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2018-085 Sales Tax OverviewDate: July 13, 2018 Report No. 2018-085 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: The purpose of this report is to provide the City Council with details regarding the City’s sales tax rates, their intended use, and other options available. BACKGROUND: The total sales tax rate in the City of Denton is currently 8.25%. Of that rate, 6.25% is allocated to the State of Texas, 1.5% is allocated to the City of Denton, and 0.5% is allocated to the Denton County Transit Authority (DCTA). The table below lists the FY 2017 estimated sales tax revenue generated in the City of Denton by category: Sales Tax Revenue Recipient Estimated Sales Tax Revenue from the City of Denton State of Texas (6.25%) $153.3 million City of Denton (1.5%) $36.8 million DCTA (0.5%) $12.3 million Estimated Total $202.4 million Texas has both a state and a local option sales tax. The state sales tax, called the Limited Sales and Use Tax, was first enacted in 1961 by the 57th Texas Legislature, to be effective September 1, 1961. Although it was not the first sales tax in Texas (before that time there had been a sales tax on certain items such as motor vehicles, gasoline, cigarettes, etc.), the 1961 Limited Sales and Use Tax was the first broad-based tax in the state. The tax rate initially set in 1961 was 2% of the retail sales price of all tangible personal property not specifically exempted. The legislature changed the rate to 3% in 1968, 3.25% in 1969, 4% in 1971, 4.125% in 1984, 5.25% in 1986, 6% in 1987, and 6.25% in 1990. In 1968, City of Denton voters approved the adoption of a 1% municipal sales tax rate. Voters increased that rate by 0.5% in 1994 for property tax relief. Denton’s total sales tax rate for municipal operations has been 1.5% since 1994. In 2004 voters approved an increase of 0.5% for the DCTA, bringing the total local option rate to its current level of 2% which is the maximum per Texas Tax Code 321. Revenue from the City’s 1% sales and use tax and 0.5% municipal sales tax for property tax relief goes to the General Fund and can be used for any lawful purpose. The 0.5% sales tax for metropolitan and rapid transit authorities is restricted to transit expenses and is revenue to the DCTA. DISCUSSION: A modification to any component of the City’s current local option sales tax rate (2%) would require a ballot proposition. This could be initiated at the discretion of the City Council or through a petition signed by at least 20% of voters who cast ballots in the most recent regular Date: July 13, 2018 Report No. 2018-085 municipal election. Should residents want to modify a portion of the current local option sales tax rate (1% regular rate, 0.5% propert tax relief rate and/or 0.5% transit rate) and replace that portion of the rate with an alternate allowable purpose, a joint proposition could be used on a single ballot to reduce one rate and add another rate. For example, a ballot could call for the repeal of the 0.5% transit portion of the local option sales tax and then add a 0.25% for Type A Economic Development and 0.25% for 4 Type B Economic Development. Staff would note that in this scenario, the City would have to repay its portion of DCTA’s current outstanding debt and negotiate terms for existing DCTA facilities/infrastructure located within the City limits. Other examples may involve the repeal of the 0.5% for property tax relief or the 1% regular rate portion of the loal option sale tax. In either scenario, the City’s General Fund would see a revenue shortfall. For FY 2018-19, each 0.5% is approximately $12 million or the equivalent of 12 cents on the property tax rate. For a $200,000 single family home, this is approximately $240 per year. Please do not hesitate to contact me if you have any further questions about the city’s sales tax. ATTACHMENTS: Texas Comptroller of Public Accounts – Guide on Local Sales Tax Options STAFF CONTACT: Antonio Puente, Jr., Director of Finance (940)-349-7283 Antonio.Puente@cityofdenton.com Glenn Hegar Texas Comptroller of Public Accounts This publication is intended as a general guide and not as a comprehensive resource on the subjects covered. It is not a substitute for legal advice. JANUARY 2018 1 FOR MORE INFORMATION, VISIT OUR WEBSITE Comptroller.Texas.Gov RECEIVE ECONOMIC DEVELOPMENT TAX HELP BY EMAIL AT econ.dev@cpa.texas.gov SALES TAX OPTIONS FOR CITIES SALES AND USE TAX (Increments of 0.125 percent) – Most cities