A taxpayer service program: working with local business in Westminster, Colorado.

• Author: Dolan, Barb

To increase compliance with city sales and use taxes, the City of Westminster consulted with local businesses to plan a project of tax law changes, education, and staff restructuring.

Editor's note: Each year the Government Finance Officers Association bestows its prestigious Award for Excellence to recognize outstanding contributions in the field of government finance. The awards stress practical, documented work that offers leadership to the profession and promotes improved public finance. This article describes the 1996 winning entry in the communications and reporting subcategory of the financial management category.

If there is one overriding theme that characterizes public-sector operations in the 1990s it most certainly has to be the concept of reinventing government. Increasing public scrutiny, diminishing resources, and heightened demands for accountability are exerting ever more pressure on government at all levels to look for alternative ways of doing business. With this in mind, the City of Westminster, Colorado, designed a taxpayer service program as a nontraditional way to be responsive to corporate citizens while preserving city sales and use tax revenues.

The sales and use tax structure in Colorado is relatively complex. The state constitution allows home-rule municipalities to administer and collect their own sales and use taxes, and 46 cities have elected to "self collect." Each city establishes its own tax rate and tax base via adoption of a local ordinance. Thus, tax rates and tax exemptions vary from area to area. This situation maximizes local control over a major revenue source but creates a compliance nightmare for businesses operating in more than one jurisdiction. In the past 15 years, there have been repeated attempts by business groups to legislate simplification of the sales and use tax structure or to move to a state-collected sales tax. These attempts have resulted in some simplification, but local control has been preserved.

The City of Westminster is a home-rule, self-collection city with a population of about 85,000 located in the Denver metropolitan area. Sales and use tax collections in 1995 totaled $36.9 million and accounted for more than 60 percent of the general fund revenues. The city's sales tax division is charged with all tax auditing, enforcement, and return processing responsibilities for approximately 3,550 licensed business taxpayers. In the early 1990s, Westminster was experiencing increasing dissatisfaction with the sales and use tax program among local businesses. A number of complaints were from taxpayers who were surprised by large audit assessments. The businesses stated that they were confused by tax differences among the cities, which resulted in unintentional under-reporting. Businesses also reported that they had received conflicting information from different city departments. As the rumblings grew louder, Westminster officials felt that it was time to take action. In early 1993, city council directed staff to analyze business concerns and recommend possible changes to address them.

Humble Beginnings: A Focus Group

The sales tax division's first step was to get a clear picture of what the problems were. Staff convened a focus group of 11 local businesses in order to obtain a business perspective on these issues. Representatives from a cross section of local businesses were invited: new and old, large and small, audited and unaudited, retail, service, construction, and manufacturing. Also invited were several of the sales tax division's more vocal critics. A loose agenda of discussion items was put together based upon complaints that had been made. Not one business declined the invitation to participate.

Results of the focus group were surprising to city representatives. The businesses identified a few specific areas of the ordinance that they felt were unfair or burdensome; however, the bulk of the comments were related to their frustration with the lack of proactive taxpayer education. The business leaders expressed a willingness to comply with tax laws and pay their...