NO SMALL CHANGE? Owners balk at city sales tax for coin-operated businesses

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AURORA | A long-overlooked technicality in Aurora’s tax code is causing a kerfuffle among owners of coin-operated laundromats and car washes in the city.

At issue is the city’s collection of a 3.75-percent sales tax on coin-operated businesses. After conducting a routine audit of a coin-operated car wash in Aurora last fall, officials in the city’s tax and licensing division discovered that laundromats, and both self-service and in-bay car washes across the city, were not paying the standard city sales tax, despite it being technically required of them in the tax code, according to city officials. Coin-operated businesses contended that because they were offering a service, and not tangible personal property, they were exempt from paying the tax. That’s how the state has handled the issue.

A flurry of recent case law involving successful arguments in favor of similar coin-operated tax requirements in Glendale, Commerce City, Westminster and other metro municipalities, led the tax and licensing division to recommend beginning to collect the tax this summer.

“The main point is that this has been contested in court,” said Trevor Vaughn, manager of the city’s tax and licensing division. “It’s out of fairness, as coin-operated businesses would be gaining an advantage by not being required to charge sales tax.”

However, a backlash from business owners has erupted in recent months and resulted in recommendations from the city’s Management and Finance Committee, Business Advisory Board, and the Citizens’ Advisory Budget Committee that the implementation of the tax be delayed until January 2017.

“Health goes up because of clean clothes, and people can work with good clean clothes, which makes crime go down,” said Yemane Habtezgi, owner of Laundry on the Fax, a laundromat at 10941 E. Colfax Ave. “For every one dollar the city loses on coin laundry, it can benefit $100, with increasing health, less crime and more productivity.”

Apart from Habtezgi, some car wash and laundromat owners have claimed that it would be cripplingly expensive to switch to digital machines that can accept debit cards, which would be necessary in order to collect a tax percentage on payments made exclusively in quarters. Others have claimed that the change would result in double taxation, as they would have to pay a sales tax upon the purchase of their facility’s equipment, as well as on each sale for the service. Vaughn said that’s not how the system is supposed to work.

“We’re not requiring them to implement any new technology,” he said of adding digital machines. “And the businesses should be purchasing their equipment and soap tax exempt.”

He compared the model to how a bowling alley purchases bowling shoes wholesale, then charges bowlers sales tax to rent the shoes during each individual point of sale.

The potential change would not affect state sales tax, as Colorado exempts the rental of short-term services from paying sales tax. That is not the case within Aurora, however, and Vaughn said that it is not uncommon for state and city tax codes to differ in terms of minute exemptions. He added that the only way these businesses now pay the state is through taxes on vended items on-site such as detergent and other cleaning supplies.

Vaughn said that the city expects to collect about $300,000 annually from the newly applied tax. He estimated the change would affect an estimated 22 laundromats, 16 self-service car washes, 24 in-bay car washes and a handful of coin-operated massage chairs across Aurora.

The issue is next set to be heard before the full city council at a study session on June 29. That’s largely due to the efforts of City Councilman Bob Roth, who has emerged as a vocal crusader against implementing the sales tax.

“Just because we can do it doesn’t mean we should,” Roth said. “I’m hopeful that we will be able to convince our fellow council members that this isn’t an appropriate tax.”

The agreement to not have the tax take effect until 2017 would have been final and the issue dead in committee had it not been for Roth’s vehement proposal that the topic be heard by the entire council, according to City Councilman Bob LeGare, who supports activating the tax in 18 months.

“My concern is that if we exempt coin-operated laundry and car wash, what’s next?” LeGare said.  “It could be opening up a can of worms if we exempt these industries.”

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chris
chris
6 years ago

This sure doesn’t welcome coin operated businesses to Aurora – hurts our image, and is an unfair tax. Squeezing every penny from these coin operated businesses is
unconscionable.

loretta
loretta
6 years ago
Reply to  chris

isn’t this against Tabor – raising taxes without the vote of the
citizens?

Joe Hardhat
Joe Hardhat
6 years ago
Reply to  loretta

The city isn’t raising taxes, just trying to find a way to collect what’s already due … or overdue.

Eric
Eric
6 years ago
Reply to  Joe Hardhat

If it is already due, why are they only trying to collect it now? The code has not changed since it was put in place in the 70s.

Eric
Eric
6 years ago
Reply to  loretta

Good point, but cities have gotten away with fighting Tabor because judges don’t like it. Didn’t the people vote for it. Government is supposed to be of and for the people!

Eric
Eric
6 years ago
Reply to  chris

Very anti business agenda by the city. What happened to business friendly munis?

disqus_Nc13bJ8iDr
disqus_Nc13bJ8iDr
6 years ago

I’m rooting for coin operated car sales – lessee, 8.6% saved on a $35,000 car…..hmmm! And they could locate the car machines in public places to allow Sunday “vending”. J. Dougherty

Fed up
Fed up
6 years ago

My man!!!!!!!!

Joe Hardhat
Joe Hardhat
6 years ago

The city will end up getting some money out of these businesses, but not all. The compliance rate will be 50% or less. For example, I know a barber who owns and operates a shop. He keeps two sets of books … one for taxes and one to reflect true revenue flow. The records used for tax purposes is exactly one half the actual numbers. I predict cash heavy business all have a similar practice.

russ
russ
6 years ago

Quit squeezing small businesses. Won’t this tax hurt the consumer? Most of the car washes I go to provide a service to the middle and lower income group, imposing a tax on the owners will only get passed through to the customer. This tax will do more harm then good.

Eric
Eric
6 years ago
Reply to  russ

Agreed!

Eric
Eric
6 years ago

The city is trying to collect based on car washes and laundry mats being a short term rental of equipment like renting a power washer at Home Depot. So, from a common sense perspective do you consider yourself to be renting equipment when you wash your clothes in a laundry mat or wash your car in a self service car wash? Of course not. They are trying to expand the definition of a tax code that does not fit. If it does not fit, you must acquit! The cities that have been taxing the car washes and laundry mats since the 80s and 90s have language in their tax code that specifically states that coin operated services are taxable. Cities like Aurora, Glendale, and Commerce City do not have that specific language in their tax codes. The net result of a sales tax on these services would be price increases on Aurora customers that can afford it the least. The lower income population rely on self service laundry mats and car washes because they can’t afford their own washers and dryers or full service car washes which, by the way are sales tax exempt. Explain why full serve car washes are exempt when self serves are not?

Richard
Richard
6 years ago

I thought sales tax only applied to “things & property” not services? This makes no sense to me….? I would rather go a few blocks east and wash my car in Denver than pay additional taxes on a service like this! This city needs to think about what they are doing!

Johnny
Johnny
6 years ago
Reply to  Richard

Sounds to me like the little bit of money this tax would generate will be even smaller by driving both customers and businesses to go to Denver. I know I will!

Phil
Phil
6 years ago

The article says “It’s out of fairness, as coin-operated businesses would be gaining an advantage by not being required to charge sales tax.”
What kind of advantage does a self service coin operated car wash have by not charging the tax. Actually, they would be at a DISadvantage since the full service car washes are not subject to this tax. All car washes are a service and should not be subject to sales tax. Just like Denver and the State of Colorado.

Russ
Russ
6 years ago
Reply to  Phil

If this tax goes through where will it stop. Will we charged a rental fee for using the gas pumps to get fuel?

Fed up
Fed up
6 years ago

I’m voting no on this. Arnie!!?? Molly??!! Mayor Hogan???