The city of Herculaneum in Jefferson County is showing how use taxes can be properly added into the municipal revenue mix. A use tax is simply a sales tax on goods you purchase online (or through catalogs) and have delivered to your home. Many cities and counties have added them in recent years as online shopping has grown. Voters often approve them, but sometimes they say “no, thank you.”

Supporters of use taxes say they level the playing field between online purchases and actual stores from a cost perspective, along with raising revenue for local services. That is true, and I have generally been supportive of use tax expansion in recent years. Broadening the sales tax base is a good thing.

However, I have also called for cities and counties to offset the increased revenues from use taxes with cuts to other taxes (at least partly). That approach gives you the benefits of expanding the tax base, equalizing competition between types of retailers, and some increased tax revenues without giving local governments a windfall in tax money. Unfortunately, most local governments have shared my enthusiasm for the first three parts, but not the last one.

But Herculaneum is doing it the right way. Herculaneum has included in the ballot language for its use tax vote on April 7 that, if the use tax is passed, the city will reduce property taxes by ten percent to partly offset the new revenue collections. Regular readers will know that I support making property taxes the foundation of local government revenue, but that doesn’t mean I want high property taxes. If Herculaneum can expand its sales tax base while lowering its property tax rate for everyone, that is a reasonable trade-off for taxpayers and residents.

The post Herculaneum Is Doing Use Taxes Right appeared first on Show-Me Institute.

Patrick Tuohey and David Stokes join Zach Lawhorn to break down the key issues Missouri voters will decide on April 7th. They discuss whether local elections should stay in April or move to November, property tax limit votes happening in more than 90 counties, new fire district sales tax authority and what it means for taxpayers, the 1% earnings tax renewals in Kansas City and St. Louis, and Springfield’s convention center lodging tax returning to the ballot after voters already rejected it. They also discuss use taxes, senior property tax freezes, the economic development sales tax on the ballot in O’Fallon, and more.

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The post Missouri’s April 7 Ballot Breakdown with David Stokes and Patrick Tuohey appeared first on Show-Me Institute.

In St. Louis County, parts of the county are still recovering from the tornado, the county executive is under indictment (everyone is innocent until proven guilty), and county government’s 2026 budget forecast says there is an $80 million budget shortfall. The last part is the focus of this post.

Every government budget can be cut, and in every government budget there is enough waste and fat to be trimmed to make a difference. That said, cutting government spending is hard (I wish it weren’t). County governments in Missouri are not bloated bureaucracies wasting money hand over foot. They tend to operate fairly efficiently, at least by government standards. So, while making cuts should be the highest priority for the budget shortfall, I doubt that there is $80 million in waste and fraud to be trimmed. Some tough choices are going to have to be made. So, beyond cutting all the waste that it can, what should St. Louis County do?

First, if you are in a hole, stop digging. St. Louis County continues to inexplicably grant tax abatements and other subsidies that never live up to their promises. If these subsidies worked—and by “worked” I mean generated long-term revenues that outweighted the short-term costs—then St. Louis County wouldn’t be in this predicament in the first place. St. Louis County needs to stop giving away taxpayer money as part of a delusion that government planning grows the economy. And yes, this includes getting rid of the senior property tax freeze among other subsidies.

Privatization and outsourcing some services are always an important option for local governments. St. Louis County’s options here are limited, in that the county doesn’t operate any public utilities and it already provides many services via outsourcing. (This is, of course, all a good thing.) The biggest mistake county government has made in recent years is the debacle with the animal shelter. The county should never have taken the animal shelter back in-house. St. Louis County officials should admit their mistake and once again outsource management of the animal shelter.

One of the reasons St. Louis County is in this situation is that it has gone over a decade without a qualified county auditor catching mistakes and making suggestions for fiscal improvements. Hopefully, the recently hired county auditor can change that.

Now let’s talk about the revenue side. Nobody likes tax increases, but sometimes they are necessary. If the county were to consider raising taxes, what taxes should it either institute or increase?

