Structural Financial Task Force Tax Burden Benchmarking

Transcription

1 Structural Financial Task Force Tax Burden Benchmarking Meeting 5 June 17, 2011 DRAFT 1

2 Executive Summary Given our assumptions, the hypothetical household in Denver at $59,007 faces a: Sales tax burden that is 5 th lowest of 26 jurisdictions in the metro area. Property tax burden that is 2 nd lowest of 26 jurisdictions in the metro area. Combined sales, property, and OPT tax burden that is 4 th lowest of 26 jurisdictions in the metro area. We have only included the incorporated parts of surrounding counties, not unincorporated jurisdictions. <#> DRAFT 2

3 Agenda 1. A review of other tax burden studies 2. Methods, data & assumptions 3. Sales tax burden results 4. Property tax burden results 5. Occupational Privilege tax burden results 6. Combined tax burden results <#> DRAFT 3

4 Tax Burden Reviews Methods used in Denver analysis have foundations in an annual tax rate and tax burden study performed by Washington, D.C. s Office of the Chief Financial Officer. The Office of the CFO has produced a nationwide tax rate and tax burden comparison study for the largest city in each of the 50 states and D.C. Reports available online from 1997 to present. Since 2000, D.C. has undertaken a second annual study measuring tax rates and tax burdens in the Washington metro area. For access to the documents, visit: <#> DRAFT 4

5 D.C. Tax Burden Study Summary D.C. measures largest city in each of 50 states plus DC. In the 2009 analysis, Denver has the 12 th lowest tax burden for households earning $50,000 annually. Includes state income taxes, all school and special district property taxes, all sales taxes, and auto taxes that are set by the state or by non-ccd officials. Property Taxes: Denver has 3 rd lowest property tax rate behind Honolulu (1 st ) and Chicago (2 nd ). Sales Taxes: Denver has 31 st lowest sales tax rate (includes state and RTD sales tax rates (7.72%)). Chicago: 10.25% (highest in study) Honolulu: 4.5% (lowest in study) <#> DRAFT 5

6 Agenda 1. A review of other tax burden studies 2. Methods, data & assumptions 3. Sales tax burden results 4. Property tax burden results 5. Occupational Privilege tax burden results 6. Combined tax burden results <#> DRAFT 6

7 Median Metro-Denver Household (based on 2009 data) Average Household Size: Median Household Income: Household Expenditures: Household Spending on Taxable Goods: Median Home Value: Median Assessed Value: 2.6 persons (U.S. Census Bureau) $59,007 (U.S. Census Bureau) $41,755 (Estimated based on U.S. Census and Bureau of Labor Statistics data) $21,531 (Estimated based on BLS data and using Denver s criteria for taxable products) $219,900 (Metro Denver Economic Development Corporation) $17,504 (7.96% assessment rate set by state) <#> DRAFT 7

8 Hypothetical Households We also estimate tax burdens for hypothetical households at other income levels: $25,000 $50,000 $59,007 $75,000 $100,000 $125,000 $150,000 (median) These hypothetical households spend the median on taxable goods and live in dwellings of median value for the respective income levels. Household spending patterns and dwelling values stay constant across jurisdictions. <#> DRAFT 8

9 Scope of the Study Included: 26 jurisdictions, comparing: Property tax burdens Sales tax burdens Occupational Privilege tax burdens Similar taxes for similar services. Legal incidence of the tax. Not included: Federal and state income taxes same across the group. State, RTD sales taxes same across the group. School district mill levies SFTF focus is primarily on General Fund; not one-to-one relationship with all city/county boundaries. No economic incidence of the tax. <#> DRAFT 9

10 Agenda 1. A review of other tax burden studies 2. Methods, data & assumptions 3. Sales tax burden results 4. Property tax burden results 5. Occupational Privilege tax burden results 6. Combined tax burden results <#> DRAFT 10

