City issues Q&A sheet on state use-tax refund

by Karen E. Culp

SBJ Staff

Springfield's use tax is prompting questions from residents, which caused the city to issue a question-and-answer sheet the week of April 21 regarding the tax and its affect on the city's 1997-1998 budget.

The use tax is essentially a sales tax on goods purchased from outside the state, said Tom Finnie, city manager. The state is now required to refund use tax businesses paid during a period of years when the use tax was collected statewide at a 1.5 percent rate.

The municipal use tax mandated by state law was declared unconstitutional Jan. 27. Municipalities can designate their own use taxes, setting the rates themselves, as Springfield did, with a referendum.

Springfield voted about a year and a half ago to impose a 1.5 percent use tax, Finnie said. The city collected about $7 million prior to voter approval and used about $4.8 million for one-time expenditures such as street maintenance and technology improvements.

The city also placed $2.5 million in an account for repayment as necessary, because it was advised that the state-imposed 1.5 percent rate would probably not stand.

The money collected during the years prior to Springfield's passing a use tax is now to be refunded to the state, which is paying out refunds to business owners who paid the tax.

Use tax is usually paid by businesses owners who make large, out-of-state purchases, since there is a $2,000 exemption rate on the tax.

Springfield owes the state $3.2 million and has a choice to repay that in one sum or in installments, Finnie said. Since the state collects all the sales tax and then repays that money to Springfield, the state will withhold approximately $169,000 from each check. The city plans to use the $2.5 million it held to smooth out the impact of the use-tax refund over the two-year period when the city will be paying it back.

The city's general sales tax revenue is expected to grow $1.5 million over 1997-1998, and the use tax will provide about $500,000 in new revenues for the general fund, according to information from the city.

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