Title
Consider/Discuss/Act on Revised Chapter 380 Economic Development Agreements between the City of McKinney and Landon Homes, LP, and between the City of McKinney and Pulte Homes of Texas, LP.
Summary
MEETING DATE: March 17, 2015
DEPARTMENT: City Manager
CONTACT: Barry Shelton, Assistant City Manager
RECOMMENDED CITY COUNCIL ACTION: Approval of the agreements.
ITEM SUMMARY:
· Landon Homes and Pulte Homes have requested approval of revised Chapter 380 Economic Development Agreements to modify the language relating to purchases from suppliers or vendors having outlets within McKinney.
BACKGROUND INFORMATION:
· Staff was contacted by Doug Duffie, CPA, who proposed a Chapter 380 Agreement for sharing the use taxes generated by his clients (Landon Homes, LP and Pulte Homes of Texas, LP).
· On September 16, 2014, the City Council approved Chapter 380 Economic Development Agreements with the two homebuilders to source the local use taxes on materials incorporated into homes in McKinney (based on tax rates at the job site) in exchange for sharing a portion of the new incremental local use taxes generated.
· The motion for approval on the two items included a condition that the agreement would not apply if the purchase of materials or other products was from McKinney merchants.
· Following approval of the agreements, the City Attorney drafted language accomplishing the wishes of the Council as stated in the motion for approval.
· The applicant, Mr. Doug Duffie, disagreed with the language as proposed and has requested City Council clarification. In question are sections 4.01 and 5.06.
· The City's version of the agreements reads as follows:
· "4.01 To the extent Company purchases taxable items from suppliers or vendors having a sales tax outlet situated within the City's corporate limits the Company shall pay sales and use taxes to such suppliers or vendors at the point of sale situated within the City's corporate limits without regard to the location from which such purchases are shipped to Company; and such purchases shall not be eligible for consideration in the calculation of the Grant."
· "5.06 To the extent Company purchases taxable items from suppliers or vendors having a sales tax outlet situated within the City's corporate limits the Company shall pay sales and use taxes to such suppliers or vendors at the point of sale situated within the City's corporate limits without regard to the location from which such purchases are shipped to Company; and such purchases shall not be eligible for consideration in the calculation of any Grant Payment."
· The applicant's proposed agreements read as follows:
· "4.01 Purchases from suppliers or vendors having a sales tax outlet situated within the City's corporate limits shall not be eligible for consideration in the calculation of the Grant."
· "5.06 Purchases from suppliers or vendors having a sales tax outlet situated within the City's corporate limits shall not be eligible for consideration in the calculation of any Grant Payment."
FINANCIAL SUMMARY:
· The homebuilders must apply to the Comptroller's Office in Austin for a Special Use Tax Permit (Texas Direct Payment Permit). If approved for the permit, the companies will self-assess and pay use taxes on the building materials they incorporate into realty rather than pay sales taxes on these materials to key suppliers (where the suppliers receive orders).
· None of the direct material suppliers have sales outlets in McKinney, so no local sales taxes on these materials are currently sourced to the City.
· The agreements require the city to return 80% of the 1% general city use tax to the homebuilders and for the City to retain 20% of this tax as well as 100% of the 1% combined McKinney EDC and CDC use taxes.
· A Texas Direct Payment Permit allows the company to source local use taxes on its direct materials to the city where the construction occurs. The company has conveyed that there are incremental system costs involved in implementing this approach since specific building materials are required to be tracked to each job for the appropriate local use taxes to be self-assessed and paid to the Texas Comptroller's Office.
BOARD OR COMMISSION RECOMMENDATION:
· N/A