11 Denver Spending Patterns and Sales Taxes Income $25k $50k $59,007 $75k $100k $125k $150k Est. Spending on Taxable Items* $13,954 $19,524 $21,531 $25,094 $30,664 $36,234 $41,804 Est. Percent of Income Spent on Taxable Items 55.82% 39.05% 36.49% 33.46% 30.66% 28.99% 27.87% Denver General Sales Tax 3.62% 3.62% 3.62% 3.62% 3.62% 3.62% 3.62% Est. Sales Tax Paid** $512 $717 $791 $922 $1,127 $1,332 $1,537 Est. Sales Tax Burden 2.05% 1.43% 1.34% 1.23% 1.13% 1.07% 1.02% *Assumes that 100% of spending on taxable items occurs within the jurisdiction. **Estimated sales taxes paid include variation for a 4% food/alcoholic beverage tax. Therefore, estimated sales taxes paid may not be equal to spending on taxable items multiplied by the general sales tax. Although a person with lower income in Denver would spend less in sales tax dollars, the amount paid composes a larger portion of their total income. <#> DRAFT 11

12 Denver Sales Tax Rate Comparisons 5.0% Sales Tax Rates by Jurisdiction (2009) County Sales Tax City Sales Tax 4.5% 4.0% 3.5% Avg. 3.94% 3.62% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Centennial Littleton - Ar Longmont - W Golden Lakewood Littleton - J Wheat Ridge Denver Englewood Longmont - B Arvada - J Northglenn - W Aurora - Ar Edgewater Littleton - D Parker Boulder Broomfield Louisville Arvada - Ad Westmstr - J Aurora - Ad Thornton Westmstr - Ad Aurora - D Northglenn - Ad In 2009, Denver sales/use tax rates were 8 th lowest in the Denver-metro area. The metro-area average for 2009 was 3.94%, which was 0.3% above Denver s sales/use tax rate. <#> DRAFT 12

13 Sales Tax Burden Comparison at $59,007 $1,400 Sales Tax Burden at $59,007 by Jurisdiction $1,200 $1,150 $1,000 $800 $964 Avg. $927 $791 $600 $591 $400 $200 $- Centennial Littleton - Ar Lakewood Littleton - J Denver Englewood Longmont - W Aurora - Ar Littleton - D Golden Wheat Ridge Louisville Longmont - B Aurora - Ad Parker Northglenn - W Arvada - J Boulder Edgewater Aurora - D Arvada - Ad Broomfield Westminster - J Thornton Westminster - Ad Northglenn - Ad Despite being ranked 8 th lowest in the sales tax rate, Denver ranks 5 th lowest in sales tax burdens. Longmont, Golden, and Wheat Ridge all of which have lower sales tax rates than Denver apply a sales tax to food for home consumption, which increases the sales tax burden residents face. <#> DRAFT 13

14 Sales Tax Burden at Income Levels 3.00% Estimated Percent of Income Spent on Sales Tax 2.50% 2.45% Denver Metro Average Percent Spent on Sales Tax 2.00% 1.50% 1.00% 2.05% 1.43% 1.69% 1.34% 1.57% 1.23% 1.43% 1.13% 1.31% 1.23% 1.18% 1.07% 1.02% 0.50% 0.00% $25,000 $50,000 $59,007 $75,000 $100,000 $125,000 $150,000 Income Levels Sales taxes are generally viewed as regressive a tax in which lower income households are burdened at a higher rate than higher income households and Denver s sales tax is no different. Nevertheless, Denver s sales tax burdens are well below the average sales tax burden in the metro area at each hypothetical income level. <#> DRAFT 14

15 Sales Tax Regressivity Regressivity Index (100% m eans equal sales tax burden for $25k as for $150k) 214% City Grocery Tax 212% 210% 208% 206% 204% 202% 200% 198% Avg % County Grocery Tax No City or County Grocery Tax Regressivity Index 196% 194% 192% Englewood Denver Aurora - D Aurora - Ar Littleton - D Aurora - Ad Centennial Louisville Littleton - Ar Lakewood Littleton - J Northglenn - Ad Parker Arvada - Ad Boulder Thornton Longmont - B Westminster - Ad Northglenn - W Longmont - W Westminster - J Broomfield Golden Wheat Ridge Edgewater Arvada - J Index calculation: Burden at $25k / Burden at $150k Households in Denver at $25,000 pay roughly twice as much in sales tax as a portion of their income as households at $150,000. Nevertheless, Denver has the second least regressive sales tax in the metro-area primarily as a factor of the low sales tax rate and excluding groceries from taxable items. <#> DRAFT 15

