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.

Generally, taxes should be low and broad. Low tax rates mean people can keep most of their hard-earned money. A broad tax base lessens distortions in the market from people trying to avoid taxes and mitigates volatility in the revenue stream. A low sales tax rate with a broad tax base would mean a simple tax code that collects stable revenue while minimizing economic distortions.

Missouri is nowhere near that ideal sales tax.

The plethora of special taxing districts in the state certainly plays a large part in Missouri’s complicated sales tax landscape, but sales tax holidays and other exemption schemes do too. The holiday adds tax complexity, which means additional tax compliance costs as consumers and businesses try to figure out what is best for them. Allowing municipalities to opt out of the sales tax holiday makes it even more complex.

The holiday also distorts the market by only lasting one weekend and discriminating among products. This causes consumers to change their normal behavior, shifting their spending from other weekends to the holiday weekend and shifting purchases to products that qualify from products that (often arbitrarily) do not.

Show-Me Institute researchers have recognized the sales tax holiday for what it is for years—a taxing scheme that complicates the tax landscape while doing very little to actually give taxpayers a break. Saving a few bucks one weekend a year is nothing compared to permanently lowering tax rates. It takes real tax reform, not a weekend gimmick, to help taxpayers. While it’s great if you were able to save last weekend, I hope that holidays and other tax schemes become a less frequent occurrence in Missouri.

The post The Sales Tax Holiday Is Not Great Policy appeared first on Show-Me Institute.

Now comes a story about the real costs of subsidies to the Walmart in Raytown. According to The Kansas City Star,

In a city of about 10 square miles officers made more than 500 arrests last year at the Walmart store at 10300 E. U.S. 350. The store is the scene of about 30 percent of Raytown’s reported serious crimes.

Meanwhile, Walmart does not contribute taxes for police services. The TIF deal that built the store a decade ago diverts about $300,000 in tax dollars away from public safety every year.

There is no such thing as a free lunch, and politicians who think there is no cost for diverting tax revenue to developers should think again. Walmart often makes for a convenient bad guy, but this same story is being played out with many different businesses. Kansas City, Raytown, and all of Missouri are bearing the burden of these sweetheart deals.

The post The Costs of Subsidies appeared first on Show-Me Institute.

In the chart below, the blue line shows the total assessed value of real property in Kansas City, Missouri. The red line shows the percentage of that property value that is taxed. Clearly, the two measures are heading in different directions; as more and more real estate is developed in the city, a lower and lower percentage of property value is taxed.

The excessive use of tax incentives appears to be leading to a decoupling of assessed value (AV) and taxable value (TV). That is, as the city experiences more and more growth, its tax base stagnates. Normally, TV would rise (or fall) at the same rate as AV.

The gap between the two has been steadily widening since the mid-2000s. In 2000, AV was 49% greater than TV, but in 2015, it was 59% greater. And that 10% isn’t chump change. If TV tracked AV at a constant rate, in 2015 there would have been an additional $200 million on the tax rolls. That means the city, school district (KCPS), library (KCPLS) and other jurisdictions are missing out on tens of millions of dollars each year. In 2015 alone, the city, KCPS, and KCPL together lost out on nearly $36 million in revenue. Instead of funding education and essential services, those dollars went to wealthy developers—developers with no real need for public financial assistance.

So, despite the claims of developers and officials, the use of incentives in Kansas City is contributing to a hollowing out of its tax-base. Even though there are more and more shiny new buildings, the city is collecting taxes on an ever-shrinking percentage of them to support essential government functions.

The post Getting Less out of More: Kansas City’s Declining Tax Base appeared first on Show-Me Institute.

It’s interesting when there are two wildly different takes on the same thing. For example, take me vs. the general public on Dances With Smurfs or Michael Burry vs. the rest of Wall Street on the value (or lack thereof) of sub-prime mortgage bonds. Another instance—one that is costing all of us—is the State Tax Commission vs. everyone else on the value of farmland. This difference can affect many our tax rates.

