Tom Ruemmler on Reducing Local Taxes

by Tom Ruemmler

Vail Valley towns need to stop funding tourist used services with taxes on locals.

Data verifies numerous fire and police department responses are for non-locals. Shouldn’t tourists pay their share of the cost of services?

I will explain how local tax payers can lower their overall tax burden and shift more revenue collection to the tourists that use services.

Tom-Ruemmler-17APR2016If Avon citizens vote “YES” on May 3rd for the Avon police station it will create more long term debt that will have to be paid by someone. Avon voters will also insure that the unfair over-the-top 2% Real Estate Transfer Tax (RETT) will likely stay in place for many years.

A “NO” vote can lead governmental bodies to adopt a funding mechanism that spreads taxes more equitably over all users, including the tourists.

Avon and other governmental agencies have been funding capital improvements on the backs of local property owners with “targeted” taxes. A “targeted” tax is only paid by a few people each year and is the worst of all taxes. Since few people pay targeted taxes they have to be huge to generate significant revenues. Generally speaking, they are unreasonable with respect to a person’s income. Unlike income taxes and sales taxes, targeted fees or taxes are not related to a person’s income or ability to pay.

Avon has an excessive 2% Real Estate Transfer Tax; in fact 4% because it is paid when you buy and again when you sell your residence. Eagle Vail and Singletree do not have a property transfer tax; Vail’s is 1%. Avon’s RETT lowers property values.

Property transfer taxes are the worst of the targeted taxes because they increase closing costs (which cannot be borrowed) making it harder for buyers to purchase and can kill sales. They affect sellers because they affect buyers.

Did you know that targeted taxes have already increased the purchase price of a newly constructed home in Avon by over $60,000? Targeted taxes result in your children and workers not being able to live here. Eliminating targeted taxes will be a good start towards making housing more affordable.

Funding options for the proposed new police station indicate how unfair targeted taxes are. Annually over $2.2 million of revenue is received from commercial and residential property sales. Avon collects an excessive $10,500 property transfer tax from the average $525,000 residential property sale. Do you realize that in the next 4.75 years about 620 people are expected to sell their Avon residential properties and generate $6.5 million in tax revenue that would fund the police station? That is right; 620 people will pay the entire cost of the new police station. Is this fair?

If $20 per year in extra sales tax is paid by 110,000 tourists, $2.2 million is collected annually and the police station would be paid off in 3 years. Obviously $20 per year per person is palatable and equitably shared by all users.

Targeted taxes are so bad that they were one of the major root causes of the housing and financial crisis. A paradigm shift to large targeted taxes started about 1999. By 2003 targeted taxes put in place by local governments in several states rapidly escalated the cost of housing beyond buyers’ abilities to qualify for loans. The federal government reacted and put pressure on Fannie Mae, Freddie Mac and banks to lower borrowing requirements so people could afford the “American Dream” of home ownership. High housing prices eventually resulted in little if any borrowing requirements. The targeted taxes caused housing prices to escalate very fast and the bubble eventually burst in about 2007. Foreclosures resulted in up to a 60% drop in property values. Homeowners lost trillions of dollars of net worth. We are still reeling from a recession in which targeted taxes were one of the major root causes.

Avon town council or a voter referendum could initiate a November ballot measure that could eliminate Avon’s 2% RETT and replace it with a small sales tax increase. This could head Avon towards a sustainable economy and affordable housing.

Avon can set a great example for other valley towns to follow.

Think carefully before you vote for an extremely detrimental funding mechanism for long term debt. Taxing a few is just not fair!

Please consider a donation in support of this effort to re-think taxation policies in Avon and to offset the cost of disseminating this information, which could save you thousands of dollars in taxes.

Tom Ruemmler, PO Box 2726, Avon, CO 81620

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