City Council Study Session Agenda and Packet 2012 05 08

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PAGE TWO SUBJECT: UPDATE /DISCUSSION - DRAFT ORDINANCE — SALES /USE TAX DATE: MAY 8, 2012 Outside Deliveries The proposed amendments to Section 3.20.220(BB) provides that in order to qualify for the sales tax exemption for items delivered outside the City, the seller must retain full ownership and liability for all items until delivered to a destination outside the City. This clarification will ensure that if the buyer chooses to take possession of the goods within the City via their own vehicle or by any other method by which the buyer assumes ownership and liability for the items, the transaction is taxable within the City. Filing Requirements Staff recommends the proposed amendment to Section 3.20.406 to require every business in the City to remit use tax due on the same schedule as sales tax, including zero returns if they had no tax due for their particular filing period. Currently, taxpayers are required to remit any sales tax owed the City based on the below schedule: $1 - $25 $26 - $50 $51 - $99 $100 or more ($714 in taxable sales /yr.) ($1,429 in taxable sales /yr.) ($2,829 in taxable sales /mo.) ($2,857 in taxable sales /mo.) Annual Semi - Annual Quarterly Monthly There are approximately 800 licensed businesses in the City: 400 — file annually 190 — file monthly 168 — file quarterly 18 — file semi - annually The current Code language requires taxpayers to remit use tax on the same schedule as above except that no return is required to be filed if the taxpayer has no use tax liability (i.e. a zero return). The previous Finance Committee /Council expressed concern over requiring non - retail businesses to remit a sales /use tax return when no tax is due stating that this would cause an undue burden for our local businesses. However, even service -only businesses that now have a sales /use tax license are already filling as annual filers for use tax purposes. Consequently, staff does not believe this will be a new burden for most businesses. Another factor to consider is the burden on staff to secure compliance with the law if there is no requirement for at least annual filing. This is an issue because most businesses, regardless of whether or not they "sell" at retail, make purchases of supplies or equipment for use in their business. The current tax software allows staff to automatically create "missing filer" notices when a taxpayer fails to remit sales or use tax for their filing period. When this happens, staff follows -up to determine the cause for the missing return and, if necessary, issues assessments or lien's in order to protect the City's right to any unremitted taxes. Staff has made personal inquiries by phone and email to approximately (100) businesses that did not remit a sales /use 9