Missouri Use Taxes Should Expand the Tax Base, Not the Size of Government

Posted on by David Stokes

Use taxes in Missouri are simply sales taxes on goods delivered to your home from out-of-state sellers. Local governments have been authorized to collect use taxes for a long time—predating the internet, even—but they have not been widely adopted. Collecting sales taxes on Sears catalog purchases was a lot of work for little revenue. The internet has changed that. The recent Supreme Court decision in the “Wayfair” case, changes to state legislation, and, most obviously, the tremendous increase in e-commerce during the pandemic have all combined to greatly increase the need or desire for governments to tax online sales.

For purposes of comparison, e-commerce now makes up over 12% of total sales in the United States according to the U.S. Department of Commerce. For cities and counties in Missouri, 12% is a lot of sales not to tax. To address that, at least four counties and dozens of cities have placed use taxes on the April 5, 2022, ballot. Expanding the tax base with a use tax, if done in conjunction with a reduction of other, more harmful taxes, could be a beneficial change. But let’s be clear: if there is no corresponding reduction in other taxes, this is a tax increase on residents.

It is a central tenet of tax policy that a tax base should be as broad as possible. The more expansive the tax base, the lower the rate that must be imposed to fund the functions of government. Exact use tax revenue amounts are hard to predict, but the revenues for each city will not be insignificant. Local governments have received federal COVID-relief and stimulus funds, home values have risen substantially, and tax collections during the pandemic were not down as much as initially feared. As a result, many of these cities and counties do not need this new tax revenue to meet vital needs. The use tax could be approved by voters to responsibly expand the tax base and equalize the competition between online and physical stores, but it should not be approved simply to grow government revenues. Imposing a use tax in a revenue-neutral manner is not a new idea. It is exactly how the Missouri Legislature addressed this issue with the state’s new use tax law in 2021. St. Francois County officials have publicly stated they will lower their county property tax if the use tax is approved.

For cities and counties in Missouri proposing to impose their own use taxes, the simplest way for them to offset the revenue increases from the use tax would be to lower their property taxes in a revenue-neutral manner. Other options for various local governments if the use taxes are approved include eliminating more harmful taxes, such as the paradoxical local sales tax for economic development. Reducing the local utility tax rates would be another good exchange for cities that do not levy property taxes.

The imposition of a use tax for these Missouri cities and counties could be a positive policy change. It could also be an easy way for politicians to just raise taxes one more time. By having various city officials pledge to enact offsetting revenue reductions, local officials can amplify the public benefits while curtailing the tax impact on residents and businesses. That is a plan I think most taxpayers and voters could support. Without such a commitment, though, the use tax is just another tax increase.

Honey, I Shrunk the City

Posted on by Scott Tanner

It’s not exactly news that the City of St. Louis and the region as a whole have been losing population for decades. But it’s still jarring to read paragraphs like these from a recent St. Louis Post-Dispatch story:

The number of people who live in the city of St. Louis fell below 300,000 in 2021 and the metropolitan area also saw a decline in population as the region for the first time recorded more deaths than births. That puts it among just a handful of large urban areas hit by outmigration and a negative birth rate. . . .

As of July 1, the Census Bureau estimated that just 293,310 people resided in the region’s core city of St. Louis, down from the 301,578 people counted in the 2020 census.

St. Louis City had a population of more than 850,000 in the 1950 census. That means today’s population is about a third of what it once was. Deaths outpacing births for the first time in recorded history does not seem like great news, either.

Not all of this is the fault of the city’s leadership. Structural factors are certainly at play here; there are many reasons St. Louis’s population has been in precipitous freefall for more than half a century. And COVID deaths across the country did depress population gains. But that does not mean decline is inevitable.

As noted in the Post-Dispatch article, several peer cities in the Midwest, including Kansas City, Indianapolis, and Cincinnati, experienced population increases over this period. Those cities have many similarities to St. Louis. And St. Louis retains many key advantages, including its central location as a transportation hub and a low cost of living. To quote the late Charles Krauthammer: Decline is a choice.

So what now? A few quotes from the Post-Dispatch article hint at one possible way forward:

The numbers drew another call from the St. Louis metro’s new business and civic booster group for regional unity and a redoubling of efforts by area leaders to draw residents and focus on “inclusive economic growth.” . . .

“At the start of last year, we established Greater St. Louis Inc. out of the core belief that growth must be a top civic priority for the St. Louis metro,” said Greater St. Louis Inc. CEO Jason Hall. “These numbers tell us what we expected and underscore the urgency of focusing this metro on growth and more opportunities for all. Stagnation is the existential threat to everything we love about the place we call home.”

I’m not exactly certain what “inclusive growth” means—I would think that a region that has been hemorrhaging population since the Eisenhower administration should just be focusing on any growth, absent qualifiers. I am not mentioning this phrase just to be snarky, but instead because it is indicative of how St. Louis leaders have approached this problem.