16 Sales Tax Summary Results Denver has the 8 th lowest sales tax rates in the metro region, and below the average sales tax rate. Denver has the 5 th lowest sales tax burden in the metro region, primarily due to excluding groceries for home consumption from taxable items. Denver has the 2 nd least regressive sales tax in the metro region. <#> DRAFT 16

17 Agenda 1. A review of other tax burden studies 2. Methods, data & assumptions 3. Sales tax burden results 4. Property tax burden results 5. Occupational Privilege tax burden results 6. Combined tax burden results <#> DRAFT 17

18 Property Tax Burdens in Denver Income $25k* $50k* $50k $59,007 $75k $100k $125k $150k Annual Rent/Home Value $9,318 *Rent $11,199 *Rent $206,435 $219,900 $230,098 $254,020 $276,787 $299,553 Total $ in PT from Renters ** / Assessed Value on Owners $435 $629 $16,432 $17,504 $18,316 $20,220 $22,032 $23,844 Denver Mill Rate 39.2% of total tax 39.2% of total tax Mills Mills Mills Mills Mills Mills Est. Property Tax Paid $171 $247 $416 $443 $464 $512 $558 $604 Est. Property Tax Burden *** 0.68% 0.49% 0.83% 0.75% 0.62% 0.51% 0.45% 0.40% *The $25k and first column of the $50k in income levels is based on the assumption that people at these income levels rent instead of own. **For the renters, this is the total payment in Property Tax that they pay as part of their annual rent. Only 39.2% of that total property tax payment goes toward paying for General Fund services. ***Estimated property tax burdens are similar to the estimated burdens in the Washington, D.C. study. Estimates here are slightly higher, most likely due to D.C. using data from 2004 while this data is from the ACS survey. <#> DRAFT 18

19 Property Tax Mill Levy Comparison 60 Total Mill Levy by Jurisdiction, 2009 (includes various mill levies for services included in Denver's mill levy) County City Library Fire Recreation <#> DRAFT Englewood Denver Aurora - Ar Parker Lakewood Edgewater Littleton - Ar Westminster - Ad Aurora - D Wheat Ridge Arvada - Ad Westminster - J Boulder Longmont - W Littleton - D Louisville Longmont - B Aurora - Ad Arvada - J Littleton - J Broomfield Thornton Northglenn - W Centennial Golden Northglenn - Ad In 2009, Denver had the 2 nd lowest property tax mill levy in the Denvermetro area for providing comparable city and county services. Mill Levy

20 Property Tax Burden Comparison Property Tax Burden by Jurisdiction at $59,007 Income Level $1,000 $929 $900 $800 $700 $600 $606 Avg. $500 $400 $410 $443 $300 $200 $100 $- Englewood Denver Aurora - Ar Parker Lakewood Edgewater Littleton - Ar Westminster - Ad Aurora - D Wheat Ridge Arvada - Ad Westminster - J Boulder Longmont - W Littleton - D Louisville Longmont - B Aurora - Ad Arvada - J Littleton - J Broomfield Thornton Northglenn - W Centennial Golden Northglenn - Ad Denver residents pay less than half a resident in Golden would pay in property taxes, holding constant home value and services. Denver residents pay about 25% less than the metro-area average in property taxes, holding constant home value and services. <#> DRAFT 20

21 Property Tax Burden Comparison Property Tax Burden at $59,007 as Percent of Income 1.80% 1.60% 1.57% 1.40% 1.20% 1.00% 0.80% 1.02% Avg. 0.75% 0.70% 0.60% 0.40% 0.20% 0.00% Englewood Denver Aurora - Ar Parker Lakewood Edgewater Littleton - Ar Westminster - Ad Aurora - D Wheat Ridge Arvada - Ad Westminster - J Boulder Longmont - W Littleton - D Louisville Longmont - B Aurora - Ad Arvada - J Littleton - J Broomfield Thornton Northglenn - W Centennial Golden Northglenn - Ad As a percent of income, Denver s property tax for city and county uses amounts to 0.75% of this hypothetical household s income. This household earns $59,007 per year and owns a home of $219,900. <#> DRAFT 21

22 Property Tax Summary Denver has the 2nd lowest property tax mill levy in the metro region for similar city and county services. Denver has the 2nd lowest property tax burden in the metro region, with 0.75% of a hypothetical median family s income going towards property taxes for City and county services. <#> DRAFT 22

