For purposes of comparison, e-commerce now makes up over 15 percent of total sales in the United States. For municipalities around Missouri, 15 percent is a lot of sales not to tax. While many cities and counties have already adopted use taxes in recent years, there are many more proposing new use taxes on the April 2 ballot. The list includes Pleasant Hill, Centralia, Hallsville, Cool Valley, and the constant requesters in Raymore, Northwoods, and Velda City. (Feel free to notify me of others.)

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. Raymore, for example, estimates it will receive $1.8 million per year from the proposed use tax. (It should be noted that Raymore has asked its citizens to approve a use tax in 2021 and 2022, both of which were rejected by voters. Raymore is a perfect example of why we need HB 2058 to pass, but I digress.)

Raymore has stated that it intends to use the use tax revenues for police, public works, highway maintenance, and park maintenance. Those are all reasonable uses, of course, but use taxes should not be approved simply to grow municipal government revenues. The use tax could be approved by voters to responsibly expand the tax base and equalize the competition between online and physical stores, but cities should also offset the increased taxes by lowering other, more harmful taxes. 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.

The simplest way for these cities to offset the revenue increases from the use tax would be to lower city property taxes slightly. That would lead to a wider tax base, fairer competition between businesses, and lower tax rates for all taxpayers. Raymore’s property tax rate of 1.2447 per $100 of assessed value is very high compared to other cities that don’t have a fire department. (Raymore is served by an independent fire district.) Lowering that rate would be a good way to offset, at least in part, the new tax increases. Reducing the various municipal utility tax rates—especially for cities with already low property taxes—could also be a good exchange.

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

The post Use Taxes on the Ballot Again in Missouri appeared first on Show-Me Institute.

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 a family’s Sears catalog purchases in St. Louis was a lot of work for little revenue. The internet has changed that. The Supreme Court decision in the “Wayfair” case, changes to state legislation in 2021, and, most obviously, the tremendous increase in e-commerce during the pandemic, have all combined to greatly increase the need or desire (depending on your point of view) for governments to tax online sales.

For purposes of comparison, e-commerce now makes up over 14% of total sales in the United States according to the U.S. Department of Commerce. For cities in St. Louis County, 14% is a lot of sales not to tax. To address that, several St. Louis County municipalities (Chesterfield, Town and County, Fenton, Maryland Heights, Velda City, Flordell Hills, and Northwoods) have placed a use tax on the April 4, 2023, ballot. In many of these municipalities, use taxes have been proposed and failed previously. However, a lot has changed in e-commerce in recent years, and it may be time for voters to revisit the issue. (Although for cities like Chesterfield and Fenton, where voters rejected the use tax less than a year ago, asking again in the manner of a spurned yet persistent suiter is unseemly.)

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 for cities in St. Louis County. But let’s be clear: if there is no corresponding reduction in other taxes, this is a tax increase on residents.

Flordell Hills is a particularly intriguing decision. I’m curious to see if voters will trust city government with more tax money after two city officials were recently convicted of stealing over $600,000 in city funds—a substantial portion of the annual budget. Fool me once . . .

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 Maryland Heights, to give one example, previously estimated it would receive about $2 million per year if a use tax is enacted. 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 municipal government revenues. Imposing a use tax in a revenue-neutral manner is not new idea. It is exactly how the Missouri legislature addressed this issue with the state’s new use tax law in 2021.

For the cities in St. Louis County 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. That would lead to a wider tax base, fairer competition between businesses, and lower rates for taxpayers. Other options for various cities if the use tax is approved include eliminating more harmful taxes or fees. Reducing the local utility tax rate would be another good exchange for cities that do not levy property taxes, such as Chesterfield.

The imposition of a use tax in these St. Louis County cities 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 that embrace the positive aspects of the use tax, these municipalities 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.

The post St. Louis County Municipal Use Taxes Should Expand the Tax Base, Not the Size of Government appeared first on Show-Me Institute.

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.

The post Missouri Use Taxes Should Expand the Tax Base, Not the Size of Government appeared first on Show-Me Institute.

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.

The post Missourians to Vote on New Use Taxes appeared first on Show-Me Institute.

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The post Will there be an Online Sales Tax in Missouri? appeared first on Show-Me Institute.

But we should not simply mandate an online expansion of the existing sales tax system. The current system has many problems and has been poorly implemented by the heavily fragmented local government in Missouri. For decades, our current sales tax system has incentivized corporate welfare and tax giveaways, unduly benefitted a few cities with large shopping centers, motivated many cities to export fiscal costs onto shoppers instead of residents, and enticed higher rates due to the political expediency of sales taxes over other forms of taxation.