Greater St. Louis, to much fanfare, introduced a plan at the end of 2020 (revised and improved in early 2021, but without significant changes) that was intended to fix what ailed the St. Louis region. Show-Me Institute analysts pointed out the inadequacies of that plan at the time. One of the major problems with the report is that it’s long on buzzwords and jargon like “inclusive growth” and short on actual concrete policy prescriptions or solutions.

I don’t want to belabor the shortcomings of this one report from two years ago. But that report illustrates how many civic leaders in the St. Louis region think, and it represents a well-trod path: Use taxpayer dollars to bribe companies to move here, use even more taxpayer dollars to pay for splashy but economically dubious projects like aquariums or soccer stadiums or trolleys, and bend to the whims and demands of social justice activists when making key decisions.

It’s not that hard to think of a better way to try and make St. Louis a more attractive place to live and work. St. Louis City still has an economically destructive earnings tax. The city also has massive problems with crime. The city could also focus on reducing regulations to improve its ease-of-doing-business rankings. The region as a whole could stop giving away tax subsidies at every available opportunity and use some of that money to fund critical public services or cut taxes.

It would be easy to keep listing examples of what the St. Louis region could or should be doing. But maybe the best argument for trying something else is a simple one: The old approach is what got St. Louis into its current atrophied state. If we keep trying the same things, why would anyone expect things to change?

Charging Station Changes, Use Tax Votes, and Gas Tax Holidays

Posted on by Corianna Baier

Jakob Puckett, Corianna Baier, and David Stokes join Zach Lawhorn to discuss changes to a St. Louis EV charging station law, the upcoming April 5 elections and the idea of a gas tax holiday in Missouri.

Listen on Apple Podcasts 

Listen on Sticher 

Listen on SoundCloud

 

A Criminal Justice Reform in Occupational Licensing

Posted on by Corianna Baier

Criminal justice reform has been a popular topic in the policy world for the last few years, but before we look too far ahead to the next reforms, it’s worth reminding ourselves that Missouri lawmakers actually passed some good criminal justice reforms fairly recently. Along with the highly praised licensing reciprocity legislation, Missouri lawmakers instituted the Fresh Start Act of 2020.

Back in 2019, Institute researchers highlighted Fresh Start Act legislation that other states had passed before Missouri passed its own version the following year. The Fresh Start Act modifies occupational licensing regulations for workers with a criminal record to make it easier for the formerly incarcerated to find gainful employment.

What does that matter? Well, strict occupational licensing rules for those who have criminal records can make it harder for those with a checkered past to find work. Not only can that impede successful re-entry efforts, but it limits the supply of workers. The Fresh Start Act does not allow criminal records to disqualify an individual from receiving an occupational license unless the criminal conviction directly relates to the occupation (an individual with a conviction relating to children would not be able to obtain a teaching license, for example). But for the vast majority of former inmates, relaxing licensing rules is a good thing.

Licensing burdens are, of course, a problem for many seeking work, but those with criminal records are particularly at risk for being written out of entire sectors of the economy. State legislatures have started addressing this problem; since 2015, 38 states, including Missouri, have reformed their occupational licensing laws to make it easier for ex-offenders to find work in industries in which the state requires an occupational license to operate.

The Fresh Start Act may seem like a small thing, but for the formerly incarcerated, it could mean the world. More should be done on licensing in general—including the regular sunsetting of all licensing regimes —but this legislation was a good step.

Missourians to Vote on New Use Taxes

Posted on by David Stokes

 

Thanks to recent changes in state and federal law, local use taxes have become topical in Missouri. Many Missouri cities and counties have them on the ballot on April 5.

With offsetting rate cuts, use taxes are a positive policy change for Missouri. Without them, they are just another tax increase.

Missouri Use Taxes Should Expand the Tax Base, Not the Size of Government

Use taxes in Missouri are simply sales taxes on goods delivered to your home from out-of-state sellers. Local governments have been authorized to collect use taxes for a long time—predating the internet, even—but they have not been widely adopted. Collecting sales taxes on Sears catalog purchases was a lot of work for little revenue. The internet has changed that. The recent Supreme Court decision in the “Wayfair” case, changes to state legislation, and, most obviously, the tremendous increase in e-commerce during the pandemic have all combined to greatly increase the need or desire for governments to tax online sales.

For purposes of comparison, e-commerce now makes up over 12% of total sales in the United States according to the U.S. Department of Commerce. For cities and counties in Missouri, 12% is a lot of sales not to tax. To address that, at least four counties and dozens of cities have placed use taxes on the April 5, 2022, ballot. Expanding the tax base with a use tax, if done in conjunction with a reduction of other, more harmful taxes, could be a beneficial change. But let’s be clear: if there is no corresponding reduction in other taxes, this is a tax increase on residents.

