FAQ About the Special Purpose Tax (6th Penny Tax)
Here are some answers to frequently asked questions about the Special Purpose Excise Tax (SPET), which would be the method used to pay for construction costs for the proposed recreation centers in Douglas and Glenrock, if approved by the voters.
What is a Special Purpose Excise Tax (SPET)?
The SPET has become the most popular way for local governments to build and pay for infrastructure in Wyoming. Instead of asking the voters to approve general obligation bonds, which are repaid through property taxes, a Special Purpose Tax asks voters to approve a sales tax increase of one cent. The revenues collected on the additional one cent are used to pay off bonds that are sold to fund the construction costs of the project. Once the amount approved through the election is collected, the Special Purpose Tax ends.
Since the revenues come from a sales tax, which is paid by many more people than property taxes, projects are usually funded quicker and the debt retired sooner than other types of bonds.
How much will the sales tax increase?
The ballot question for the recreation center asks the voters to approve an additional one cent sales tax to fund the construction of the recreation centers. Since the sales tax rate in Converse County is currently 5%, the additional one cent will increase the sales tax rate to 6%.
What does the tax apply to?
All sales of tangible goods that are subject to sales tax would be subject to the additional one cent, or 6% total sales tax rate. Any sales that are currently exempt from sales tax, like groceries, medicine and fuel, would also be exempt from the Special Purpose Tax.
How much will the additional one cent cost me?
Since the sales tax is based on taxable purchases, there's no accurate way to put a specific amount on what it will cost each person or household. Lots of things purchased daily, like groceries and fuel, are exempt from sales tax and won't be affected by the increase. However, if you purchase expensive items, like a new vehicle, the cost will be higher and more noticeable.
Currently, the boom from energy development in the county is driving sales tax revenues, with 43% of the sales tax coming from mining, gas, oil, coal and wind development. During an economic downturn, energy only contributes around 25% of sales taxes and a higher percentage comes from the citizens, around 35%, in the form of retail and wholesale trade.
When would the additional sales tax start?
If the voters approve the recreation center ballot question, the sales tax rate would increase on April 1, 2020.
Counties can only change their sales tax rates at the beginning of a quarter, and changes require 60 days notice. So, following the election on November 5th, the first opportunity to provide 60 days notice and begin a quarter is April 1.
When would the special purpose tax end?
The tax will end as soon as possible after the amount authorized on the ballot is collected, $87.5 million in the case of the recreation centers. Therefore, the length of the tax is not determined by a set period of time but by how quickly revenues are received.
Over the last twelve months, a one cent tax would have averaged $1.527 million per month. At that rate, the $87.5 million would be paid off in approximately 57 months, or just under 5 years.
Over the last eight or nine years, however, the average collection would be much less than that, around $800,000. Using that much more conservative number, the $87.5 million would take 109 months to collect, or just over 9 years.
Once the sales tax rate goes up to 6%, won't it just stay that way?
No. When a special purpose tax is approved for a project, the voters authorize the amount to be collected -- $87.5 million in the case of the recreation centers.
The County Treasurer's job is to project the revenues as they're coming in and notify the Department of Revenue when it needs to end as close as possible to the authorized amount.
The only way for the additional one cent to continue once the $87.5 million is collected is for the voters to approve the continuation of the tax for a different project.
If voters approve the increase, it wouldn't be the first time Converse County imposed a Special Purpose Tax. In November, 2012, voters approved the collection of $31.7 million for the construction of EWC and libraries in Douglas and Glenrock. The tax began in April 2013, and ended 31 months later, in October 2015.
What happens to money collected over the $87.5 million?
The Treasurer will try to cut off the tax as close as possible to the $87.5 million. Even then, since a rate change requires 60 days notice and takes effect at the beginning of a quarter, it's likely the final collections will exceed the $87.5 million.
The ballot question is required to specify what happens to excess collections. In this case, they will be held for a year, then deposited in the operation and maintenance account to be used for the operation and maintenance of the recreation centers.
If it takes at least 5 years to collect the total costs, do we have to wait that long for construction to start?
No. The County will sell bonds to investors to obtain the construction costs, so that construction can begin as soon as possible.
The revenues from the Special Purpose Tax will be used to make payments on the bonds. Since the investors will expect interest, you'll see that the $87.5 million on the ballot includes $17.9 million for interest payments, debt service and other costs associated with selling the bonds.
Can the bonds be paid off early?
Yes. If revenues come in faster than projected, the County will have the opportunity to call the bonds or issue refunding bonds to retire the debt and save on debt costs.
This would not decrease the amount of money collected from the Special Purpose Tax, the $87.5 million, but would result in more money being deposited to the project's operation and maintenance account.
Does the special purpose tax apply to vehicle purchases?
Yes, it applies to anything that's subject to sales tax. If the voters approve the increase, any vehicles purchased on or after April 1, 2020 would be subject to 6% sales tax.
If you have additional questions about the Special Purpose Excise Tax, send an email to the Treasurer, Joel, and he'll get back to you.