Don’t Drain the Sales Tax Pool

What does every city with a recent eminent domain controversy in Saint Louis County have in common? They are all “point-of-sale” cities, which keep the majority of sales taxes they collect under the County’s complicated sales tax distribution formula. Legislation has been introduced in Jefferson City that would exacerbate the problem. It would change the way sales taxes are distributed in Saint Louis County and revert back to the system that existed prior to 1994, which would have even greater potential for eminent-domain abuse. Abandoning the so-called “Westfall Plan” would be a mistake with serious repercussions for economic development.

In the early 1990s, Buzz Westfall and the County Council addressed the inequities in the collection and dispersion of sales taxes within Saint Louis County. At the time, cities with significant retail had their own sales taxes and kept all of the money. After difficult negotiations, a compromise was reached and Saint Louis County now has a countywide sales tax and a shared tax pool with point-of-sale, (or “A”) and “pool” (or “B”) cities. A cities keep the majority of their sales taxes but are required to share a portion with the pool. The rest of the county turns over all the sales taxes they collect to the pool, which is then redistributed to the B cities, which includes unincorporated Saint Louis County, based on population. Not surprisingly, A cities tend to be places with significant retail while the B cities have limited retail or large populations. The proposed legislation would end this system in 2008, allowing A cities to again keep all of the sales tax money they collect.

The current system acknowledges the fact that most shoppers going to the Galleria don’t live in Richmond Heights. It also benefits the business environment in our area by rewarding non-retail economic development. If Webster Groves attracts a new corporate headquarters, that would clearly generate significant new sales taxes for the area based on the new jobs and employees brought to the region. Why should a neighboring A city with significant shopping, such as Brentwood, keep all of the sales taxes generated within Brentwood by the new employees of that Webster Groves company? Eliminating the pool contributions of A cities would further press all cities to search for ways to increase sales taxes and grow retail development at the expense of other modes of the economy, such as finance and manufacturing, which generate the salaries used to go shopping in the first place.

That pressure to increase the retail economy, as opposed to other types of development, is one of the main reasons behind the eminent domain abuses we have seen in recent years in Saint Louis County. It is not a coincidence that all of the controversial eminent domain actions in Saint Louis County have occurred in A cities such as Sunset Hills, Manchester, Rock Hill and Clayton. Residential areas such as the one at issue in Sunset Hills have more tax value to B cities, where a city’s population is a significant factor in the amount received from the pool.

The argument in favor of allowing A cities to keep all of the sales tax would be stronger if those cities were responsible for all the infrastructure that supported the development. However, the primary shopping areas are, for obvious reasons, located along major roadways. Those roadways are usually state or county roads that taxpayers throughout Saint LouisCounty pay to maintain, not just the municipalities they run through. There are other examples, such as fire department mutual aid agreements, that demonstrate the interconnected nature of local government in Saint Louis County and argue for keeping the current sales tax pool distribution system.

In the interest of property owners, the contributions of A cities to the sales tax pool should be maintained. All types of industry and commerce benefit our community, not just retail sales outlets. If anything, the pool should be expanded further so that all cities would benefit from development throughout the county, not just within their own borders. The current system helps to relieve the pressure on local governments to constantly generate more sales tax dollars by any means necessary and preserve the property rights so central to the rights of free people.

David Stokes is a writer living in University City.