In case you were wondering, none of that is a good thing. In my personal opinion, property taxation (especially land taxation) should be the primary method of funding local public agencies, complemented by sales taxation and direct fees for services. When people pay for the services they use, they want to make sure they are getting value for their tax dollars. When the cost of funding a city is paid for by shoppers from other areas, it becomes easy to constantly increase the rate to fund whatever the city wants, whether it is truly needed or not. After all, the voters aren’t paying for it—those other people are. If you are looking for evidence of this, think of all the Taj Mahal-like municipal recreation centers that have been built in Missouri over the past 15 years.

As part of a substantial expansion of the sales tax base with online collections, we should lower the rate to benefit residents. That rate reduction can be a general one or specific to certain, special taxes. I have one to propose first. If we collect online sales taxes, then the extra sales taxes added (on top of all the regular sales taxes) for sit-down meals at restaurants in St. Louis and Kansas City should be eliminated. We all want to help restaurants recover from the dire circumstances of the pandemic, so let’s remove that extra tax they pay that puts them at a price disadvantage against other types of food sales.

I make no claim to having all the answers here. Our myriad of sales tax exemptions, the alphabet soup of special taxing districts, and various distribution formulas make it all very complicated. But if we are going to expand the sales tax system to include all online sales, we need to rearrange that system in Missouri to fund our local governments while removing the harmful parts of the system we have seen much of in recent decades. More questions, comments, and suggestions on this topic to come soon.

The post It Is Time to Change How We Collect Sales Taxes in Missouri appeared first on Show-Me Institute.

With the increasing prevalence of online retailers, Colorado’s use-tax revenues have become more volatile, and Colorado’s brick-and-mortar stores have been getting an increasingly unfair shake because they have had to collect and remit sales tax, whereas out-of-state stores have not. Why not?

A simple way of understanding the difference is that vendors located in Colorado have a legal duty to collect sales tax from purchasers on sales in Colorado. The average sales tax in Colorado is 7.52%. But what happens if a person in Colorado makes a purchase from out of state? If the person does not pay any sales tax to another state, the person may owe use tax to Colorado for that purchase. While the use tax is complementary to the sales tax, Colorado cannot require a vendor who has no presence in Colorado (or no “nexus”) to collect the use tax from the purchaser. Instead, the purchaser is supposed to self-report and remit the use tax if purchases exceed $500. Compliance with this law is not believed to be strong.

In fact, Colorado state officials estimate that Colorado is losing as much as $172.7 million a year in unreported/unpaid use taxes. Obviously, stores located in Colorado are at a competitive disadvantage if purchasers can buy the same product for 7.5% less simply by ordering the products from out of state

The Colorado law recently upheld by the U.S. 10th Circuit Court may be a model other states follow as they consider the revenues lost because of the different collection obligations for sales versus use taxes. The 2010 Colorado law imposed three obligations on out-of-state retailers that do not collect sales taxes.

1. Send a “transactional notice” to purchasers informing them that they may be subject to Colorado’s use tax.
2. Send Colorado purchasers who buy goods from the retailer totaling more than $500 an “annual purchase summary” with the dates, categories, and amounts of purchases, reminding them of their obligation to pay use taxes on those purchases.
3. Send the Colorado Department of Revenue an annual “customer information report” listing their customers’ names, addresses, and total amounts spent.

As in Colorado, Missouri’s brick-and-mortar stores are likely at a disadvantage against online retailers because many Missourians are probably unaware of their use tax responsibility. If noncompliance is widespread, then the issue is whether Missouri has a sensible and fair tax policy. At a minimum it would seem that the state should not have a tax system that is honored more in the breach than in the observance.

The post A Lesson in Tax Efficiency for Missouri appeared first on Show-Me Institute.

This February, Doug McMillon – the current CEO – agreed to raise the hourly wage at Wal-Mart to no less than $9 an hour in April and to $10 an hour (or 33 percent above the current federal minimum wage) in early 2016.

How is the sharply elevated internal “minimum wage” working out for the world’s largest retailer and (by a wide margin) the nation’s largest private employer?

So far, not at all well.

In announcing the company’s third-quarter results this Tuesday, McMillon acknowledged that the wage hike had been “by far the biggest driver” in causing a 13.3 percent reduction in corporate earnings over the first nine months of its current fiscal year (ending on Jan. 31, 2016). Higher wages have added $1.2 billion in annual costs in this fiscal year and will add another $1.5 billion in costs next year.

