Can Parker do without a grocery tax?

Town says repeal could be consequential to budget

Nick Puckett
npuckett@coloradocommunitymedia.com
Posted 10/5/20

A new issue has taken center stage in the Parker political arena: the town's “grocery tax.” Candidates for mayor and town council have weighed in on rewriting Parker's tax code to exclude food …

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Can Parker do without a grocery tax?

Town says repeal could be consequential to budget

Posted

A new issue has taken center stage in the Parker political arena: the town's “grocery tax.”

Candidates for mayor and town council have weighed in on rewriting Parker's tax code to exclude food for home consumption after Councilmember Jeff Toborg introduced the issue, calling it the “grocery tax,” when he launched his mayoral campaign in September.

Rewriting the town's sales tax code regarding grocery items has caught the public's attention this election season, but the grocery tax has existed since the town incorporated in 1981.

Kevin Bommer, executive director of the Colorado Municipal League, said a grocery tax is “very common," and close to 80% of Colorado municipalities tax food for home consumption.

Denver, Aurora, Lone Tree, Littleton, Lakewood, Commerce City, Commerce City and Colorado Springs do not levy a tax on groceries, but they tax other things Parker does not, like entertainment purchases, for example. Castle Rock does tax food for home consumption.

Goods and services purchased in most areas of town are taxed at 8%. That figure applies to purchases like buying a sweater from a retail store and includes rates that are remitted to the town (3%), State of Colorado (2.9%), Douglas County (1%), Scientific and Cultural Facilities District (0.1%) and Regional Transportation District (1%).

Food for home consumption is only taxed at the Parker sales tax rate, which is 3%.

The Town of Parker's finance department has indicated that rewriting the grocery portion of the sales tax code would be unconstitutional and a breach of a refunding contract the town is under to repay its outstanding bonds. The agreement will mature in 2025 and is secured by a pledge of the revenues derived from the 3% sales tax rate, minus 0.5% applied to the Parks and Recreation fund.

Town of Parker Finance Director Mary Lou Brown said the department estimates taxes remitted from grocery purchases total between $7 million to $10 million annually in the town's general fund revenue.

However, Brown said, “We do not have a clean way to break the sales tax revenue on food for home consumption out of those numbers.”

The grocery tax is not an item separate from the town's sales tax, Brown said. Parker's sales tax law, Section 4.03 in the town's municipal code, allows for the taxation of “food for home consumption” as well as food and drinks for immediate consumption. The law exempts certain purchases, such as prescription drugs and sales made to charitable services. 

The finance department can only estimate how much sales tax is remitted from food purchases, Brown said, because the category of “food for home consumption” is divided between two major budget lines on the town's sales tax reports: “Grocery” and “General Merchandise.”

The “Grocery” category, according to May 2020 numbers, increased 17% from 2019 to $3.2 million.

The town's most recent sales tax report, published Aug. 10, states sales taxes remitted from grocery purchases in May increased 17% from 2019.

The “Grocery” category on the report does not include purchases made at big box retailers like Walmart or Target, Brown said. Those purchases are tracked under the “General Merchandise” category, which accounts for more than half of the town's sales tax revenue.

“These types of big box stores sell a large amount of food for home consumption along with sales of other merchandise,” Brown said.

Can Parker repeal its grocery tax?

Toborg has positioned his mayoral campaign around several issues, including the repeal of the town's grocery tax, which has drawn the most eyes from voters on the campaign trail.

Toborg says because COVID-19 has forced many to work from home and stay within Parker boundaries, repealing the grocery tax would put more money in consumers' pockets to spend at local businesses. Toborg said his plan does not necessarily mean the repeal would be immediate, and added it could be phased in over time.

Toborg said the grocery tax is “antiquated” and hurts Parker's lower-income households.

Toborg assures voters he would lead the effort to repeal the grocery tax were he elected mayor. Toborg's plan hinges on his ability to create stronger influence on policy from the mayor's seat.

The Town of Parker runs a “council-administration” form of municipal government, where the town administrator runs the town's day-to-day operations and town council votes to approve policy. The mayor does not vote on council issues, except in a tiebreaker scenario. Traditionally, the mayor facilitates council discussion during meetings and acts as the public face of the town.

It is possible council could vote to exclude the stipulation of “food for home consumption” within its tax code, putting as much as $10 million back in consumer's pockets, by Brown's estimates. Any additional tax on residents must be voted on by the people, according to state law, but council has the power to repeal or amend a tax ordinance.

Sales tax revenues are used in the town's General Fund, which pays for the police department, roads, parks and half of the town's expenditures — about $52 million, according to the 2020 adopted budget. Excluding food for home consumption from the tax code, Brown estimates, would require the town to make cuts to the General Fund to the tune of 14% to 20%.

“An expense reduction of 14-20% would most likely impact the number of town employees which, in turn, would impact the level of service and the services themselves that could be offered,” Brown said. Brown added the proposed reduction would significantly affect the public safety budget, which makes up 59% of the General Fund.

Finding another revenue stream to replace the grocery tax would be challenging as well, Brown said. 

“There is no other major revenue source existing today that could easily grow by the $7-10 million,” Brown said. “In addition, any new tax would need to be approved by the Parker electors.”

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