Clay County Should Reduce Its Commercial Property Tax Surcharge

A version of this commentary appeared in the Clay County Courier-Tribune.

This November, Clay County residents will vote on reducing an obscure tax that places the county at a competitive disadvantage compared to its neighboring communities.

In 1985 the State of Missouri changed the way local governments tax commercial and industrial property. It eliminated the tax on business merchandise and inventory and replaced it with a surtax on the value of commercial real estate. Every county that year calculated the new surtax at a revenue-neutral replacement level for the lost business inventory taxes. Among the reasons for the change was a desire to base the tax on the value of real estate, which is more consistent than the ever-changing values of inventories. The change, made by an amendment to the state’s constitution, was explicit that the replacement levy calculated by the counties could be lowered only by voters, not elected officials, and that the surtax would not adjust downward as assessed valuations increased. This puts the commercial surtax at odds with most other property taxes in Missouri, for which the tax rate is supposed to go down as assessed valuations go up.

When the rates were established in 1985, most of the collar counties around Kansas City and St. Louis were much smaller than they are today, with fewer businesses. Consequently, these collar counties set their commercial surtaxes at a low rate. But Clay County, likely because of inventory taxes generated by its massive Claycomo Ford Plant, bucked that trend. It set its surtax rate at $1.59 per $100 of assessed valuation. That is the third-highest rate in the state, and the highest in Western Missouri. By comparison, Jackson County has a commercial surtax of $1.44, while Cass’s rate is much lower at $0.54 and Platte’s surtax is a mere $0.36.

Assessed valuations have grown enormously since the tax was introduced. For example, the commercial assessments in Clay County have gone up 287 percent between 1985 and 2021, from $302 million to $1.17 billion, yet the surtax rate has never been reduced to offset that increase. The combination of a high tax rate and the difficulty of reducing it puts Clay County at a competitive disadvantage compared to other counties in its area, especially its Northland neighbor and competitor, Platte County.

This is a problem for Clay County. These differences may not have been a big deal in 1985, when the tax alteration was a neutral one for Missouri businesses and more of them were located in our central business districts. But it is a problem now. After much discussion and debate, the Clay County Commission decided in July to propose lowering Clay County’s surtax to $1.44, equal to Jackson County’s rate. If passed by voters, this modest reduction in the commercial surtax rate would both spur economic activity in Clay County and reduce the perceived need for tax incentives. As Clay County continues to grow and assessed valuations continue to increase, revenue reductions for local governments that receive the tax money will be miniscule or nonexistent. Even with the tax cut, revenues from the tax will almost certainly grow past current levels in the near future. That’s not voodoo economics; it simply reflects expected growth in population, business, and assessed valuation.

Clay County leaders deserve credit for placing this surtax reduction proposal on the ballot this November so voters can have a say in making their community more economically competitive. If approved, this reasonable and beneficial tax cut will help grow Clay County’s economy, and everyone benefits from that.