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Loveland Use Taxes
History and Overview
According to the building community the “rules and regulations” were either ambiguous or
never equitably applied thus confusion existed over what companies owed the city.   In
addition, some have argued the city provided them no warning of the audits which resulted in
them being hit with large tax obligations for projects they already sold and closed the books
on years ago.  

In addition, the city council codified an estimate that 50% of most jobs cost is building
materials while the other 50% is assumed to be labor.  This is a fairly arbitrary alculation and
thus not applicable to many specific development projects but was used nonetheless by staff
in estimating what taxes were due.

3.16.160 Collection of use tax on building materials.
A. For construction and building materials, the use tax imposed pursuant to Section
3.16.040 shall be collected by the City manager as hereinafter provided in this section and
shall be collected in the amount of three percent (3%) of the sale value of the construction
and building materials. For purposes of this subsection, fifty percent (50%) of the estimated
general contract costs and/or fifty percent (50%) of the estimated mechanical contract costs
shall be deemed to be the sale value of such construction and building materials.

The table was provided by city staff to applicants when they pulled building permits to assist
them in determining the amount of taxes owed.  At the time of pulling permits the applicant is
required to pay all the applicable fees including a deposit on the Use Tax as calculated by
the city staff.  Of course, it is impossible to know in advance what the exact cost of materials
will be in any project so the city code requires the developer to calculate the material cost at
the completion of the project and pay any additional taxes owed or receive a refund if they
overpaid.

What isn’t clear is whether builders were required to pay the city’s estimate when pulling
their permits or were allowed to make their own determination of what constituted the best
estimate for the Use Tax that would be owed.  Some builders maintained they paid what
they were told but the records indicate a number of permits were pulled where the city’s
estimate is different from the deposit made by the contractor.


The Remedy As Proposed in 2006

The City Council heard many complaints from local builders who felt they were ambushed
by the audits especially since it could reach back 3 years (Colorado statute of limitations)
into projects already built and sold.  The city council directed staff to review each case and
come-up with an equitable solution for addressing the situations where a builder claimed
they had detrimentally relied on a low-ball city estimate.

The direction to staff was to meet with the various builders and try to settle as many of the
cases as possible.  Working sometimes with the city’s citizen advisory committee on
building, the city staff methodically resolved approximately 700 of the 750 permits
discovered by the audits to have problems.

While the numbers may appear large, each residential housing unit requires a separate
permit.  Therefore, a single builder could account for many different permits; as an example
one national builder had 350 permits to be negotiated but the adjustment was calculated on
the whole group by looking at a sampling of the permits instead of having to revisit each
calculation for each permit.

A few smaller builders like Timberline Construction and Donovan Construction have
contested they owe any more Use Taxes.  LovelandPolitics has learned that Donovan
Construction notified the City of Loveland on March 5, 2008 that they will contest the Use
Taxes if the city attmpts any further collection of the taxes the city says they owe.
The Rub According to Builders
Bob Keirns, Timberline Construction,
addresses the City Council March 4, 2008 on
Use Taxes asking for more leniency.
Teri Donovan Kerns of Donovan
Construction addresses the City Council
March 4, 2008.  She complained that the city
practice of accepting estimates as full tax
payment had been the city's practice for 30
years.  Her comments indicated a stand of
defiance and readiness to deny paying the
city any Use Taxes the audit says are owed.