How Avon’s newly approved use tax on construction materials will work
This month, Avon voters passed a 4% construction materials use tax, a project 22 years in the making that will generate an estimated $500,000 per year for the town's community housing fund
Chris Dillmann/Vail Daily archive
On Nov. 5, Avon voters approved a 4% use tax on construction materials. The ballot measure’s success comes 22 years after a use tax was first rejected by Avon voters and follows a very similar measure that failed just last year.
Why did voters approve this year’s use tax, and what will the tax look like as it goes into effect this winter?
What is the use tax?
The 4% tax applies to the use of construction materials. While Avon already has a 4% sales tax on construction materials, town staff has presented at council meetings in the past that Avon consistently misses out on sales tax revenue that should be going to the town whenever construction materials are purchased elsewhere.
“Our estimate is that (the use tax) will increase the amount of revenues by better collection by about 45%, maybe just a hair under 50%,” said Eric Heil, Avon town manager, during the Aug. 27 council meeting.
A use tax is more easily monitored and collected and should allow the town to more effectively collect taxes on construction projects in Avon, while keeping the cost to those doing the construction the same.
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As of Thursday, Nov. 21, the use tax ballot measure passed with 1,156 (53%) in favor and 1,019 (47%) against. The use tax will go into effect beginning Jan. 1.
How is the use tax levied?
The use tax is collected at the time a project’s building permit is issued. It is calculated as 50% of the price of the total construction value (and if final materials total less than the taxed amount, the town has a reconciliation process to recoup overpaid taxes).
Those that pay the 4% use tax will be exempt from paying the sales tax of any town or city up to 4%, including Avon itself. (County and state-level sales taxes will still apply.)
Those who pay the use tax will receive a certificate from the town certifying their payment that they can present to construction materials vendors to receive the sales tax exemption. “If they go to Home Depot here, or if they go to Lowe’s in Silverthorne, they can show that they paid a use tax and not pay up to 4% of a municipal sales tax,” Heil said to the Town Council on Nov. 19.
Home improvement projects that take place in Avon that use under $125,000 in building materials over a three-year period are exempt from the use tax. The exemption is counted based on the building permit submitted to the town of Avon for approval, which are issued, and therefore tracked, by property, not by project or contractor.
“If someone in your neighborhood up in Wildridge is building a nice little gazebo and it’s $70,000 worth of materials, they would come in for a building permit and we would exempt that. If a very large, expensive hotel also was going to come in and all they’re going to do is build a gazebo for $70,000, we would exempt that also,” Heil said. “It doesn’t matter the size of the property, but it’s the work to be done under a building permit.”
The three-year time period is to prevent people from “gaming” the tax break by pacing the rate of construction to receive exemptions on larger projects, Heil said.
Those receiving the exemption will still pay sales tax if they purchase their materials at, for example, Home Depot, but they will not pay sales tax or use tax if the materials are delivered directly to their property, “which is what happens more often than not,” Heil said.
Avon also provides exemptions from the use tax to organizations already exempt from the sales tax, including governmental institutions, charitable organizations and public schools.
While the initial filing, payment documentation and back-end tax reconciliation forms do not yet exist, town staff are in the process of creating the forms ahead of Jan. 1.
Where do the funds go?
Funds the town collects from the use tax go into Avon’s community housing fund. Avon defines community housing as housing for anyone that cannot afford free-market rental and homeownership prices in the town, including members of the workforce, seniors, retirees and disabled community members who cannot work.
The town’s community housing expenditures range from its Mi Casa homebuyer’s assistance program to the construction of new community housing capital projects.
Heil and Paul Redmond, the town’s chief finance officer, wrote in the Nov. 19 Town Council meeting packet that they anticipate the use tax will generate around $500,000 per year in revenue. For comparison, the sales tax on construction materials generated around $300,000 per year.
Why did voters pass the use tax this year?
This year’s use tax ballot question was the third time Avon has posed a use tax on construction materials to voters. The towns of Vail, Minturn, Red Cliff, Eagle and Gypsum all have construction materials use taxes of 3 to 4% already.
The first time the use tax question went to Avon voters was in 2002, when it failed with 573 voting against and 379 in favor. Last year, a similar use tax question to the one that passed this year was rejected by 60% of those who voted.
There were a few key differences in both the use tax ballot question language itself and the way the town approached bringing the question to voters this year versus last year.
This year’s tax included a higher exemption amount of $125,000, as well as the provision that the funding would be designated for community housing. The town also took pains to educate voters on how the tax worked — including through articles in the Vail Daily, information on the town’s website and a mailer sent to Avon voters — after polling this summer showed educating voters dramatically increased the odds that the tax would pass.