In a recent paper (H/T David Nicklaus), David Larson of the Bureau of Economic Analysis performed a valuation on all land in each of the lower 48 states for 2009. Based on his calculations, Missouri farmland is worth $64.236 billion. Based on my calculations, using data contained in the State Tax Commission’s 2009 Annual Report, the total value of Missouri agricultural property in 2009 would come out to $13.3 billion. That’s a gap of more than $50 billion!

A reason for this big difference is that, instead of assessing all agricultural land at a flat 12 percent rate, actively farmed land receives a different assessment rate depending on its productive capacity. This practice results in an effective assessment rate of around 2-3 percent.

Such low assessments erode the property tax base. Even if the true value of farmland in Missouri was half of Larson’s estimate, if it were assessed at a flat 12 percent rate, the state would have an agricultural property tax base nearly two-and-a-half times the size of its current base. This larger tax base either could allow property tax rates in some areas to be cut or some localities could see an influx of new revenue.

I don’t want farmers’ property tax bills to skyrocket. However, the truth is their property is under assessed to such an extent that governments are forced to rely on other more destructive forms of taxation (i.e., income taxes), which the rest of us have to pay, in order to fund essential services. We should value farmers for the work they do, but we should also properly value the land they work on lest we pay more than we should.

The post Getting the True Value of Farmland appeared first on Show-Me Institute.

Read more about this in Haleigh’s op-ed.

The post Free Rides In The Zoo Museum Taxing District? appeared first on Show-Me Institute.

During his talk, Van Loh mentioned that the airport hired a company called Trammel Crow Co. to develop a portion of the land not used for aviation and that the airport now has a tenant, Blount International. According to Van Loh, Blount moved to Kansas City from Colorado. “This is what airports do,” he said, to increase their revenue.

It may be what airports do, but it is having very negative effects on the Kansas City area. First, Blount International did not move into the airport space from Colorado. It moved there from the East Bottoms, where it had, for decades, rented considerable space  from Karbank Real Estate Company LLP, a successful Kansas City-based property developer.

This is a bad deal for the region in at least two ways. As the Aviation Department is part of city government, it can develop property at a small fraction of the cost that private companies pay. It does not have to conduct the myriad of impact assessments such as traffic impact fees and platting fees, as do private companies, nor does it have to pay things such as city utility taxes. The government can therefore undercut private businesses and charge much less for rent. The city’s tenants pay no taxes, which depresses the market rates, which in turn decreases values across the city, having a huge negative effect on property values city-wide and certainly to the airport sub-market.

The Aviation Department has made it clear that it will continue to operate as a property developer and landlord to offset its own deficits. In effect, the airport is cannibalizing the city’s tax base and creating hardships for private developers.

The post ‘This Is What Airports Do,’ Part 1 appeared first on Show-Me Institute.

The post Warren County Should Not Institute An Enhanced Enterprise Zone appeared first on Show-Me Institute.

Education officials from across Missouri joined Gov. Jay Nixon’s call to rein in tax credits, asserting Wednesday that escalating incentives are diverting money from financially strapped schools and colleges. […]

Nixon, a Democrat who last year backed an expansion of state tax credits for businesses, now says tax incentives have grown so greatly that they are threatening other essential government functions. About $585 million of tax credits were redeemed last year — up 86 percent over the past decade, he said.

I realize that education officials are self-interested, but I agree with their assertion here that Missouri’s tax credit programs are funded at the expense of other programs. When tax revenue is spent on subsidizing select businesses and industries, taxpayers cannot spend that money elsewhere, such as on education; they face an opportunity cost that at least equals the amount of the tax credit.

Additionally, the state shouldn’t carve out sections of its tax base to reduce tax burdens for a select few, because those who remain in the tax base have to pick up the difference. By having a broad tax base, Missouri can assess a tax rate that’s lower and more equal for all taxpayers. This low-tax environment would attract new businesses and individuals to Missouri better than any selective tax credit program could. This would result in a steady stream of more reliable tax revenues, so government in Missouri would not have to struggle to pay for itself.

The post Rein in Tax Credits, Widen the Tax Base appeared first on Show-Me Institute.