Net income at Wal-Mart hit an all-time high of $17.0 billion in calendar 2012 (fiscal 2013, ending in January 31, 2013). According to Value Line estimates, it will drop to $14.8 billion at the end of this year and to $12.6 billion next year, which would be the lowest annual earnings for Wal-Mart in a decade.

That is no big deal to critics like Robert Reich, who served as Secretary of Labor under President Clinton. Reich pointed to Walmart and McDonald’s in a petition that he launched on MoveOn.org in 2013 urging the biggest employers to increase wages so workers can finally “get a fair share in this economy.” “Your typical employee is now earning $8.25 to $8.80 an hour,” Reich wrote. “They [Walmart and McDonald’s] can easily afford to pay [workers] $15 an hour without causing layoffs or requiring price increases.”

In regarding any profit as proof that a company can afford to pay more to its workers – without doing harm to its customers – that viewpoint disregards the realities of a competitive marketplace.

For one thing, Wal-Mart competes with other public companies in striving to maximize returns to shareholders. To say that Wal-Mart has been getting hammered in this regard is something of an understatement.

Wal-Mart’s shares have lost a third of their value since the beginning of this year – falling from a high of $90 a share in January to $60 at the close of business on Nov. 17. Meanwhile, its biggest rivals have done substantially better. Costco has climbed from $140 a share to $159, and Amazon.com has more than doubled in price.

In July, Amazon passed Wal-Mart to become the most highly valued company in the retail sector and it has shot further and further ahead since then. It now has a total market capitalization of $308 billion, compared with $195 billion for Wal-Mart.

Wal-Mart lags far behind both Amazon and Costco in productivity – measured in sales per employee, with Wal-Mart at $219,000, Costco at $565,000, and Amazon at $578,000. It is clear that Wal-Mart is intent on closing the gap by slowing the growth of bricks-and-mortar stores while putting much greater emphasis on e-commerce. As McMillon put it in his presentation on Tuesday:

We will be the first to deliver a seamless shopping experience at scale. No matter how you choose to shop with us – through your mobile device, in a store or a combination – it will be fast and easy. Online retailers are testing physical store experience because they recognize the same customer desire that we do. There’s a race to do this right.

But consider the impact on total employment at Wal-Mart if the company were to close the productivity gap between itself and Amazon by 25 percent over the next three years while also achieving its stated objective of growing annual sales from about $485 billion to $530 billion or more.

In this situation, Wal-Mart would need a global workforce of 1.7 million associates, compared to the 2.2 million it has now – a loss of approximately 500,000 jobs. That would entail a loss of about 320,000 associates out of the U.S. workforce of 1.4 million associates.

While those numbers are speculative, they clearly point to the conclusion that Wal-Mart will no longer be the great job-creation machine that it was years past, which is something that self-declared champions of working class should be thinking about in agitating for higher wages. Paying higher wages has made the company more focused on achieving higher levels of productivity.

At the same time the company may water down if not abandon its historic commitment to serving less affluent shoppers with rock-bottom prices across a vast array of merchandise. The late founder Sam Walton said his dream was “to serve the under-served.” That is less of a priority today. “Globally, we know growth will come from middle- and upper-income households in years ahead,” McMillon stated at an analysts’ meeting in October.

The post Killing the Golden Goose: How Walmart’s Left-Wing Critics Destroy Job Creation appeared first on Show-Me Institute.

If the Supreme Court rules that states can impose an online sales tax, expect to start paying more. In Missouri, the Senate approved a bill that would force online retailers to collect sales taxes; the House is considering the proposal now.

I have been going back and forth on the prospect of paying sales taxes on my Internet purchases. I am sympathetic to proponents’ arguments that say the tax code should not favor one type of business over another.

However, these types of taxes can be really complicated. There is also a decent chance that they will not generate much money. After one study in Illinois estimated that the state would collect $153 million, it turned out that after instituting a tax on e-commerce, it was on track to collect just  $6.4 million from the tax, a mere 4 percent of the original estimate (hat tip: Illinois Policy Institute) .

Again, I am sympathetic to the idea of ending tax preferences in the tax code. However, if the cure is worse than the disease, which these types of taxes are starting to look like, the state should take a pass.

The post Saying Hello To An Amazon Tax appeared first on Show-Me Institute.