Grocery tax's fate undecided in Castle Rock

4 percent levy on food for home consumption scrutinized by council


Castle Rock has implemented a grocery tax on certain food items for more than 20 years, but that era could soon end.

The town council took up a lengthy discussion in early September to review the 4 percent tax, also called a Food for Home Consumption Tax, and debate its future in the growing community now pushing 67,000.

Conversation boiled down to a few key points.

Some asked if a grocery tax is ethically and morally right. With food being a necessity, can the tax burden lower-income families disproportionately? But could eliminating it altogether evaporate vital town dollars that help fund services such as police, fire and road maintenance? Or, if council eliminates this particular tax, could that revenue be made up in other ways?

Staff estimate the grocery tax generates approximately $7 million for the town annually, the overwhelming majority of which comes from large retailers like King Soopers, Sam's Club or Walmart.

The dollars are divided between the general fund, about 60 percent of which goes to police and fire; the transportation fund, for work like pavement maintenance; and the town's community center fund, which operates facilities like the MAC.

“I'm not unmindful that this is an important social policy for the community,” said Town Manager David Corliss during a Sept. 4 presentation. But he also cautioned there could be consequences to cutting the tax cold turkey. What happens if $7 million disappears?

“I don't want to say everything would be fine,” Corliss said. “I also don't want to be 'Apocalypse Now.'”

What is a grocery tax?

Castle Rock's 4 percent grocery tax is not implemented on all food purchases.

“You want to think about something that is made to eat at home versus something I can open up and eat on my way home,” said Pete Mangers, the town's revenue manager.

The cake someone buys to serve at their child's birthday party would be taxed. The block of cheese that gets sliced at home, yes. The deli sandwich or candy bar someone unwraps in the car would not be.

In total, the grocery tax accounts for about 13 percent of Castle Rock's general fund and 17 percent of all sales tax collected. This is roughly the equivalent of sales tax generated by the Outlets at Castle Rock. By comparison, property tax generates about $1.3 million for the town.

Corliss said staff tried to analyze the impact of removing the grocery tax without replacing it with another revenue source.

Across-the-board cuts, he said, would mean $1.5 million less for the police department, $1.7 million less for the fire department, $1.8 million less for the transportation fund, and $393,000 less for the town's community centers, all on an annual basis.

In terms of personnel, that's about 19 percent of sworn officers and 21 percent of line firefighters, Corliss said.

Of course, the town council could examine those cuts down the road and allocate the tax dollars in ways that avoid hitting police and fire, or whatever town services they wanted to prioritize.

There are also options other than simply removing the tax.

One is to do nothing and leave the tax as it is. Or the town could begin offering a rebate program to town residents. About half of sales taxes revenue is believed to come from non-residents, Corliss said.

A rebate program could be based on income requirements. Staff looked at 31 communities across the Front Range and found slightly more than half had a grocery tax and seven offered a rebate program. They recommended an annual rebate of $171 to qualified families, based on Bureau of Labor Statistics data, said assistant town manager Kristin Zagurski.

A third option is to phase out the grocery tax and gradually raise property tax to replace that revenue stream, although this option would require voter approval. It's a more appealing option to those wary of the town's reliance on sales tax and the consequences of future economic downturns.

Council's reaction

Council ultimately determined more information is needed, not only from staff, but also from residents. They voted 6-0 to have staff return with more specifics about what cuts could look like — whether that's fewer personnel or shorter hours at community centers — and to research incorporating the issue as part of the town's 2019 community survey.

That survey is typically conducted during the first quarter of each year with results available in the spring. There's no rush to get that information, councilmembers said, and the present may not be the most appropriate time.

Castle Rock is in the midst of an election cycle where the town's grocery tax and dependence on sales tax as a whole have been talking points for some candidates. Councilmember George Teal has been a vocal supporter of repealing the grocery tax and considered a run for mayor. Wayne Harlos, a candidate for the District 5 council seat, called the tax immoral Sept. 4.

Teal said he hopes to learn whether, if residents are returned the $7 million, they would reinvest that in the town by shopping more, another point he asked staff to research.

Revoking the tax has other supporters, too.

Councilmember Jason Bower said he doubts residents feel they're overtaxed but said the issue is a moral one for him and “that food doesn't need to have tax on it,” calling accessibility to food a matter of health care and a necessity.

“I think we're interested in doing the right thing,” said Councilmember James Townsend. “We're interested in cutting taxes and particularly one like this. The question is how.”


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