It is a central tenet of tax policy that a tax base should be as broad as possible. The more expansive the tax base, the lower the rate that must be imposed to fund the functions of government. Exact use tax revenue amounts are hard to predict, but the revenues for each city will not be insignificant. Local governments have received federal COVID-relief and stimulus funds, home values have risen substantially, and tax collections during the pandemic were not down as much as initially feared. As a result, many of these cities and counties do not need this new tax revenue to meet vital needs. The use tax could be approved by voters to responsibly expand the tax base and equalize the competition between online and physical stores, but it should not be approved simply to grow government revenues. Imposing a use tax in a revenue-neutral manner is not a new idea. It is exactly how the Missouri Legislature addressed this issue with the state’s new use tax law in 2021. St. Francois County officials have publicly stated they will lower their county property tax if the use tax is approved.

For cities and counties in Missouri proposing to impose their own use taxes, the simplest way for them to offset the revenue increases from the use tax would be to lower their property taxes in a revenue-neutral manner. Other options for various local governments if the use taxes are approved include eliminating more harmful taxes, such as the paradoxical local sales tax for economic development. Reducing the local utility tax rates would be another good exchange for cities that do not levy property taxes.

The imposition of a use tax for these Missouri cities and counties could be a positive policy change. It could also be an easy way for politicians to just raise taxes one more time. By having various city officials pledge to enact offsetting revenue reductions, local officials can amplify the public benefits while curtailing the tax impact on residents and businesses. That is a plan I think most taxpayers and voters could support. Without such a commitment, though, the use tax is just another tax increase.

Municipal Advocacy With Your Money?

Posted on by David Stokes

A recurring issue in local government in Missouri is when cities, school districts, and other entities improperly use taxpayer money to advocate for tax increases on the ballot. Now, of course, they don’t say they advocate. They say they are only giving out neutral information, which can be allowed. But there are plenty of examples of what appears to be outright advocacy. When you read pieces like this, do you really think the language is unbiased and that an ordinary voter would not take the information as supporting the tax increase? From the piece:

How can a Use Tax benefit my community?

As internet purchases increase, local revenues decrease. Funds generated from the Use Tax can be used to pay for vital municipal services including Police, Parks, and Public Works services.

You will note there is no opposing argument mentioned. If you read this and truly think it is neutral, I imagine you are the type of person who really tried to remain friends with your ex-girlfriend when they dumped you in order to “just be friends.” Hint: the pieces aren’t neutral, your ex really didn’t want to be friends, and it really was you, not them.

Show-Me Institute researchers have filed Sunshine Law requests with two cities that have use taxes on the ballot on April 5: Chesterfield and Town & Country. These two cities are using tax dollars to expend money to promote passing use taxes. They have information on their websites now and it appears more is coming between now and the election. We are hoping to learn about the process to determine the validity of the cities’ expenditures in favor of providing neutral information about the use tax. Chesterfield and Town & Country are certainly not the only two cities doing this.

For the record, there are arguments in favor of use taxes. You can also make the case that, absent alternate tax cuts, they are a tax increase. Either way, using public money under the pretense of “providing information only” has got to stop. Much more to come on this from Institute analysts in the coming days.

Major Confusion About Missouri’s EV Charging Station Bill

Posted on by Jakob Puckett

Judging by numerous articles I’ve seen recently, there is major confusion about House Bill (HB) 1584 that could use some clearing up.

HB 1584 stipulates that any municipality requiring property owners to install EV charging stations pay for those installation costs. Some municipalities in Missouri created requirements for property owners to build EV charging stations on new construction and major renovations—this law would ensure that private property owners aren’t forced to bear the costs of government-mandated construction.

Retrofitting an existing parking space with EV charger equipment can cost thousands of dollars per space, so sorting out who pays for what is not unreasonable. Despite what some opponents claim, this bill doesn’t “block” EV market growth; it simply ensures that private property owners aren’t told where and when to spend more money.

Another objection to this bill is related to costs. It costs much less to outfit a parking space with EV charger equipment during construction than after. Some estimates say installation during construction rather than after could cut costs by 75 percent. And with thousands more EVs hitting the road each year, opponents of the bill claim it would be better to require building charging stations as cheaply as possible to accommodate EV market growth.

This gets it backward. It may indeed be cheaper to install chargers during original construction, which is something property owners can take into account if they wish to respond to a growing EV market. Accommodating an emerging class of customers is standard business practice and doesn’t require any mandates.

Lost in the discussion surrounding HB 1584 are several better policies state and local policymakers can pursue to improve the EV market. For charging stations, municipalities can streamline their zoning rules to allow EV chargers in all zoning districts, review EV charger installation permits in days rather than weeks, and make information about the permitting process much more transparent. To make it easier to purchase EVs, state lawmakers can allow Missourians to buy EVs directly from manufacturers rather than forcing them to go through a franchised dealership (which many new EV companies do not have).

HB 1584 is a step in the right direction, but it’s a narrow bill that only deals with protecting private actors from an onerous government mandate for EV charging station construction. I’m hopeful that future EV policy discussions can turn from talks of fines and mandates to free markets.

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging