On November 5, 2024, Avon voters made a significant decision by approving a 4% use tax on construction materials. This move has sparked curiosity about its implications for the town. Chris Dillmann from the Vail Daily archive provides insights into this development.

Unraveling the Impact of Avon's Use Tax on Construction

What is the Use Tax?

The 4% use tax specifically targets the use of construction materials. Although Avon already has a 4% sales tax on such materials, town staff has emphasized that there is a consistent shortfall in sales tax revenue. Whenever construction materials are purchased elsewhere, the town misses out on a portion of its due taxes.Eric Heil, Avon town manager, stated during the August 27 council meeting that this use tax is more easily monitored and collected. It is expected to increase the town's revenue by approximately 45%, perhaps just under 50%. This will enable more effective collection of taxes on construction projects while keeping the construction costs unchanged for the contractors.

How is the Use Tax Levied?

The use tax is collected at the time a project's building permit is issued. It is calculated as 50% of the total construction value. If the final materials cost less than the taxed amount, the town has a reconciliation process to recoup any overpaid taxes.Those paying the 4% use tax are exempt from paying the sales tax of any town or city up to 4%, including Avon itself. However, county and state-level sales taxes still apply. Those who pay the use tax will receive a certificate from the town, which they can present to construction materials vendors to obtain the sales tax exemption.For home improvement projects in Avon using under $125,000 in building materials over a three-year period, the use tax is exempted. The exemption is based on the building permit submitted to the town and is tracked by property rather than project or contractor.For example, if someone in Wildridge is building a gazebo worth $70,000 in materials and submits a building permit, it will be exempted. Even if a large and expensive hotel is building a similar gazebo, it will also be exempted as long as the materials cost is within the exemption limit. The three-year time period is in place to prevent tax gaming by pacing construction.Those receiving the exemption will still pay sales tax if they purchase materials at a local store like Home Depot but will not pay if the materials are delivered directly to their property, which is a common occurrence.Avon also provides exemptions to certain organizations already exempt from sales tax, such as governmental institutions, charitable organizations, and public schools.Although the initial filing, payment documentation, and tax reconciliation forms have not been created yet, town staff is working on them in preparation for January 1.

Where do the Funds Go?

The funds collected from the use tax go into Avon's community housing fund. Community housing is defined as housing for those who cannot afford free-market rental and homeownership prices in the town, including the workforce, seniors, retirees, and disabled community members.The town's community housing expenditures cover various aspects, from the Mi Casa homebuyer's assistance program to the construction of new community housing capital projects.Heil and Paul Redmond, the town's chief finance officer, anticipate that the use tax will generate around $500,000 per year in revenue. In comparison, the sales tax on construction materials generated approximately $300,000 per year.

Why did Voters Pass the Use Tax This Year?

This year's use tax ballot was the third attempt by Avon to impose a use tax on construction materials. Other towns like Vail, Minturn, Red Cliff, Eagle, and Gypsum already have similar taxes ranging from 3% to 4%.The first attempt in 2002 failed with 573 voting against and 379 in favor. Last year, a similar tax was rejected by 60% of the voters.This year, there were key differences. The tax included a higher exemption amount of $125,000 and designated the funds for community housing. The town also made efforts to educate voters through articles in the Vail Daily, information on its website, and a mailer. Polling conducted this summer showed that educating voters significantly increased the chances of the tax passing.