in Texas have this form of sales tax. It may be mposed by any incorporated city. Revenues are deposited into the city’s general revenue fund and may be used for any lawful purpose. ( i – This form of tax may be imposed by any • Type B incorporated city. Revenues must be turned over to a development corporation formed to act on behalf of the city to carry out programs related to a wide variety of projects including business development and public parks. Tax Code, Chap. 321.) SALES TAX FOR ECONOMIC DEVELOPMENT* (Increments of 0.125 percent) – Two options are available for a city to adopt this tax: • Type A – This form of tax may be imposed by most incorporated cities. (There are exceptions in certain counties with mass transit systems). Revenues must be turned over to a development corporation formed to act on behalf of the city to carry out programs related to industrial development, business infrastruc- ture and the promotion of new and expanded busi- ness enterprises that create or retain primary jobs. For more detailed information, see the Comptroller’s Economic Development Sales Tax brochure (PDF). (Loc. Govt. Code, Chap. 501-505.) STREET MAINTENANCE SALES TAX (Increments of 0.125 percent) – All cities are authorized to hold an election to adopt a sales tax to repair and maintain existing city streets. For most cities, the tax expires after four years unless a new election is held to reauthorize the tax. The revenue from this tax may be used only to maintain and repair existing city streets and sidewalks. For more detailed information, see the Comptroller’s Street Maintenance Sales Tax brochure (PDF). (Tax Code, Chap. 327.) MUNICIPAL DEVELOPMENT CORPORATION* (0.125, 0.25, 0.375 or 0.5 percent) – A city may create a municipal development corporation to undertake projects that provide job training, early childhood education, after-school programs, schol- arships, literacy promotion and other projects. The Comptroller’s online sales tax rate tool locates all sales tax rates in effect for any Texas address. LOCAL SALES TAX OPTIONS A city, county or special purpose district may adopt a sales tax provided the combined rate of all local sales taxes would not exceed 2 percent at any location within its territorial limits. All local sales taxes require voter approval. * This tax is actually imposed by a board, district or authority created by and for the benefit of a city or county. 22 FOR MORE INFORMATION, VISIT OUR WEBSITE Comptroller.Texas.Gov RECEIVE ECONOMIC DEVELOPMENT TAX HELP BY EMAIL AT econ.dev@cpa.texas.gov LOCAL SALeS TAx OPTIONS more than 5,000 or by a county with a population of more than 130,000. The governing body in a municipality or commissioners court may specify the number of years (5, 10, 15 or 20) the district would be continued. Revenues from the sales tax may be used to finance a wide variety of crime control and prevention programs. (Loc. Govt. Code, Chap. 363, and Tax Code, Sec. 323.105.) VENUE TAX “STADIUM BILL” (Increments of 0.125 percent) — This sales tax is one of several revenue options available to a city or county to fund sports and community “venue” proj- ects. Multiple cities and counties in any combina- tion may join to form a venue district under Chapter 335, Local Government Code, as well. Some exam- ples of a “venue” are a stadium, convention center, park or economic development-type facility. (The rate for a county imposing the tax is capped at one-half of one percent.) For more detailed information, see the Comptroller’s Sports and Community Venue Tax bro- chure (PDF). (Loc. Gov. Code, Chap. 334 and 335.) METROPOLITAN AND RAPID TRANSIT AUTHORITIES/MUNICIPAL TRANSIT DEPARTMENTS* (0.25, 0.5, 0.75 or 1 percent) – In certain instances, authorities may be created to levy a sales tax to provide transportation services in participating cities. These are not offered statewide to all cities and are Voters in the city may authorize adoption of a sales tax to fund activities of the corporation. (Loc. Govt. Code, Chap. 379A.) MUNICIPAL DEVELOPMENT DISTRICT* (0.125, 0.25, 0.375 or 0.5 percent) – Cities may hold an election in all or part of a city, including the extraterritorial jurisdiction, to create a municipal development district and adopt a sales tax to fund the district. The district may undertake a variety of projects including a convention center, civic cen- ter, auditorium and other projects eligible for Type B Corporations under Chapter 505 of the Local .) Government Code. (Loc. Govt. Code, Chap. 