How Avon’s newly approved use tax on building materials will work

On Nov. 5, Avon voters approved a 4% use tax on construction materials. The ballot measure’s success comes 22 years after Avon voters first rejected a use tax and follows a very similar measure that failed just last year.

Why did voters approve this year’s use tax and what will the tax look like when it goes into effect this winter?

What is Use Tax?

A tax of 4% applies to the use of building materials. While Avon already has a 4% sales tax on construction materials, city staff have argued at council meetings in the past that Avon regularly misses out on sales tax revenue that should go to the city when construction materials are purchased elsewhere.

“Our estimate is that (the use tax) will increase the amount of revenue through better collection by about 45%, perhaps close to 50%,” Avon City Manager Eric Heil said during the Aug. 27 council meeting.

A use tax is easier to monitor and collect and should allow the city to collect taxes on construction projects in Avon more effectively while keeping costs the same for those doing the construction.

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On Thursday, November 21, the use tax ballot measure passed with 1,156 (53%) votes in favor and 1,019 (47%) votes against. The use tax takes effect from January 1st.

How is use tax collected?

Use tax is collected at the time a building permit is issued for a project. It is calculated as 50% of the price of the total construction value (and if the total amount of finished materials is less than the taxed amount, the city will carry out an offset procedure to recover overpaid taxes).

Those who pay the 4% use tax are exempt from paying a city’s sales tax up to 4%, including Avon itself. (County and state sales taxes still apply.)

Anyone who pays the use tax receives a certificate of payment from the city, which they can present to building material dealers to receive the sales tax exemption. “If they go to Home Depot here or Lowe’s in Silverthorne, they can show that they paid a use tax and don’t pay up to 4% of a local sales tax,” Heil told the City Council on November 17, 2019. 19.

Home improvement projects in Avon that use less than $125,000 of building materials over a three-year period are exempt from use tax. The exemption is calculated based on the building permit submitted to the City of Avon for approval, which is issued and therefore tracked by property, not by project or contractor.

“If someone in your neighborhood up in Wildridge built a nice little pavilion and needed $70,000 worth of materials, they would get a building permit and we would exempt it. If a very large, expensive hotel were also added and they only built a pavilion for $70,000, we would exempt that from the tax too,” Heil said. “It’s not the size of the property that matters, but rather the work that needs to be carried out under a building permit.”

The three-year period is intended to prevent people from “taking advantage” of the tax break by speeding up the pace of construction to get exemptions for larger projects, Heil said.

Those who receive the exemption will still pay sales tax if they purchase their materials at Home Depot, for example, but they will not pay sales tax or use tax if the materials are delivered directly to their property, “which is more common,” Heil said .

Avon also provides use tax exemptions to organizations that are already exempt from sales tax, including government institutions, charities and public schools.

While the initial filing, payment documentation and subsequent tax reconciliation forms do not yet exist, city staff are busy preparing the forms before January 1st.

Where do the funds go?

The funds the city collects from the use tax go into Avon’s municipal housing fund. Avon defines community housing as housing for anyone who cannot afford market rental and home ownership prices in the city, including workers, seniors, retirees and disabled community members who cannot work.

The city’s spending on municipal housing ranges from the homebuyer assistance program “Mi Casa” to the construction of new capital projects for municipal housing.

Heil and Paul Redmond, the city’s chief financial officer, wrote in the City Council’s Nov. 19 meeting packet that they expect the use tax to generate revenue of about $500,000 per year. For comparison, the sales tax on building materials brought in around $300,000 annually.

Why did voters pass the use tax this year?

This year’s use tax ballot question marked the third time Avon has put a use tax on construction materials before voters. The cities of Vail, Minturn, Red Cliff, Eagle and Gypsum all already have a 3% to 4% building materials tax.

The first time the use tax issue was put before Avon voters was in 2002, when it failed with 573 votes no and 379 votes yes. Last year, a use tax question similar to this year was rejected by 60% of voters.

There were some key differences in both the language of the tax ballot question itself and the way the city approached voters this year compared to last year.

This year’s tax included a higher exemption amount of $125,000 and a provision that the funds would be earmarked for community housing. The city also sought to educate voters about how the tax works – including through articles in the Vail Daily, information on the city’s website and a mailer to Avon voters – after polls this summer showed the Voter education has dramatically increased the likelihood that the tax will happen.