23 Agenda 1. A review of other tax burden studies 2. Methods, data & assumptions 3. Sales tax burden results 4. Property tax burden results 5. Occupational Privilege tax burden results 6. Combined tax burden results <#> DRAFT 23

24 Occupational Privilege Tax Methods Surveyed surrounding communities for OPT tax data. Divided annual OPT by the annual income to get tax burden on employee. Assume only one member of household works. Assume that people living in the community also work in the same jurisdiction. Live in/work in: 124,663 Live in/work out: 129,029 Live out/work in: 306,035 (US Census Bureau, 2009 data) <#> DRAFT 24

25 Occupation Privilege Tax Burden 0.50% 0.45% 0.40% 0.35% 0.30% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% 0.12% 0.04%0.04% 0.04% Occupational Privilege Tax Burden at $59,007 Burden as % of Median Income Denver Aurora - Ad Aurora - D Aurora - Ar Golden Centennial Northglenn - Ad Thornton Littleton - J Arvada - J Longmont - B Louisville Littleton - D Longmont - W Boulder Northglenn - W Westminster - J Arvada - Ad Wheat Ridge Westminster - Ad Littleton - Ar Edgewater Lakewood Broomfield Parker Englewood Jurisdiction Denver s annual OPT burden amounts to $69 per year, assuming that each month the employee earns over $500. The burden is about 1/10th of 1% of the median household income in the metro area. In Aurora, the OPT is $24 per year for people earning over $250 each month. This amounts 4/100 ths of 1% of the median household income in the metro area. <#> DRAFT 25

26 Agenda 1. A review of other tax burden studies 2. Methods, data & assumptions 3. Sales tax burden results 4. Property tax burden results 5. Occupational Privilege tax burden results 6. Combined tax burden results <#> DRAFT 26

27 Combined Sales, Property, OPT Burden Sales and Property Tax Burden at $59,007 ($59,007 is median household inomce of Denver metro area) $2,500 Property Tax Burden Sales Tax Burden OPT $1,887 $2,000 $1,539 Avg. $1,500 $1,220 $1,303 $1,000 Sales Tax Burden $500 Property Tax Burden $- Englewood Littleton - Ar Lakewood Denver Aurora - Ar Centennial Longmont - W Wheat Ridge Littleton - J Parker Littleton - D Edgewater Louisville Arvada - Ad Boulder Aurora - D Longmont - B Westminster - J Aurora - Ad Westminster - Ad Arvada - J Golden Northglenn - W Broomfield Thornton Northglenn - Ad A hypothetical household in Denver making $59,007 would pay $1,303 in Sales, Property, and OPT; whereas that same household in the metro-area would pay $1,539 on average. <#> DRAFT 27

28 Combined Sales, Property, OPT Burden Sales, Property, OPT Burden Comparison at $59, % Property Tax Burden Sales Tax Burden OPT Burden 3.20% 3.50% 3.00% Avg. 2.61% 2.50% 2.07% 2.21% 2.00% 1.50% Sales Tax Burden 1.00% 0.50% Property Tax Burden 0.00% Englewood Littleton - Ar Lakewood Denver Aurora - Ar Centennial Longmont - W Wheat Ridge Littleton - J Parker Littleton - D Edgewater Louisville Arvada - Ad Boulder Aurora - D Longmont - B Westminster - J Aurora - Ad Westminster - Ad Arvada - J Golden Northglenn - W Broomfield Thornton Northglenn - Ad Sales, Property, and OPT burdens combined, Denver has the 4 th lowest tax burden in the metro-area. As a percent of income, that hypothetical household at median income level spends about 2.2% of their income in paying sales, property, and OPT in Denver. <#> DRAFT 28

29 Combined Tax Burden Summary At the median income in the Denver metro area, Denver has the: 5 th lowest sales tax burden (1.34%), 2 nd lowest property tax burden (0.75%), Highest (of 2) OPT burden (0.12%). Combined, Denver s tax burden is about $1,300 of the $59,007 in income or about 2.2% of income. This is about $200 less per year than the average in the metro-area for the same hypothetical household. <#> DRAFT 29

