Agenda Item Cover Sheet

Agenda Item #10.7

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Regular Item

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Consent Item

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Workshop Item

Item Submitted By:

Charles Cryan, Fiscal Services Director

Brooke Brandenburg, Assistant to the City Manager

Council Meeting Date:

March 8, 2001

Director Approval:

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City Manager Approval:

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Item: Presentation, discussion, and possible action on a resolution stating the City of College Station's opposition to legislation aimed at lengthening the State Sales Tax holiday.

Item Summary: Several House and Senate Bills have been introduced for consideration during the current State Legislative Session that would extend the annual sales tax holiday. The Bills propose increasing the extending of the holiday by two to fourteen days. Along with the extension of the sales tax holiday some of the bills propose the addition of school supplies and material used to make clothing exempt from sales tax during the holiday. Extending the sales tax holiday would burden the City's financial status by decreasing the amount of sales tax revenue collected. This would have a large impact on the City's General Fund.

Item Background: During the 1999 legislative session the legislature approved and the governor signed into law a sales tax holiday. The measure was intended as a small tax cut and to provide a small economic benefit to families at the time of the beginning of school. Based on the estimates of the impact on cities, we estimated that College Station would loose $14,000 the first year, $28,000 the second year and increasing each subsequent year. The legislature authorized local governments to reinstate their portion of the tax by passing an ordinance. Only one city is known to have reinstituted its sales tax on the state's sales tax holiday. The state was also using the sales tax holiday as a means of reducing state revenues. Typically it is more efficient for the state to simply reduce its rate or the number of items that may be taxed. There are several drawbacks to the sales tax holiday. It increases an already complex sales tax situation in Texas by not only changing the rate for a couple of days, but also applying the tax cut to only specific items. It reduced revenues to local governments, some like College Station are heavily dependent on sales taxes to provide services to our citizens. On the up side, there has been significant increases in purchases on the weekend of the sales tax holiday. Retailers are using it as another advertising tool to increase traffic and sales.

Budgetary and Financial Summary: N/A

Staff Recommendation: Approve the resolution stating the City's opposition to extending the sales tax holiday.

Council Action Options:

1. Approve

2. Disapprove

3. Redirect Staff

Supporting Materials:

1. Resolution