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Ertl, Joseph, MVM Ltr Utility FCi[y Manager's Office C~y Halt 50 Wes[ 13ffl S~xeet Dubuque, Iowa 52001~864 (563) 589-4110 office (563) 589-4149 fax ctymgr~ci~ofdubuque.org Mr. Joseph Ertl PO Box 327 Dyersville, Iowa 52040 August5,2003 © Dear Mr. Ertl: This letter is in response to questions you raised regarding the City of Dubuque's franchise fee on gas and electric utilities in the City and the impact of the fee on city and school local option sales taxes. You raised a question regarding the legality of applying the franchise fee with local option sales tax having been approved by referendum. I have attached a copy of Iowa Code Section 422B.8 on Local sales and services taxes that states that the local option tax shall not be imposed on the gross receipts from the sale or use of natural gas, natural gas service, electricity, or electric service in a city or county where the gross receipts from the sale of natural gas or electric energy are subject to a franchise fee or user fee during the period the franchise or user fee is imposed. There is no provision that states that if the local option tax exists, it can continue to be charged along with a gas and electric franchise fee. You asked what the impact of the franchise fee would be on the West Dubuque School District and Dubuque Community School District. City staff visited with State officials to obtain the formula used for distributing School Local Option Sales Tax between school districts within Dubuque County. A copy of the calculation is attached. The impact of the loss of the 1% school local option tax from City of Dubuque residents' energy bills was estimated at $648,873 per year. This amount of revenue would not be generated beginning October 1, 2003. The breakdown indicates the impact would be split $527,988 less for the Dubuque Community School District, $119,652 for the West Dubuque Community School District and $1,233 less for the Maquoketa and Monticello School Districts. You had also asked about the impact on smaller communities in Dubuque County. The attached summary provides an estimate of the impact on each community and the County. When the City of Dubuque residents no longer pay the City's local option sales tax, the impacf is felt by all communities with 61.2% of the loss to the City of Dubuque and the remaining 38.9% loss to Dubuque County and other incorporated areas. This is Mr. Joseph Ertl August 5, 2003 Page 2 due to the distribution formula established by State Code which provides for distribution of 75% of revenue based on population and 25% based on property tax effort. I also wanted to share with you a little history on the Local Option Sales Tax and its impact on the City of Dubuque. Enclosed is a copy of a May 4, 1988 Telegraph Herald article that speaks to the February 2, 1988 passage of the City referendum and why, after the City of Dubuque passed its local option sales tax, the balance of smaller communities within Dubuque County then began to put forth an effort to pass the local option tax in those communities. The article states that the City of Dubuque is responsible for more than 80 percent of county retail sales (versus the 61.2% of local option tax distributed to the City of Dubuque). Following the election, the City of Dubuque received 100% of the distribution of the local option sales tax generated. However, following their successful referendum, and looking at the State established distribution formula, county and city officials from the smaller communities realized that "for $200,000 they would get about $1.25 million". The impact of successful referendums in the following two years by the unincorporated areas and smaller communities eventually cost the City of Dubuque approximately $1.25 million in local option sales tax revenues it was receiving. Please contact my office if you have any other questions regarding the franchise fee or local option tax. Sincerely~j~ Michael C. Van Milligen City Manager MCVM:pj Attachments cc: Mayor Terry Duggan Dubuque City Council Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager Pauline Joyce, Administrative Services Manager 422B.8 Local sales and services tax. A local sales and services tax at the rate of not more than one percent may be imposed by a county on the gross receipts taxed by the state under chapter 422, division IV. A local sales and services tax shall be imposed on the same basis as the state sales and services tax or in the case of the use of natural gas, natural gas service, electricity, or electric service on the same basis as the state use tax and shall not be imposed on the sale of any property or on any service not taxed by the state, except the tax shall not be imposed on the gross receipts from the sale of motor fuel or special fuel as defined in chapter 452A which is consumed for highway use or in watercraft or aircraft if the fuel tax is paid on the transaction and a refund has not or will not be allowed, on the gross receipts from the rental of rooms, apartments, or sleeping quarters which are taxed under chapter 422A during the period the hotel and motel tax is imposed, on the gross receipts from the sale of equipment by the state department of transportation, on the gross receipts from the sale of self-propelled building equipment, pile drivers, motorized scaffolding, or attachments customarily drawn or attached to self-propelled building equipment, pile drivers, and motorized scaffolding, including auxiliary attachments which improve the performance, safety, operation. or efficiency of the equipment and replacement parts and are directly and primarily