Pettis County Guest Tax Overhaul Would Benefit From Tax Rollback Provisions

Early next year, voters in Pettis County will decide whether or not the current $2 tax on hotel rooms should change to a tax of 5 percent on the room rate.

If the vote passes, Pettis County expects to net an additional $100,000 in tax revenues. As a result of this increase, Pettis County will assume the City of Sedalia’s current obligation to pay $72,000 annually to fund the Convention and Visitors Bureau (“CVB”).

That raises the question: what should Sedalia do with the money it no longer needs to spend on the convention bureau? The city could spend more on tourism or other pressing government services. It could also pass those savings along to taxpayers by reducing sales tax or property tax rates.

Spending additional resources on tourism would not benefit the city. People who attend the Missouri State Fair have to go to Sedalia anyway. Cyclists who bike that end of the Katy Trail are highly likely to stop there as well. Most tourists will visit and spend in Sedalia regardless of how much, or how little, the city spends on advertising. Additional dollars spent promoting tourism will have limited benefits for the city’s economy.

The second option is applying the $72,000 to other government services. If there is a widely agreed-upon public good the city needs to address, perhaps moving the money toward that need is its best use. But lacking a widely agreed-upon need, the city should not just spend the $72,000 because it has it. Returning the money to the taxpayers has benefits that might be hard to immediately quantify, but they absolutely exist.

The third option — decreasing the sales tax — would benefit tourists as much as residents and produce little overall benefit. Sales taxes relating to tourist attractions result in less economic distortion than other types of taxes. If the sales tax is successfully raising tax revenues without distorting the local economy, it should be low on the list of things to cut.

Which brings us to our final option — reducing property taxes in Sedalia. Businesses in Sedalia suffer from the high commercial property tax surcharge imposed by Pettis County. According to research done at the Show-Me Institute, Pettis County has a significantly higher surcharge than its neighboring counties. In order to alleviate this burden, the city should reduce property tax rates to make their businesses more competitive and give their residents additional purchasing power.

Reducing the property tax would increase expendable incomes for both businesses and homeowners. Businesses may use that additional money to expand or to create new jobs. Homeowners will increase consumer spending or savings rates. These benefits are not as easily seen as additional billboards along I-70 or radio ads, but in the long run, they attract, retain, and promote economic growth.

According to economic theory, taxing inelastic goods (which are less sensitive to price) is preferable to taxing elastic goods (which are more price sensitive). So, taxing hotel rooms in a tourist location like Sedalia is preferable to taxes on business property. But, Sedalia should not use this change to justify increased government spending.

Consequently, a reduction in property taxes to offset the new hotel tax revenue is the best option. The proposed guest tax overhaul in Pettis County is a good idea only if the savings are passed along to all voters and taxpayers.