I want to take this opportunity to provide the public with facts on the proposed City of Douglas sales/use tax increase. With a recent headline that talks about a 35 percent increase in tax without a perspective of exactly what that means, understandably the public has questions. The City is moving towards adoption of the 1-cent sales/use tax increase that would raise the current levy from 2.8 percent to 3.8 percent. Effectively a 1-cent increase in a less-than 3-cent city sales tax does equate to a third of a percentage but percentages can skew the picture when you are talking pennies. A penny added to the sales tax creates the ability to deliver more to our community than it has received in some years.

The new tax revenue will be used for community projects for our downtown, our parks, sports field concession stand and bathrooms, and port of entry. Improvements, vehicles or equipment at the Fire Station, Visitor Center, public restrooms, Council Chambers, Call center, police, parks, cemetery and the library are also added. We will also hire and reclassify various needed positions that will help improve the delivery of service to the community and help us prepare for the anticipated growth. For those affected by the sales/use tax increase and additional detail on the uses of the new tax revenue please see our citizen budget summary online at douglasaz.gov/DocumentCenter/View/2036/CITIZEN-BUDGET-SUMMARYJune-2019 and our City budget at douglasaz.gov/211/Budgets-Financials

How the tax increase affects a typical taxable purchase works like this: a $10 taxable purchase currently pays a sales tax of $0.28. With the new tax rate of 3.8%, the same $10.00 taxable purchase will get charged $0.38, or a $0.10 increase.

The City estimates it will receive an additional $1.75 million per year from the sales/use tax. With a 2-cent increase to the bed tax, the city estimates it will receive an additional $55,000 per year. In its first year of the tax the city will only collect three quarters of the year so the projected sales tax budgeted is $1.31 million in additional revenue and $41,250 in additional bed tax collections its first year.

Why the City needs to raise sales/use taxes is because the City’s revenues have been stagnant with little to no growth and on average have decreased by 1 percent for each of the past 10 years. With mandated increased pension costs, increased health insurance costs, minimum wage increases, fuel cost increases, utilities, aging equipment replacements and overall increases in cost of doing business, the city has had to reorganize, cut positions through attrition and cut expenses wherever possible without having to sacrifice city services or lay-off employees. The city put off purchasing capital items such as police and fire vehicles and equipment, city building needs, infrastructure and other needs, some beyond their useful life. Despite purchasing some of these assets through grants and special revenue throughout the years, those funds are running dry and are no longer enough to keep up with the growing needs. Unless we cut services to the public, the city requires a new revenue source.

The tax increases go into effect on Sept. 1 after three separate meetings allowing public comment. The new tax will go into effect the month following the final reading. The first two readings were approved during the June and July regular council meetings plus there was a separate public hearing before the regular council meeting in July. In discussion with the League of Arizona Cities and Towns last week we learned we are able to implement the tax sooner, on Sept. 1, 2019, if the final reading is approved during a special meeting before end of July; therefore, the third and final reading will be held on Monday, July 29 at 5:30 p.m. in the City Council Chambers. This adoption date complies with state law as well as the 30-day implementation period and allows us to actually receive the new tax money by November.

Douglas ranks against similar cities in the middle of the pack for sales taxes. For Arizona Cities and Towns with a population of between 10,000 and 20,000 (Douglas currently at 15,978) the average sales tax is 3.2 percent. As for the bed tax, the average rate across the state for those cities that levy a bed tax is at 3.5 percent. For a complete list of all Arizona cities’ tax rates please visit: https://azdor.gov/transaction-privilege-tax/tax-rate-table

For any other questions please contact me at (520) 417-7333 or email at luis.pedroza@douglasaz.gov.

Luis Pedroza is the Finance Director and City Treasurer for the City of Douglas.

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