Oro Valley staff outline proposal for use, commercial rental and telecom taxes, plus stormwater rate increase

David Gephard, a town staff member, presented possible new tax categories and fee changes to the Oro Valley Budget and Finance Commission on Aug. 19, describing the measures as options to address rising public-safety and pavement-preservation costs.

Gephard said the town is considering three tax categories not currently charged by Oro Valley: a use tax, a commercial rental tax and a telecom tax. He described the proposal as focused on capital funding and said staff’s intent is to direct new revenues toward capital needs such as a future police facility, police vehicles and road maintenance. “These new tax categories we are proposing… would be assigned for capital needs and capital purposes,” he said.

Why it matters: Gephard told the commission that public-safety costs have risen faster than the town’s revenue growth and that pavement-preservation costs have increased about 107 percent since 2021, forcing transfers from the general fund into the highway fund. He said local sales-tax growth has been essentially flat for the last three years and that Oro Valley also faces “retail leakage” when residents shop outside the town.

How the proposed taxes would work, according to staff: - Use tax: equalization tax on purchases made outside the state where sales tax was not charged; staff estimated a potentially wide collection range and modeled examples (e.g., $10,000 a month in out-of-state purchases would generate $250 monthly at a 2.5 percent rate). Gephard said the use tax has the highest volatility and the town lacks highly granular state data to predict collections precisely. - Commercial rental tax: a tax on business leases and some storage rentals that would primarily affect businesses paying rent. Staff said small storage renters would see small increases while larger commercial leases would generate more revenue. - Telecom tax: a monthly charge on telecommunications bills; Gephard provided sample impacts (a $50 monthly cellphone bill would add about $1.25 at 2.5 percent).

Gephard said staff have discussed the proposals with business stakeholders, including the Oro Valley Chamber Board and Roche’s corporate tax team. He said Roche’s tax staff indicated the telecom tax was the item of greatest potential impact for their operations but did not anticipate major operational impacts from the other categories. The Chamber Board, he said, raised equity concerns and suggested a property tax would be more equitable but that a property-tax measure would require a vote and likely face community resistance.

Stormwater fee: Separately, staff proposed a stormwater-rate increase—about $2 per month for many small businesses or residents—saying the stormwater fee has not been increased since 2016 and currently covers operations but not capital needs. Gephard said the stormwater fund completed the Sierra Wash capital project and that federal grant revenue will be recorded at fiscal year-end.

Commissioners raised outreach and equity concerns. Commissioner Mason noted worries that a commercial rental tax could disproportionately affect small businesses that already face relatively higher rents in Oro Valley; Gephard said he had heard that concern and that the town may offer phased or tiered options. Commissioner Kesey asked which portion of the pavement-preservation gap the proposed taxes might cover; Gephard said estimates for the use tax ranged from about $900,000 to $1.8 million and that midpoint collections could materially reduce the gap but that predictions are uncertain. Vice Chair Carlsberg asked whether staff had considered adjusting the general sales-tax rate instead; Gephard said raising the sales tax could be considered later but his preference was to first pursue categories that bring Oro Valley in line with neighboring jurisdictions.

Next steps: staff said outreach will continue with a business forum on Sept. 11 and additional presentations; the town plans a council study session on Oct. 1 and a council decision discussion on Oct. 15. Gephard emphasized that the commission’s role at this stage is advisory and that no final decision had been made.

No formal vote was taken on the tax or fee proposals at the Aug. 19 meeting; staff requested feedback and further outreach before a potential council recommendation next month.