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Home My WebLink AboutITEM IV-D11 1 Memorandum ~~x~~~~ T0: Councilmember Lynn Norman, Chair, Planning & Community Development Committee Councilmember Nancy Backus, Vice-Chair, Planning & Community Development Committee Councilmember John Partridge, Planning & Community Development Committee CC: Mayor Pete Lewis FROM: Kevin Snyder, AICP, Director, Planning & Development Department DATE: April 21, 2011 SUBJECT: DISCUSSION & INFORMATION: Ordinance No. 6342 -Construction Sales Tax Exemption The Planning and Community Development Committee unanimously recommended to the City Council approval of Ordinance No. 6342 (Exhibit 1) at its January 10, 2011 meeting. Subsequent to this meeting, Deputy Mayor Singer, prior to its review by the Municipal Services Committee at its January 24, 201 meeting, identified several concerns with the Ordinance. Based on these expressed concerns, staff did not move Ordinance No. 6342 forward for discussion at Municipal Services Committee or City Council. Between the end of January 2011 and March 2011, staff focused its work efforts on Ordinance No. 6341 (Fee Deferrals). Following the City Council's adoption of Ordinance No. 6341, staff is now bringing Ordinance No. 6342 back to the Committee for additional direction. Deputy Mayor Singer identified the following concerns pertaining to the Committee's review and consideration of Ordinance No. 6342 including: 1. The Ordinance does not consider a broad enough range of eligible target business classes that the Ordinance could be applied to; 2. The inclusion of Motion Picture Theaters in the eligible target business classes because of the likely low future sales tax return to the City from this class; 3. The inclusion of Full Service Restaurants in the eligible target business classes because of the likely low future sales tax return to the City from this class; and, 4. The Ordinance's applicability should be applied to the Downtown Urban Center in addition to the Heavy Commercial District (C3) and the Mixed Use Commercial District (C4} Staff requests Committee feedback and direction on these issues including any possible changes to Ordinance No. 6342. Background Ordinance No. 6342 offers the City a potential new economic development incentive in the form of a sales tax exemption. This exemption opportunity would be for purchasers who have paid a tax authorized under the provisions of Chapter 3.60 (Sales and Use Tax} of the Auburn City Code on construction materials, fixed equipment, or machinery installation directly related to the construction of new commercial buildings, expansion of existing commercial buildings that creates new or expanded building floor area that generates additional sales tax revenue on property zoned C3 (Heavy Commercial District}, and C4 (Mixed Use Commercial) - as currently proposed in the Ordinance - or on sales of or charges made for labor and services rendered in respect to such construction or installation of such machinery or equipment. Similar to other communities, the City of Auburn has been impacted by the national economic downturn that has impacted the local economy. These impacts have included diminished commercial construction activity as evidenced by Exhibit 2 that has reduced the number of new commercial developments that have the potential to generate significant sales tax revenue for the City of Auburn. As the Planning and Community Development Committee is aware, the City has very few incentive tools in economic development toolbox. Staff believes that the Council's passage of this ordinance could be a positive economic development action that will distinguish the City of Auburn in the highly competitive regional marketplace and be an effective community marketing tool. In its current form, draft Ordinance No. 6342 would be in effect for a period of four years, be limited to properties in the C3 (Heavy Commercial District), and C4 (Mixed Use Commercial) and be available only to a limited class of eligible business types based on statutory sales tax coding. At the Committee's January 10, 2011 regular meeting, staff provided the Committee with information from the Finance Director Coleman on construction sales tax receipts for the City of Auburn since 2006 (Exhibit 2). z EXHIBIT 1 ORDINANCE N0.6_ AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF AUBURN, WASHINGTON, AMENDING SECTION 3.60 OF THE AUBURN CITY CODE WHEREAS, Auburn City Code Chapter 3.60 imposes a sales or use tax, as the case may be, as authorized under RCW 82.14.030 (2), upon every taxable event, as defined in RCW 82.14.020, occurring within the City and specifies that the tax shall be imposed upon and collected from those persons from whom the state sales tax or use tax is collected pursuant to Chapters 82.08 and 82.12 RCW; and WHEREAS, the City of Auburn desires to promote economic development through the development of new businesses or the expansion of existing businesses in certain zoned areas of the City that will contribute to increased sales tax revenue generation within the City through new or increased sales activities that create taxable event opportunities as specified above; and, WHEREAS, the City of Auburn desires to incentivize the construction of new or expanded businesses in certain zoned areas of the City by providing a sales tax exemption and remittance opportunity for purchasers who have paid the tax imposed in the City of Auburn on construction materials, fixed equipment, or machinery installation directly related to the construction of new commercial buildings, expansion of existing commercial buildings, or tenant improvements to existing commercial buildings, or on sales of or charges made for labor and services rendered in respect to such construction or installation of such machinery or equipment; and, WHEREAS, the Auburn City Council finds that it is in the public interest because of current economic conditions and challenges to create an economic incentive for the Ordinance No. 6342 January 6, 