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Lone Tree considers sales tax hike to offset lost revenue from online shopping

Lone Tree tax incr
Posted at 5:59 PM, Jul 23, 2021

LONE TREE, Colo. — For decades the city of Lone Tree has built its reputation as a premier shopping destination in Colorado between the Park Meadows Mall and numerous big name and local stores.

Over the years, the city has been so successful at its sales it doesn’t charge residents a local property tax, it doesn’t charge businesses an occupational privilege tax, and it has no taxes on food for home consumption as well as taxes on vehicles.

The city doesn’t even charge residents for their trash or recycling services. The bulk of Lone Tree’s revenue is squarely dependent on a 1.5% sales tax.

However, in recent years, and particularly during the COVID-19 pandemic, online shopping has begun to take a toll on the city’s revenue. The tax proceeds from those sales go to the cities where the online shopper lives.

“We are still seeing the folks coming into the city to return their goods but the sales tax revenue is staying in the community where they live,” said Mayor Jackie Millet.

Lone Tree is now projecting a $12 million annual revenue gap from a loss in sales. Because Lone Tree only has 15,000 residents, the city says even with its own online sales it cannot make up the difference.

“When we do not see that revenue stream coming in, we are going to have to look at cutting back on potentially the number of officers, cutting training for our officers, cutting vehicle replacements and equipment,” Millet said.

To make up the difference, city leaders have proposed a 1% sales tax increase. During an online townhall meeting Thursday, the city discussed the proposal and made their case for why this is the best solution for the city.

Among their arguments: 95% of the sales tax revenue comes from non-residents so the impact to the people living here will be minimal. The city estimates the change will cost the average family $7 more a month.

Millet says this is much cheaper than the $70 per month Lone Tree would need to raise property taxes to cover the deficit or the $40 a month homeowners would have to pay if the city stopped covering their trash services.

“We’ve never raised our sales tax in 25 years. It is the lowest in the Front Range and even with a 1% increase, our sales tax for city operations will just equal the lowest and be far lower than a lot of our neighbors,” Millet said.

In surrounding communities, Castle Rock’s sales tax is 4%, Parker’s is 3%, Centennial’s is 2.5% and Denver’s is 4.31%.

Millet and the city council have been discussing the idea with some of its biggest retailers for some time and says they’ve gained the support of the Park Meadows Mall.

Some smaller business owners are also in support of the change, like Marissa Harmon, the owner of Roots and Mane.

“One of the reasons we picked our location is because everybody knows when they pull into Lone Tree there’s a look and feel of the city,” Harmon said.

She’s supportive of the sales tax because she believes it will help keep Lone Tree’s roads and landscaping pristine for visitors and keep city services at their current level.

Even with the additional burden to her customers, Harmon doesn’t anticipate a big impact on her business or her bottom line.

“I, as a business owner, I’m not worried at all about the raise of a sales tax,” she said. “A 1% sales tax on a shampoo and conditioner for us is very small, doesn’t make anyone reconsider their purchase here, especially customers and clients that are coming in from other cities that have a much higher sales tax.”

Other small business owners like Aidan Gannon disagree, and worry about what a potential increase could mean for their customer base.

Gannon is the co-owner of Petzlove Food and Stuff, a specialty pet store that has everything from fresh foods to dog toys to paw protectors.

Over the past several years, Petzlove has worked hard to build up a loyal customer base and is now in the process of expanding its store.

Between COVID and competing with big box stores and online sales, keeping those customers has been a challenge, so they are offering coupons and same day delivery just to keep up.

Gannon worries that this proposed sales tax increase will cause customers to think twice before shopping there.

“One percent is a lot, especially for one price increase and then it will get publicity, people will look at their receipts and they’ll notice,” he said. “It won’t put us out of business but it could severely hamper our growth and our potential to employ and it will strip dollars away.”

He worries the increase will encourage some customers to turn to bigger name stores instead or even shop online for a lower price and perpetuate the issues Lone Tree is already facing.

As a result, Gannon says he might have to increase the value of his coupons to offset the additional cost, so even if this is a pass-through tax, it will end up costing him money.

“It’s just one more thing that an independent store owner has to absorb into the business,” he said.

Instead, he would prefer for the city to try to offer more incentives for people to shop locally.

Millet insists it’s not the city’s intention to add another burden onto businesses that are still trying to recover from the COVID pandemic.

However, she says the city cannot keep its current level of services with decreasing revenue so either cuts need to be made or more money needs to come in. She believes this is the lowest impact proposal the city can offer.

Lone Tree’s city council will vote on the idea next month. If it passes, voters would get the final say on a potential tax increase.