When I worked at the St. Louis County Council for Councilman (now judge) Kurt Odenwald, he chaired the council’s Revenue and Personnel Committee, which had as its primary role the study of tax exemption issues. You might be surprised to know that there is no hard-and-fast state law governing what gets to be exempt and what doesn’t. While it is obvious that a church or school is exempt, what about a nursing home that sets aside 5 percent of its rooms for charity cases? In cases like that, it is often up to the county in which the facility resides as to whether it is tax exempt. Sometimes, a promise by the applicant to make PILOTs that partially make up for the lost taxes can be an important factor in the county’s decision. I really remember this one example cited in the Post article:

Closer to home, Lutheran Senior Services, a nonprofit, gives Webster Groves $28,000 a year[.]

I remember it so well because when Lutheran Senior Services decided to make the first PILOTs to the city, school district, library district, and county, they didn’t know how to go about doing it, so they just mailed all the checks to Councilman Odenwald’s office. The next day, I had to hand-deliver all these substantial checks to various government officials — who were, not surprisingly, very happy to see me. (The process of making the payments was clarified the next year.)

A very important point in the story is found near the end:

He said cities that have an earnings tax typically don’t have PILOTs. Detroit and Pittsburgh are two exceptions.

I’ll point out that Pittsburgh depends primarily on its property — especially land — taxes, so tax exemption is particularly noticeable there. And I think that generally you always want to do the opposite of what Detroit does. Of course, St. Louis County has no earnings tax, so the PILOTs are more understandable there. (Do you ever notice that nobody ever expresses concerns about city residents who work in the county being free riders in the county? Why does it only come up as a defense of the earnings tax?)

My basic belief is that nonprofits generally receive the same services everyone else does, so I see nothing automatically wrong with them being required to pay some type of property tax. Although the Post article focuses on large nonprofits, I think it is the small nonprofits (the ones without their own security forces) that genuinely use government services like everyone else. But I would only really support these efforts if they entail broadening the property tax base so that the overall rate can be lowered — not as an excuse to raise additional taxes or fix a budget hole. Beyond that, I would only support something like it in St. Louis or Kansas City if the earnings tax is eliminated. But if that were to happen, I think requiring nonprofits to pay some type of property or land tax would be reasonable.

The post Should Nonprofits Pay Property Taxes? appeared first on Show-Me Institute.

First, they estimated the average family size in Missouri:

average family size = (size of Missouri population) ÷ (number of resident filers)

= 5,778,901.81 ÷ 2,626,773.55 = 2.2

Next, they estimated the size of the average rebate value, using the federal poverty threshold approximation associated with a family of 2.2, which is $15,393:

average rebate value = federal poverty threshold approximation × sales tax rate proposed in HJR 36

= $15,393 × 0.0511 = $786.58

Then, they estimate the cost of the rebate system, which is equal to the amount of rebates awarded:

(average rebate value) × (number of families qualified for the rebate) = (cost of rebate system)

$786.58 × 2,626,773.55 = $2,066,167,540

Lastly, they compute ?, the revenue-neutral tax rate:

? = (government revenue + cost of rebate program) ÷ (aggregate personal consumption)

? = ($7,117,761,408 + $2,066,167,540) ÷ $158,531,333,333 = 0.0579313171 = 5.793 %

where government revenue equals the sum of individual income, corporate income, and sales taxes.

We see that the size of the tax base, ?, decreases if the amount of exemptions increase. This indicates that the sales tax needs to be assessed on a broad base in order to for the rate to remain low. By decreasing the number of exemptions that exist in the status quo, Missouri can establish a sales tax rate that’s lower than other estimates have suggested.

In their case study, Haslag and Sivasailam explain that expanding the list of services that are taxed would not result in a dramatic increase in the cost of living. In a previous post to this blog, Sivasailam elaborated on this concept:

[I]t’s important to understand that a change in the tax code implies a change in incentives. People and firms alike respond to these changing incentives in many ways, including altering their supply and demand of goods and services. With that in mind, the claim that the prices on all goods and services would increase by the tax rate is misleading.

The post “Fair Tax” Math, Elucidated appeared first on Show-Me Institute.