Coupon mailing firms claim

FORT COLLINS — The first round in the city vs. direct-mail companies has gone to the city.
A city hearing officer last month ruled that companies such as Val-Pak of Northern Colorado Inc. and Money Mailer of Northern Colorado must pay a 3 percent use tax for doing business that has a "nexus," or connection, to the city. The city also ruled the companies are responsible for three years of back taxes related to the issue.
The companies previously were not targeted.
The decision will be appealed by Sue Davis, owner of the Val-Pak franchise, through her attorneys at The Dow Law Firm.
John Kirsch, owner of the Money Mailer franchise, said he intends to take the issue to public officials, including the city manager and city council.
"It amazes me that they care so little," Kirsch said. "They seem to conclude that if you˜re in the city, you get hosed."
He will consider moving his business out of the city, saying that if he has to pay the tax, it ultimately will be passed on to the businesses that advertise in coupon mailers.
"The city at one point said it was going to be more business-friendly," he said, adding that this measure not only hurts his business, but also small businesses that can˜t afford to advertise elsewhere.
At issue for the direct-mail companies is the fairness and equality of the city˜s push to tax the businesses. The ordinance in question has been in effect for several years, but attempts to enforce it apparently began only recently.
"They˜re trying to find revenues on every street corner," Kirsch said.
Officials with the city attorney˜s office did not return calls by press time.
Essentially, the city wants to tax the tangible personal property — the coupons — that are printed out of state. Firms such as Val-Pak and Money Mailer allow businesses to share the cost of advertising in packets directly mailed to households. The topic drew Val-Pak and Money Mailer, normally competitors, into a legal contest with the city.
If the direct mailers were using a local printer, rather than sending the coupons out of state for printing, the tax would not be an issue. In October, as both sides were preparing for the hearing, Davis told The Northern Colorado Business Report that "what we need (in terms of a printer) doesn˜t exist here, so we can˜t purchase here."
Typically, if a local vendor were used, the direct-mail companies would pay a sales tax to that printer for its services, thus satisfying the city.
The state of Colorado has gone so far as to pass a law exempting all cooperative direct mailers, such as Val-Pak and Money Mailer, from taxation. Its goal is not just to assist the direct-mail companies, but to protect the many small businesses using such a medium for advertising. The city of Fort Collins, however, says that because it is a home-rule city, rather than statutory, it does not have to follow the state˜s direction on the use-tax law.
After being challenged by the direct mailers, the city held a hearing in December to determine whether the companies should be liable for the tax. Last month, the hearing officer determined that they indeed should pay the tax.
"At this point, we don˜t agree with the city˜s decision, and we are going appeal it," Davis said.
Early this month, Patty Dow of The Dow Law Firm filed a petition in district court for a hearing before a judge.
The companies maintain that as small, independent and local businesses, they are easy targets for the city. They argue that other out-of-state coupon mailers sending packets to Fort Collins residents are not being charged the tax.
Prior to the hearing, Davis and Kirsch did extensive research, contacting all similar companies, even those owned out-of-state, that mail into the city. They did not find a single one that has been required to pay the 3 percent sales tax.