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Rugby sales tax rate to rise

By Staff | Sep 18, 2009

Beginning in October, the Rugby city sales tax rate will double.

The increase from one to two percent which was approved by the city council earlier this year, is expected over time to net the city an annual collection between $480,000 and $520,000.

Since 1993, the city has been collecting a one percent sales tax following voter approval of adopting a Home Rule Charter for the city. And in 2000 the council voted to keep the sale tax permanently, which they were allowed to do under state law.

The motive to increase the sales tax, which is also allowable under state statute, was to generate more funds toward city infrastructure and maintenance repair, and thus help offset the costs for the city’s recently-completed $5.2 million street improvement project.

In fact, a handful of Rugby residents proposed to the council increasing the sales tax rate, enabling non-residents to contribute toward paying for street improvements with purchases in town, since they also drive on the streets.

Proponents of the tax increase also see it as an opportunity to complete regular infrastructure maintenance, including streets, can be completed without having to regularly special assess property owners.

Several other cities, large and small, which have sales tax collections, have set it at two percent to generate additional funds toward city projects.

However, amending the sales tax, did not receive unanimous support from the council. A couple of councilman members voted against an increase, saying it will potentially hurt businesses and could deter out-of-town residents from shopping in Rugby.

Residents did have an opportunity to oppose the city’s amendment and collect referendum petitions. However, no such action was taken.

Under the current one percent tax, 75 percent of every $1 collected is earmarked toward the Rugby Area Job Development Authority to run its operating budget and for economic development projects while the remaining 25 percent is for city infrastructure repairs.

However, a new funding breakdown was approved by the council in May when it amended its sales tax collection ordinance. The JDA would receive 35 percent of collected funds while the city would receive 65 percent.

City officials said the JDA would still receive approximately the same amount of funds it has in the past.

The 2008 sales tax collection was $266,000, about a nine percent increase over 2007. To date, this year’s collection through the first three quarters is on pace with that total, according to Karla Harmel, city auditor-administrator.

As part of the amendment, the council could change the tax rate to one percent, or in the future call for a vote regarding the tax collection.

Earlier this month, the state tax department notified businesses by letter, of the upcoming change in sales tax collection.

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