used by contractors, subcontractors, and builders for new construction, reconstruction, alterations, expansion, or remodeling of real property or structures, and on the gross receipts from the sale of a lottery ticket or share in a lottery game conducted pursuant to chapter 99E and except the tax shall not be imposed on the gros~ss receipts from tl~e s._ale or use of natural gas, natural gas service, electricity, or electric service in a city or county where the gross receipts from the sale o--f natural - ~'~s or e'~'~'~' energy are subject to g franchise fee or user fee during the_Lp_eriod th~his-~$Y- user fee is imposed. A local sales and services tax is applicable to transaction~ witlfin those incorporated and unincorporated areas of the county where it is imposed and shall be collected by all persons required to collect state gross receipts taxes. However, a person required to collect state retail sales tax under chapter 422, division IV, is not required to collect local sales and seawices tax on transactions delivered within the area where the local sales and services tax is imposed unless the person has physical presence in that taxing area. All cities contiguous to each other shall be treated as part of one incorporated area and the tax would be imposed in each of those contiguous cities only if the majority of those voting in the total area covered by the contiguous cities favor its imposition. The amount of the sale, for purposes of determining the amount of the local sales and services tax, does not include the amount of any state gross receipts taxes. A tax permit other than the state tax permit required under section 422.53 or 423.10 shall not be required by local authorities. If a local sales and services tax is imposed by a county pursuant to this chapter, a local excise tax at the same rate shall be imposed by the county on the purchase price of natural gas, natural gas service, electricity, or electric service subject to tax under chapter 423 and not exempted fi'om tax by any provision of chapter 423. The local excise tax is applicable only to the use of natural gas, natural gas service, electricity, or electric service within those incorporated and 2003 Iowa Code 1 CD-ROM unincorporated areas of the county where it is imposed and, except as otherwise provided in this chapter, shall be collected and administered in the same manner as the local sales and services tax. For purposes of this chapter, "local sales and services tax" shall also include the local excise tax. 85 Acts, ch 32, § 96; 86 Acts, ch 1042, § 11; 86 Acts, ch 1199, § 7; 88 Acts, ch 1154, § 3; 89 Acts, ch 276, § 2; 95 Acts, ch 83, 813; 99 Acts, ch 151, § 30--32; 99 Acts, ch 156, § 12; 2001 Acts, ch 116, §13 1999 ame~dments to m~mmbered pam~aph 1 relating to the sales and ser~Sces tax on ~mturaI gas. natural gas stow'ice, elecu'icity, and electric sen:ice, amd 1999 amendments to mmumbered para.apb 3, and addh~g new tmnumbered paragraph 4 are effective May 1, 1999; 99 Acts, ch 151, § 31, 32, 89 Abatement of taxes owed or refined of taxes paid by ibtmd~Ses located ha Lee or Jefferson comity ou certa/_n purchases of tangible pm~onal property.' between July 1, 1997, and May 6, 2002; filing deadlk~e and limitation on claims for refm~ds; 2002 Acts. ch 1151, §33, 36 2003 Iowa Code 2 CD-ROM 1% School Local Option Tax Without $648,873 from Gas and Electric Sales within City of Dubuque Limits Distribution Formula per State Code Percent of Total Student Population of County Impact of no Utility School Local Option Tax Dubuque School District 81.37% (527,988) West Dubuque School District 18.44% (119,652) Maquoketa School District Less than 0.19% Less than $1,000 Monticello School District Less than 0.19% Less than $1,000 1% City Local Option Tax Without $648,873 from Gas and Electric Sales within City of Dubuque Limits Distribution Formula per State Code 75% Per Capita Distribution 25% Property Tax Distribution 7,988,345 2,662,782 City/County 2000 Percent of Percent * Sum of Percent of Percent * Census Total 75% Dollars Levies (2.) Total 25% Dollars Total Sales Tax Distr. Asbury 2,450 2.71% 216,281 458,638 0.73% 19,388 235,669 Balltown 73 0.08% 6,444 3,080 0.00% 130 6,574 Bankston 27 0.03% 2,384 0.00% 0 2,384 Bernard 97 0.11% 8,563 22,624 0.04% 956 9,519 Cascade 1,958 2.16% 172,848 448,101 0.71% 18,943 191,791 Centralia 101 0.11% 8,916 0.00% 0 8,916 Dubuque 57,686 63.75% 5,092,392 33,824,288 53.70% 1,429,881 6,522,273 Durango 24 0.03% 2,119 0.00% 0 2,119 Dyersville 4,035 4.46% 356,201 1,353,052 2.15% 57,199 413,399 Epworth 1,428 1.58% 126,061 285,816 0.45% 12,083 138,143 Farley 1,334 1.47% 117,763 427,968 0.68% 18,092 135,854 Graf 73 0.08% 6,444 9,443 0.01% 399 6,843 Holy Cross 339 0.37% 29,926 73,998 0.12% 3,128 33,054 Luxenberg 246 0.27% 21,716 65,539 0.10% 2,771 24,487 New Vienna 400 0.44% 35,311 114,497 0.18% 4,840 40,151 Peosta 651 0.72% 57,469 15,388 0.02% 651 58,119 Rickardsville 191 0.21% 16,861 2,968 0.00% 125 16,987 Sageville 203 0.22% 17,920 0.00% 0 17,920 Sherrill 186 0.21% 16,420 3,408 0.01% 144 16,564 Worthington 381 0.42% 33,634 137,571 0.22% 5,816 39,449 Zwingle 100 0.11% 8,828 9,596 0.02% 406 9,233 Dubuque County (1.) 18,508 20.45% 1,633,845 25,732,998 40.85% 1,087,831 2,721,676 Total 90,491 100.00% 7,988,345 62,988,973 100.00% 2,662,782 10,651,127 1. Includes only that portion of population in Dubuque County 2. Fiscal Years 1983, 1984, 1985 levies per County Auditor's office Impact of nc Utility LOST (14,357) (401) (145) (58o) (11,684) (543) (397,341) (129) (25,185) (8,416) (8,277) (417) (2,014) (1,492) (2,446) (3,541) (1,034) (1,092) (1 ,oo9) (2,404) (563) (165,806) (648,873)