Use tax vs. sales tax considered in Avon
AVON — Years ago, voters in town rejected a use tax, or a tax on goods purchased outside of town to be used within town.
And while that decision bans the town from collecting a use tax, it doesn’t cover the use tax’s fraternal twin, sales tax. The U.S. Supreme Court differentiated between the two in McLeod v. J.E. Dilworth Co., as town attorney Eric Heil recently pointed out to the Town Council.
“A sales tax and use tax in many instances may bring about the same result. But they are different in conception, are assessments upon different transactions and in the interlacings of the two legislative authorities within our federation, may have to justify themselves on different constitutional grounds. A sales tax is a tax on the freedom of purchase. … A use tax is on the enjoyment of that which was purchased.”
While collecting sales tax on out-of-town purchases may be impossible for goods Avon residents buy in neighboring towns like Edwards — where there is no sales tax — for items delivered into Avon, like that new couch from American Furniture Warehouse, it becomes a little easier — just tack it onto the delivery fees.
‘TRYING TO GET THAT INDUSTRY INTO COMPLIANCE’
In recent years, the Avon finance department has undertaken an effort to reach out to more and more suppliers and encourage them to add Avon sales tax on items delivered into town. When an Edwards building supplier told longtime Avon builder Dave Dantas that they were going to start adding the taxes, Dantas called it what it was — a new tax. It was considered new because he had not been paying it before and because the supplier had not been collecting it.
While Dantas recognizes that the town has sought out a legal opinion on the matter and understands the collection to be legal, he said he didn’t think the legal opinion was asking the right question.
“The question to ask is can the town reinterpret the tax law that been interpreted for 20 years?” he said. “Then they just go make a change without it going to the citizens.”
Wright said the collection isn’t new, giving the example of American Furniture Warehouse being one of hundreds of out-of-town vendors who charge Avon’s 4 percent sales tax on deliveries made into the town.
“We have not singled out the building suppliers, in fact they are at the end of us rooting out and trying to get that industry into compliance,” Wright said.
Councilman Matt Gennett pointed out that the sales tax being collected through this mechanism has amounted to an average of $435,000 per year over the last 10 years.
“There’s huge ramifications of us just taking that off the books,” he said following the meeting. “There are so many intended consequences, it boggles the mind.”
DRAFT ORDINANCE BEING DELIVERED
Town attorney Eric Heil said he could draft an ordinance against enforcing the tax on building supplies.
Gennett said not enforcing sales tax on one specific sector of the business community is ridiculous.
Dantas, himself a former councilman, said the collections had been happening while he was on the council — specifically in the Wyndham project downtown — and he wasn’t aware of it.
“This isn’t a council-driven measure, it’s a staff-driven measure,” he said.
Gennett said you can’t fault the staff for trying to clean up their processes.
“When we see, in my job and Eric’s, that things can be improved and enforced, we can’t do it tomorrow morning,” Town Manager Virginia Egger said. “We are working through things that you have on the books that haven’t been well done or well enforced.”
In the meantime, everyone agreed that the process could be handled better.
“The town needs to have a process that we can understand and follow, so that we can follow the letter of the law,” said local builder Chris Evans. “Right now, I have no idea how the heck I would track not just what I buy, but what all the subcontractors on my projects are buying and bringing into the town.”
Egger said she will work with town staff to clean up the process while the Town Council considers how to handle the issue in another work session. In the meantime, Mayor Jennie Fancher asked Heil to prepare a draft ordinance to stop the collection of the tax.
“To say let’s just come back with an ordinance may be over simplistic,” Gennett said. “Are we just supposed to say ‘Don’t tax where (local builders) get their stuff from?’”