Imagine your reaction if three years after you moved into your new home, the contractor came back and asked you for several thousand more dollars.
In one of the most ham-handed attempts we’ve seen to shore up a government budget in this down economy, the city of Boulder recently tried to make contractors and homeowners pay millions in back taxes that the city itself failed to collect.
When Boulder issues a building permit, or a permit for remodeling work more than $20,000, the city estimates an upfront “use tax” for the cost of building materials.
Since 1985, Boulder’s regulations expected contractors to reconcile the actual cost of building the home or making the improvements and pay the difference, once the work was completed. But Boulder hasn’t been enforcing the reconciliation process, and the upfront tax has become the standard.
A recent audit found that since 2006, the difference between actual costs and upfront estimates could have been as much as $5.2 million in the city’s favor. So the city asked 1,000 contractors for the money.
But with estimates that the average discrepancy would be 389 percent higher than the original tax per project, contractors obviously balked. Besides, it would have been a tax the homeowner would have paid, not the contractor. And no contractor wants to go back to a client and ask for that kind of money.
Why wasn’t the city collecting the reconciled tax in the first place? Officials explained that for years the upfront estimates usually meshed with the finished costs. Only as the price of building materials escalated in recent years has the difference swelled.
Fair enough, but the cost of materials has grown over many years, and the city should’ve paid more attention. Meanwhile, many of the builders contend that it’s never been clear that actual costs are to be reconciled.
Clearly, Boulder should have made the use tax more understandable and enforced its intentions if it felt the tax was necessary. The letters to contractors went out in August. Last week, responding to the outrage, Boulder suspended its request and initiated a review on how to proceed.
We think Boulder ought to improve its estimates and start collecting the reconciled tax once the project is complete.
Trying to apply the tax retroactively was foolish. Besides being unbelievably bad politics (as the city no doubt now realizes), asking folks in a down economy for thousands of dollars they likely don’t have is irresponsible.
