, he said.
“In my experience working with ballot questions for new taxes, voters will more likely support a new tax that is dedicated to a pressing community need. Presenting the use tax as a new tax to support community housing is simple and easy for the general public to understand and I expect would resonate with the community based on the current housing shortage,” wrote Town Manager Eric Heil in his recommendation in the Town Council packet.
Pulling funds from elsewhere
One potential concern raised by the town council Tuesday was that should a construction use tax pass, the town would lose some sales tax dollars coming into the general fund.
According to Wright, over the past seven years, on average, the town has collected $399,446 per year in sales tax on construction materials. This represents almost 6% of all sales tax collections in the town. In 2020, the town collected $537,553 of sales tax on construction materials, which accounted for 2.9% of the total general fund operating revenue.
“I hate to see the general fund lose almost 6% of its sales tax base and have it be earmarked now for community housing. That gives me a little pause, that’s a big number, just because of our other general fund programs,” Wright said.
Should a new 4% use tax be introduced on construction materials, the town would have generated $655,447 per year in revenue. This is based off of the town’s 10-year average of the total value of building construction, valued at nearly $33 million.
Ultimately, the council members wanted further information on what the financial implications of this use tax would be.
“I think I need to see more information, I think I’m still a little bit foggy on the various different scenarios of what the existing conditions are today versus what the proposed would be,” said Council member Scott Prince, adding that he also wanted to see “further financial impacts to the budget. If you’re saying that’s 6% of our sales tax, that could be a substantial number.”
Regardless of implications and timing, the council is awaiting direction and further information on the use tax from the town’s finance committee, which is expected to meet next week. Following that meeting, the council is expected to discuss this use tax further at its next meeting, scheduled for Tuesday, Aug. 10.