2024-05 Ordinance Amending City Code Chapter 51.2 Food & Beverage Tax

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LETTER to the DECATUR CITY COUNCIL Finance Department DATE: February 5, 2024 TO: Honorable Mayor Moore Wolfe and City Council Members FROM: Scot Wrighton, City Manager Ruby James, City Treasurer& Chief Financial Officer SUBJECT: Amending City Code to Remove the Prompt Pay Discount on Local Taxes SUMMARY RECOMMENDATION: It is recommended that the City Council approve changes to Ordinance 51.2 Food&Beverage Tax, Ordinance 51.4 Hotel Use Tax, and Ordinance 51.5 Hotel Use Tax. BACKGROUND: The City Council adopted the Local Motor Fuel Tax (LMFT) and the Hotel Use Tax in 2016, and the Food&Beverage Tax in 2002. When the LMFT was implemented, it included a 1.75%discount on the tax liability if payments were made on-time to incentivize on-time payments. The Food & Beverage Tax and Hotel Use Tax were amended in 2016 as well to include the same discount. There is sufficient data from several years to firmly conclude that the prompt pay discount has not in any measurable way led to more on-time payments. There is no appreciable difference month to month between late and timely payments received from all three taxes. Many businesses file timely returns and don't bother to take the prompt pay discount at all because of its minor nature. For example, if there was $100 owed in one of these local taxes, the prompt pay discount would amount to $1.75. The City Code already applies a 10% penalty for late payments. Additionally, some businesses take the prompt pay discount in error, even after submitting late returns with the 10%late fee. Given the minor nature of the discount,and the way underpayments of small amounts contribute to minor infractions, staff believe discontinuing the discount is more efficient and less confusing. Continuing the discount with the enforcement it requires would be a misattribution of resources, akin to giving tickets for going 5 mph over the speed limit. Finance is implementing a new tax database software called OpenGov, which is currently in use for licensing and permits. This change in tax collection will be implemented when the new tax software goes live in mid-2024. This software has a public facing option that will allow taxpayers to submit returns via the internet and to make online payments, which will make it much easier for taxpayers. The software, which calculates taxes due based on sales input, will not calculate a prompt pay discount. Additionally, notifications will go out to all taxpayers who file through the mail or in person, educating them about the change in the tax code if approved. Any enforcement will be deferred for several months until all taxpayers have been given at least two notifications that the prompt pay discount is no longer part of the tax code. Page 1 of 2