2011 ~e°~2~1-~ Page 1 of 4 construction of new or expanded businesses in certain zoned areas of the City for businesses that will contribute to increased sales tax revenue generation within the City through new or increased sales activities that create taxable event opportunities, NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF AUBURN, WASHINGTON, DO ORDAIN as follows: Section 1. Amendment to City Code. That Chapter 3.60 of the Auburn City Code, entitled `Sales or Use Tax,' regarding the imposition of sales or use taxes within the City of Auburn, is hereby amended to read as follows: 3.60.035 -Construction Sales Tax Exemption 1(a). Purchasers in the Eligible Target Business Class who have paid the tax imposed by this Chapter on construction materials, fixed equipment, or machinery installation directly related to the construction of new commercial buildings, expansion of existing commercial buildings that creates new or expanded building floor area on property zoned C3 (Heavy Commercial District), and C4 (Mixed Use Commercial} or on sales of or charges made for labor and services rendered in respect to such construction or installation of such machinery or equipment, are eligible for an exemption as provided for in this Section. (b) Beginning on , 2011 through , 20154, a purchaser is eligible for an exemption specified under subsection (1) from the local sales and use tax paid under this Chapter, as authorized under RCW 82.14.030 (2), up to a maximum of twenty (20} percent of taxes imposed and paid to the City of Auburn not to exceed $100,000. The purchaser is eligible for an exemption under this subsection (1)(b} in the form of a remittance. 2. For purposes of this Section, the following definitions apply: (a) "Commercial building" means a structure that has, as its primary purpose, a Commercial Use as that term is defined in ACC 18.04.240. (b) "Expansion" means to add to the floor area or height of a building. (c) "Purchaser: means a person or entity that is the recipient of a good or service. 3. Eligible Target Business Class. The construction sales tax exemption specified in Section 3.60.035.1.a-b shall only apply to those businesses engaged in normal business activities under the following classifications of businesses occurring within the specified zoning designations: Ordinance No. 6342 January 6, 2011 ~e° Page 2 of 4 (a) General Merchandise, Warehouse Club, SuperCenter - Sales Tax Classification Code 45291 (b) Building Materials and Garden Home Center -Sales Tax Classification Code 44411 (c) Electronics and Appliances -Sales Tax Classification Code 44311 (d) Full Service Restaurants -Sales Tax Classification Code 722110 (e) New and Used Automobile and Light Utility Truck Dealers -Sales Tax Classification Code 44110 (fl Bowling Centers -Sales Tax Classification Code 713950 (q) Motion Picture Theaters (excluding drive-in theaters) - Sales Tax Classification Code 512131 4(a) A purchaser claiming an exemption in the form of a remittance under subsection (2)(b) of this section must pay the tax imposed by ACC 3.60.020. The purchaser may then apply to the City for remittance in a form and manner prescribed by the City and shall submit information that the City deems adequate to justify the exemption, including but not limited to: 1) Identification of the vendor/contractor; 2) North American Industry Classification System (NAILS) code under which the tax was reported; 3) Name and Unified Business Identifier (UBI) number of the vendor/contractor on the Combined Excise Tax Return filed with the State of Washington; and, 4) Detailed information supported the amounts reported under the State Use and Sales Tax section of the above report for Location Codes 1702 and 2724. (b) A purchaser may not apply for a remittance under this section more frequently than once per quarter. The purchaser must specify the amount of exempted tax claimed and the qualifying purchases for which the exemption is claimed. The purchaser must retain all records provided to the City in making its claim. (c) The City shall determine eligibility under this section based on the information provided by the purchaser, which is subject to audit verification by the City. If the City verifies eligibility, it shall remit eligible taxes paid to the purchaser. 5. Appeals. Any applicant aggrieved by an action of the City concerning eligibility or computation of remittance under this Section may file a written appeal to the City's Hearing Examiner in accordance with Chapter 18.66 ACC within fourteen (14) calendar days of receipt of the City's decision. The Hearing Examiner is specifically authorized to hear and decide such appeals and the decision of the Hearing Examiner shall be the final action of the City. Ordinance No. 6342 January 6, 2011 ne,.e,,,he. Q ~n~n Page 3 of 4 Section 2. Implementation. The Mayor is hereby authorized to implement such administrative procedures as may be necessary to carry out the directions of this legislation. Section 3. Severabili The provisions of this ordinance are declared to be separate and severable. The invalidity of any clause, sentence, paragraph, subdivision, section or portion of this ordinance, or the invalidity of the application thereof to any person or circumstance shall not affect the validity of the remainder of this ordinance, orthe validity of its application to other persons or circumstances. Section 4. Effective date. This Ordinance shall take effect and be in force five days from and after its passage, approval and publication as provided by law. INTRODUCED: PASSED: APPROVED: CITY OF AUBURN PETER B. LEWIS MAYO R ATTEST: Danielle E. Daskam, City Clerk APPROVED AS TO FORM: Daniel B. Heid, City Attorney Published: Ordinance No. 6342 January 6, 2011 ~e° Page 4 of 4 EXHIBIT 2 ~ 'i a o ~ ~ ~ ~ ~ ~ v ~ o ~ ~ ~ ~ ~ O ~ ~ ~ N ~ ~ C~ ~ ~I ~ O ~ O ~ N v ~ L ~ v _ ~ L Q ~ ~ ~ ~ L ~..1 ~ Q ~ ~ ~ ~ L O i ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ _ - - - - - - 0 ~ ~ ~ ~ ~ ~ V ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ . ~I