Commission urges changes in city revenue gathering

mowen@ledger-enquirer.comDecember 1, 2012 

A volunteer commission has been studying how the Columbus Consolidated Government gets its revenue with an eye toward bringing the maze of taxes, fees, fines and such into the 21st century.

Mayor Teresa Tomlinson's Revenue Review Commission was appointed early in her term and charged not with finding ways to get more money out of the city, but with finding more appropriate ways to generate the same amount of money, she said.

"Those governmental entities, whether they're municipalities, states or, frankly, even the country, that find themselves in economic dire straits are those that have not thoughtfully updated their revenue sources," Tomlinson said. "They're applying a 1950s or 1970s revenue structure to a 2012 service demand level."

The 11-member commission, with seven ex-officio members from the city government, was chaired by attorney Seth Harp and financial planner Tyler Townsend, who presented its findings and recommendations to Columbus Council on Tuesday. They included nine sources of revenue either currently in use or that could potentially be used:

• Occupation tax

• Regulatory fees

• Inventory tax

• Fees and fines

• Urban service districts

• Ad valorem tax

• Sales tax

• Excise taxes

• Military retirement pay tax exemption

"In some areas, we provide specific recommendations and in others we point to areas that deserve further review," Townsend said.

Occupation tax is collected from businesses that have a physical presence in the city to provide revenue for the city's general fund. It provides about 10 percent of the city budget.

Townsend said Columbus businesses pay a higher occupational tax than similar businesses in similar cities. He said the commission recommends the city review this and, in order to make the city more competitive in industrial recruiting, align the occupation tax with that of other communities.

Regulatory fees are paid by businesses that operate within the city, but may or may not have a physical presence here. The fees are applied to only three of the 31 types of businesses that operate in the city and qualify for the regulation. Currently, construction, pawn shops and escort services pay the fees. Among the ones that could be regulated but aren't are taxis, scrap metal processors, firearm dealers, massage parlors, landfills, boarding houses, locksmiths and hypnotists.

Inventory taxes are paid by businesses based on the amount of inventory on hand at the beginning of each year. Townsend said the commission found that the tax hits small businesses harder than the large because inventory tax abatements are a popular enticement that cities use to lure large businesses to town.

"While we recognize the benefits to our community provided by these large businesses, we also value small businesses," Townsend said. "We recommend that the city continue to consider the impact on small businesses when these inventory tax abatements are awarded."

Fees are paid to the city for services provided; fines are paid to the city for violation of city ordinances, Townsend said. The commission suggested reviewing the fee structure to make sure that the fees cover the actual cost of the city services provided.

Urban service districts are areas where millage rates differ because of higher or lower level of city services available. The commission recommended that the city pursue creating such districts to stimulate investment and development in areas that need it most.

The commission also recommended that the city make another attempt to address the disparity in property taxes caused by the property tax assessment freeze. The commission recommended that the city pursue the mayor's idea of allowing those with the freeze to maintain it, but removing it from property when it changes hands, establishing an eventual sunset on the freeze.

"Over time, this will bring property taxes back into balance, lowering the burden on new homeowners and removing the artificial incentive to buy homes elsewhere," Townsend said.

The state collects all sales tax revenue, then disperses the funds to the cities. But the city is not provided any specific information, such as the amount collected by each industry or business. Such information, known as "point of sale" information, would help the city with planning.

Excise taxes are collected on the sale of alcoholic beverages. Columbus charges a tax equal to 5 percent of the previous sale of alcoholic beverages, but caps the tax at $5,000. Townsend said that shifts the burden unfairly to the smaller businesses.

"For example, an establishment selling $100,000 worth of alcoholic beverages pays 5 percent of their revenue, while an establishment selling a million dollars worth pays only one-half of 1 percent of their revenues."

The commission recommends that the city phase out the $5,000 cap by increasing it over several years.

The commission also recommended that the city urge state lawmakers to exempt military retirement pay from income taxes.

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