Leader Blues

Wednesday, February 13, 2008

TOP STORY > >Austin might add a tax on construction

Leader staff writer

Austin City Council is considering asking voters to approve a one-cent sales tax that will allow the city to cash in on the building material for the hundreds of houses going up there.

ďIíve been talking to the people about it and most arenít opposed to a sales tax,Ē Mayor Bernie Chamberlain said. ďIíve even had people who have said they would go out and talk for us.Ē

Since Jan. 1, all merchandise purchased in Arkansas that isnít carried away by the shopper is taxed at the point of delivery rather than sale.

That means that the city and county tax on groceries and clothing likely will be collected where it is sold. But the sales tax on any furniture, appliances or building material that is delivered will be collected in the city or county to which it is delivered.

For example, Cabot, Austinís closest and biggest neighbor, will continue to receive revenue from the two- cent city sales tax collected at the Wal-Mart store there. But if Ridout Lumber takes a load of building material to Austin, Cabot doesnít get to collect its two-cent tax.

Since Austin doesnít have a city sales tax now, it doesnít collect the tax either. Currently the only local tax collected in Austin is the one-cent county tax that is collected across Lonoke County and divided according to population among the county and all the incorporated cities and towns.

For most cities, the tax revenue that is now leaving could be offset by the new tax revenue from merchandise purchased elsewhere.

But in Austin, which currently has no city sales tax, the truckloads of building material delivered every day represent money the city isnít getting to help pay for city services like police and fire protection.

Before the sales tax can be placed on the May 20 ballot, the city council must approve it by ordinance. Chamberlain said City Attorney Tim Blair is currently drafting the ordinance and she is trying to put together information for the council to show how much the city could expect to collect on building materials alone.

Chamberlain said builders recommended that the tax be passed. The tax on $50,000 for building materials would bring $500 to the city, which has a general fund budget for 2008 of $388,500.

The new state law was passed as part of an initiative called the Streamlined Sales Tax Project aimed at showing Congress that it is not difficult to standardize sales tax laws to make it easier for catalog and Internet companies to collect sales tax from their out- of-state customers. At the time Arkansas passed its law, 23 of 45 states with sales taxes were part of the project.

Tom Atchley with the Arkansas Department of Finance and Administration said that for now, those businesses collect taxes on a voluntary basis only.

With federal legislation, all Internet and catalog businesses would be required to collect taxes for the point of delivery, he said, and that could mean a significant increase in revenue for the state and its cities.

Don Zimmerman, executive director of the Arkansas Municipal League, said businesses like Wal-Mart support the initiative because they are being undercut by Internet companies. Getting Congress to pass legislation streamlining tax collection would level the playing field, he said.

Exactly how the Arkansas point-of-delivery tax law will affect cities is not yet known.

Although tax is paid at the time merchandize is purchased, it takes two months for the revenue to get to cities and counties.

December is the biggest shopping month of the year, but February is when the biggest tax checks from the state arrive.

Cabot City Clerk-Treasurer Marva Verkler said last fall after she attended a workshop on the new tax law that it would be March before she would have any idea about the impact of the new law and months after that before she would likely be able to make solid predictions about how the loss of taxes on building materials will affect her city.