Caps on Stacked Taxes
The St. Joseph News-Press reports that Missouri lawmakers recently proposed a solution to the problem of “tax stacking” — the practice by which municipalities attempt to pass additional tax increases through referendums in order to circumvent the state-mandated limit of an additional 1.5 percent in sales taxes. The lawmakers proposed two things:
The resolution would protect cities from the threat of lawsuit, as they believed a 1999 letter from the Missouri Department of Revenue condoned the taxes. However, the two legislators want to cap general sales taxes at one cent and other authorized sales taxes — such as St. Joseph’s CIP [Community Improvement Project] tax — at one-half cent.
These extra taxes usually come in the form of CIP taxes (also known as CID, Community Improvement District, taxes). CID taxes are levied when at least 50 percent of the property holders holding at least 50 percent of the property in the area decide to levy a voluntary tax. In practice, this money could be used for landscaping or infrastructure improvements that benefit 51 percent of the owners, to the detriment of the other 49 percent. The use of CIDs is of questionable value, at best, and this proposal would essentially prohibit further CID taxes.
When I wrote about the topic of tax stacking earlier this summer, a Farmington lawyer was suing cities to repeal these taxes. At the time, I was conflicted over my desire to see taxes lowered and my concern that the lawsuit was redistributing city money inappropriately, essentially hurting the taxpayers it was intended to help. Recollecting the money would not solve matters, because the transaction cost of both the initial collection and the recollection process (as well as the difficulty of determining the appropriate reallocation) would be prohibitively costly. Considering the situation, strengthening the tax cap is the best solution to protect Missouri taxpayers from further harm.
Tax caps would require Missouri’s cities to promote further growth if they want to increase tax revenue. Preventing extra taxes from being collected — thereby leaving more money in the hands of consumers — would permit more growth, and would result in a far better long-term outcome than simply raising taxes.