BOARD00489

• Board Meeting Date: 7/24/2000
• Description: Impacts of Initiative 205 on Water Districts
• Board Meetings - Doc Type: Memo

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Question 8. Does the Amendment cut sales taxes on food?

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Most governments tax sales of "prepared or served" food (primarily food consumed
at restaurants). A number of local governments also tax the sale of food at grocery stores. The
Amendment does not directly cut the sales tax paid on food at the point of purchase; instead, it
provides an additional property tax reduction tied 10 sales taxes collected on food and drink (except
taxes on tobacco and alcohol). Only people who pay property taxes will be entitled to the tax cut
associated with the sales tax on food and drink (the "Food Tax Cut").

The amount of the F ood Tax Cut will be calculated by each local governmenl which
imposes a sales tax on food and levies a property tax. The Amendment does not specify a
calculation method; however, it is likely the Food Tax Cut will be calculated as follows: the local
government determines its total sales tax revenue from food and drink (other than tobacco and
alcohol) and divides that revenue by the total number of property tax bills for property within its
boundaries. If the resulting amount exceeds $25 in the fIrst collection year, then each property tax
for that government will be reduced $25. This amount is in addition to the basic property tax cut
described in Question 6. If the resulting amount is less than $25 (for example $12.50), then the total
property tax cut for each property tax bill for that government will be $37.50 in the first year (the
$25 basic property tax cut described in Question 6 piUs the $12.50 Food Tax Cut.) Note that a
government which imposes a sales tax but which has no property tax (such as the Regional
Transportation District) will not be affected by the Food Tax Cut.

The State is similarly impacted by the Food Tax Cut except that the amount of the ..
cut is subtracted from the State income tax. .

The Office of State Planning and Budgeting ("OSPB ") estimates that the fiscal impact
of this cut is approximately $183.5 million for the thirty months ended JlU1e 30, 2003; DOLA
estimates the impact of this cut on local governments to be approximately $142.9 million in 2001.

Implementation of the Food Tax Cut will require legislative interpretation or
administrative action to answer certain questions. For example, when determining the sales tax
revenue from food and drink, should local governments use actual revenue in the prior year or
estimate revenue to be collected in the same year the property cut is to be made? If the estimate of
revenue needed to calculate the amount of the Food Tax Cut at the end of each year (before audited
sales tax collection figures are available) is inaccurate, may the local government recoup any excess
property tax cuts in the next year? More importantly, if the estimate is inaccurate and the local
government does not cut taxes enough, may the government be forced to refund the underpaid
amolU1ts with interest as required by Section (1) of TABOR?

In addition, many local governments presently collect sales taxes based upon lump-
sum calculations of "taxable sales." New collection procedures (including reporting forms) will be
required to determine which sales tax revenue has been generated by food sales or drink sales
(excluding alcohol and tobacco sales). For example, restaurants and grocery stores will be required
to report specifically which of their beverage sales are subject to the Food Tax Cut and which ones
are alcohol, which are not.

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