30 Discussion <#> DRAFT 30

31 Appendix: Jurisdictions Used City - County Arvada - Adams County Arvada - Jefferson County Aurora - Adams County Aurora - Arapahoe County Aurora - Douglas County Boulder Broomfield Centennial Denver Edgewater Englewood Golden Lakewood Littleton - Arapahoe County Littleton - Douglas County Littleton - Jefferson County Longmont - Boulder County Longmont - Weld County Louisville Northglenn - Adams County Northglenn - Weld County Parker Thornton Westminster - Adams County Westminster - Jefferson County Wheat Ridge <#> DRAFT 31

32 Appendix: Two Approaches to Tax Burden 1. Macro approach Revenues divided by total income or population. Tax Revenues Tax burden represented Aggregated Income of by ability to pay Jurisdiction Tax Revenues Jurisdiction s Population Tax burden per capita 2. Micro approach Start with hypothetical households and estimate household spending patterns and home value assumptions at various income levels. Divide estimated property and sales tax at various income levels by the respective income level. <#> DRAFT 32

33 Appendix: Tax Burden Reviews Methods used in D.C. and in the Denver study are consistent with other studies: Minnesota Tax Incidence Study A biennial study conducted by the Minnesota Department of Revenue. Nebraska Tax Burden Study Conducted by the Nebraska Department of Revenue. Kansas Tax Incidence Study: Who Pays Kansas Individual Income, Residential Property, and Retail Sales Taxes Prepared by the Kansas Public Finance Center for the Kansas Department of Revenue in <#> DRAFT 33

34 Appendix: Tax Burden Methods and Data Sales Tax: Sales Tax burden = (taxable expenditures * tax rate) / Income Spending patterns are used to estimate the sales tax burdens at the hypothetical income levels. Data obtained from the Consumer Expenditure Survey from the Bureau of Labor Statistics for the Denver metro area. Property Tax: Property Tax burden = (((home value * assessment rate) * mill levy rate) / Income) Home values estimated using the American Community Survey from U.S. Census Bureau for the Denver metro area. Occupational Privilege Tax: Occupational Privilege Tax burden = (($5.75 employee payment * 12 months) / Income) Although only 31% of OPT revenue comes from Denver residents, we assume our hypothetical households work in the community in which they live; so Denver residents are burdened with Denver OPT, Aurora residents with Aurora OPT, etc... Tax burdens are calculated at each hypothetical income level and various housing scenarios. <#> DRAFT 34

35 Appendix: Sales Tax Burden Assumptions Residents only spend in their jurisdiction. This is a necessary assumption for simplicity reasons. Previous studies that were surveyed also make this assumption. Households only incur the legal incidence of the tax. i.e., we do not assume that businesses passes down to the tax to consumers in the form of higher prices. Taxable goods in Denver are similar across metro area, except food. Any variation of taxable goods between jurisdictions is small, and is masked by larger consumer expenditure categories from the BLS Consumer Expenditure Survey. Adjustments have been made for cities that tax groceries. Assume lodgers tax is more applicable to non-residents than to residents of the respective jurisdictions and is not factored in. The model adjusts for differentiating tax rates in cities and counties on food for home consumption (groceries). <#> DRAFT 35

36 Appendix: Property Tax Assumptions Home values are estimated for hypothetic household income ranges and housing scenarios (rent v. own). $50,000 Own $59,007 Own $75,000 Own $100,000 Own $125,000 Own $150,000 Own $206,435 Home Value $219,900 Home Value $230,098 Home Value $254,020 Home Value $276,787 Home Value $299,553 Home Value $25,000 Rent $50,000 Rent $9,318 Annual Rent $11,199 Annual Rent For renters at the $25,000 and $50,000 income level, we estimated portion going toward property tax based sampling from the Denver Assessor s Office. Roughly 5% of annual rent goes toward property taxes in Denver. (The D.C. study uses 20%, which is the national average according to their study.) We calculate portion that goes toward city and county services to arrive at property tax rates for renters. Comparing apples-to-apples. Property taxes are then divided by the respective income levels to arrive at property tax burden. <#> DRAFT 36

37 Appendix: Property Tax Assumptions Compared Denver mill levy to other mill levies that provide similar services. For example, fire, library, and recreation funds are all from Denver s single mill levy whereas in other jurisdictions the same services are separate mill levies. Allows for apples-to-apples comparison. Special district, school, and urban drainage mill levies were not included in study. Too much variability within jurisdictions to properly account for fluctuations while comparing across jurisdictions. Including these districts would obscure an apples-to-apples comparison. <#> DRAFT 37