377 FIRE CONTROL, PREVENTION, AND EMERGENCY MEDICAL SERVICES (EMS) DISTRICTS* (0.125, 0.25, 0.375 or 0.5 percent) – Cities with a population between 25,000 and 550,000 or more than 1.9 million may create an EMS district. The district may include all or any part of a city. The district may finance the operation of a fire control, prevention and EMS program. (Loc. Govt. Code, Chap. 344 Tax Code, Sect. 321.106, and .) MUNICIPAL SALES TAX FOR PROPERTY TAX RELIEF (Increments of 0.125 percent) – This “additional sales tax” may be imposed by most incorporated cities (there are exceptions in certain counties with rapid transit systems). Revenues are deposited into a city’s general revenue fund. Cities adopting this form of local sales tax must reduce the effective and rollback property tax rates within the city. For more detailed information, see the Comptroller’s Using Sales Tax To Reduce The Property Tax Rate brochure (PDF). (Tax Code, Chap. 321.) SALES TAX OPTIONS FOR CITIES & COUNTIES CRIME CONTROL AND PREVENTION DISTRICT* (Increments of 0.125 percent up to 0.5 percent maximum rate) — This sales tax may be imposed by a city located in a county with a population of Local sales tax rates may not exceed a combined 2 percent. 3 FOR MORE INFORMATION, VISIT OUR WEBSITE Comptroller.Texas.Gov RECEIVE ECONOMIC DEVELOPMENT TAX HELP BY EMAIL AT econ.dev@cpa.texas.gov LOCAL SALeS TAx OPTIONS generally found in metropolitan areas. Cities may opt to join and, in some cases, withdraw from an authority with voter approval. The tax rate is gener- ally implemented in 0.25-percent increments under Transportation Code, Sect. 453.401. (Tax Code, Chap. 322 and Transportation Code, Chap. 451, 452, and 453.) SALES TAX OPTIONS FOR COUNTIES COUNTY SALES TAX FOR PROPERTY TAX RELIEF (0.5 or 1 percent) – This sales tax may be imposed by most by most counties also imposing an ad valorem tax. Revenues are deposited into a coun- ty’s general revenue fund. The rate is 0.5 percent, except in counties with no territory within the limits of a municipality where the rate is 1 percent. Hospital districts also may impose this sales tax, but at different rates. For more detailed information, see the Comptroller’s Using Sales Tax To Reduce The Property Tax Rate brochure (PDF). (Tax Code, Chap. 323.) COUNTY ASSISTANCE DISTRICT* (Increments of 0.125 percent) – Counties may hold an election in all or part of the county, to create one or more county assistance districts and adopt a sales tax to fund the districts. A district may under- take a variety of projects including roads or high- ways; provision of law enforcement and detention services; the maintenance or improvement of librar- ies, museums, parks or other recreational facilities; or other services that benefit the public welfare. For more detailed information, see the Comptroller’s County Assistance District Sales Tax brochure (PDF). (Loc. Govt. Code, Chap. 387.) EMERGENCY SERVICES DISTRICT (ESD)* (Increments of 0.125 percent) – Counties may hold an election in all or part of the county, to create one or more emergency services districts and adopt a sales tax to fund the districts. Funds may be used to hire emergency personnel, contract with other entities to provide emergency services, and/ or purchase equipment and facilities. (Health and Safety Code, Chapters 775.) * This tax is actually imposed by a board, district or authority created by and for the benefit of a city or county. Sales taxes paid on purchases this month are generally remitted to the Comptroller next month and allocated to local taxing entities the following month. WE’RE HERE TO HELP! If you have questions or need information, contact us: This publication is intended as a general guide and not as a comprehensive resource on the subjects covered. It is not a substitute for legal advice. Glenn Hegar Texas Comptroller of Public Accounts For more information, visit our website Comptroller.Texas.Gov Receive economic development tax help by email at econ.dev@cpa.texas.gov Texas Comptroller of Public Accounts 111 East 17th StreetAustin, Texas 78711-1440 Sign up to receive email updates on the Comptroller topics of your choice at comptroller.texas.gov/subscribe. The Texas Comptroller of Public Accounts is an equal opportunity employer and does not discriminate on the basis of race, color, religion, sex, national origin, age or disability in employment or in the provision of any services, programs or activities. 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