The Rugby City Council last month approved raising the city’s sales tax from one to two percent, and city officials recently received word from the N.D. Tax Commissioner’s office the change will officially go into effect Oct. 1.

Karla Harmel, city auditor administrator, said the state tax office will be notifying vendors within the city which collect sales about the increase.

The council passed a first and then second reading on May 4 by a 6-2 vote to amend the sales tax ordinance, increasing the tax collection from one to two percent. Council members Terry Wentz, Monte Schneibel, Bill Hartl, Dave Bednarz, Steve Brossart and Bruce Rheault voted yes. Jim Hoffert and Gerry Jacobson were the two no votes.

Following the final reading, citizens who opposed the amendment change had 30 days to collect referendum petitions. However, no such petitions were filed or were known to have been circulated.

Added funds for city projects

Council members who support the increase sales tax collection see it as a way to generate additional revenue to pay for the current street improvement project and future infrastructure improvements.

It’s estimated the two percent collection nets the city, on average, between $480,000 and $520,000 annually.

The existing one percent tax has 75 percent of the collection given to the Rugby Area Job Development Authority to fund economic development. The remaining 25 percent goes to the city devoted for infrastructure needs.

A new formula will be established when the new two percent tax collection begins. The city will receive 65 percent for infrastructure needs and the JDA 35 percent.

The city collected about $56,000 in the fourth quarter of 2008 from its one percent tax. A two percent tax would mean $112,000, with the city’s share $71,500.

There is no sunset clause regarding how long the two percent sales tax will be collected. The amended ordinance does permit the city council to reduce or change the sales tax by a council vote or by a vote of residents.

The city began collecting a sales tax in 1993, after a vote of approval from residents, following the adoption of a Home Rule Charter for Rugby.

In addition to a two percent sales tax, there is also a two percent lodging and restaurant tax within the city. Those dollars fund the Greater Rugby Area Convention and Visitors Bureau (CVB).