A Perfect Storm of Sales Taxation

A lunchtime trip to the The Loop in Saint Louis taught me that local sales tax rates are getting out of hand. After enjoying a tasty BLT salad, I was shocked when I saw the sales tax on my bill: 12 percent! I did not know before being seated that the restaurant is located in two overlapping transportation development districts (TDDs), each adding its own percentage to my bill.

This perfect storm of sales taxation means that the restaurant and the surrounding area charge the highest sales tax in the state. Eight other areas in the city of Saint Louis share this distinction. The 2 percent additional sales tax levied by the TDDs, in addition to the sit-down restaurant sales tax, brings the restaurant’s total sales tax rate to a stifling 12 percent. This rate is nearly three times as high as the state’s sales tax rate of 4.225 percent, and more than 40 percent higher than the city’s standard rate of 8.491 percent.

TDDs are becoming increasingly common in Missouri, with about 150 currently existing districts and many more in the process of becoming established. TDDs are independent political subdivisions with the ostensible purpose of improving area infrastructure and overall appearance. As separate government entities, they wield the power to levy taxes on sales, of up to 1 percent, and on property, up to one tenth of a percent. This revenue is used to fund many projects intended to improve the districts.

It is important to note that every tax levied by a TDD is subject to voter approval by its residents. However, district residents are not the only patrons of these businesses, and this can often lead to visiting customers being blindsided by a tax rate far higher than the state or city standard. Furthermore, it is a tax that most people are unaware they are paying. This creates a situation in which outside consumers unknowingly foot much of the bill for district improvements and the subsequent rise in property values.

These TDD tax hikes may be politically inevitable, but I object to the lack of disclosure to visiting patrons. Missouri Statute 238.280 attempts to tackle this problem by requiring businesses residing in TDDs to “prominently display” the rate of the district’s increased sales tax at the cash register area. Still, the statute fails in three different ways. First, the language of the law is too vague; retailers often interpret their responsibility as a barely noticeable sticker on the clerk’s side of the sales desk. Second, the law doesn’t account for situations in which the customer is brought a check, such as at a restaurant. And, lastly, there is no enforcement mechanism for disclosure rules.

When I returned to The Loop to search for any disclosure of the TDD tax that I might have failed to notice, I found nothing. The restaurant appeared to be in clear violation of the statute. I asked the manager, but she seemed confused and responded, “There might have been something in the past, but I don’t see anything.”

Full disclosure could be accomplished with a simple sticker on the front window of an establishment reading, “Thank you for supporting the ‘blank’ TDD. You will be charged an additional ‘blank’ percent sales tax.” Saint Louis restaurants are required to post their health inspection grades in the exact same manner, so such a requirement would be feasible. Perhaps it would serve as a marginal disincentive to business owners who support TDD tax hikes as an easy way to improve their businesses at the expense of others. Customers who are undeterred by the notification of a 1- or 2-percent sales tax increase will demonstrate this with their patronage. In order to make better decisions, though, customers must be adequately informed.

I believe that if more people became aware of the higher sales tax rates that exist in TDDs, they would avoid them — and the districts would therefore defeat their intended purpose. Missourians would benefit from greater disclosure by businesses operating in these special districts, and should demand, at the very least, a notice about TDD tax hikes on every storefront window.

Vince Smith was a 2010 intern for the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.