St. Louis County voters have rejected a use tax several times, most recently in April, 2022. A use tax (which is a sales tax on online purchases) is probably the best tax option for the county from a revenue perspective. Two other options could be imposing a small county gas tax to help fund roads or a modest property tax increase. Both of these would be politically complicated.

Beyond all of this, cuts will have to be made. Those may be cuts to services people like, such as the police department or highway projects. But elected officials are there to make hard choices.

The post What Should St. Louis County Do about Its Budget Shortfall? appeared first on Show-Me Institute.

One thing I noticed about all the cities that I listed is that they contain lots of “U’s” and “L’s,” so I guess we know who the patron saint of this blog post is.

A use tax is simply a sales tax imposed on goods you purchase online or via catalogue and have delivered to your home. Municipal use taxes in Missouri actually predate the internet, but not surprisingly, most cities didn’t pass them until online shopping took off over the past fifteen years or so.

I am generally unsympathetic to the idea that these cities need a tax increase. If Creve Coeur needs more tax revenue, why did it just pass an enormous tax abatement in a very prosperous area that absolutely does not need tax subsidies to encourage development? If Festus needs more tax revenue, why did it put the fix in to sell its water system to another public entity without going out for bids as good government principles require? I don’t have any specific criticisms of Ladue, but I highly doubt the city is in financial trouble. This famous doggerel about Boston Brahmins could easily have been written about Ladue:

And this is good old Boston,
The home of the bean and the cod,
Where the Lowells speak only to Cabots,
And the Cabots speak only to God.

My view is that use taxes are a good way to expand the tax base, level the playing field for businesses, and raise local revenues. However, this last point is key. They should not be used simply as a way for cities to get more revenue. Cutting other taxes after the use tax is imposed (should voters pass it)—especially if you have a particularly harmful tax — is a great way to achieve the above benefits without a tax windfall for the city. Cities can lower their property tax rates, reduce their utility tax rates, or adjust other sales taxes (altering sales tax rates is much trickier than other types of taxes).

I don’t know if any of these cities have pledged to reduce other taxes if the use tax passes. Without such a pledge, the use tax would likely be a significant revenue gain for the city. If you think your city, town, or village actually needs that revenue, then so be it. But I’d be hard-pressed to buy that for the cities listed above, especially Ladue, Creve Coeur, and Festus.

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

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.

Jackson County residents have been through the taxation wringer this year with reassessment. Once again, they were hammered with a poorly managed process, high assessment increases, and insufficient tax rollbacks to offset it. I would guess many voters had just received their property tax bills before they voted on this use tax proposal.

Did those bills have any effect? They almost certainly did, as the use tax was defeated in Jackson County. It actually passed in the Kansas City portion, but the eastern suburbs overwhelmingly voted against it and it failed.

So this means that neither of the two largest counties in Missouri (Jackson and St. Louis) have a use tax. While most of the cities within those two counties do have use taxes, if you live in the unincorporated areas of those counties the sales tax you pay on goods delivered to your home should be just the state rate of 4.225%. (I would bet some stores or delivery companies are incorrectly charging more. Check your receipts.)

The next time Jackson County asks for a use tax, which they should not do for a while out of respect for the voter’s decision, they might have better luck if they promise an offsetting tax cut at the same time.

The post Jackson County Taxpayers Have Had Enough 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.

Relying heavily on sales and use taxes may not be the best way to ensure reliable, stable revenue streams. Property taxes tend to provide a more stable revenue stream.

The City of Ashland in Boone County has a sales tax proposal on the April ballot. Typically, new sales tax proposals tend to be something like a quarter-cent for parks or a half-cent for transportation. But the Ashland sales tax proposal is for an additional one percent general sales tax on top of the existing one percent general sales tax. Ashland is proposing to use the new revenues for roads and police. This new tax, if approved by voters, would put the new Ashland sales tax rate at 3.5 %, which, as far as I can tell, would be the highest municipal sales tax rate in Missouri. It would be higher than Joplin’s sales tax rate, which at 3.125% is the highest rate for any large Missouri city. (We need to leave the City of St. Louis out of this because it is an independent city so there are no county sales taxes to consider.)

Ashland’s own promotional materials for the sales tax (which are clearly not just informational but actively promoting it) directly state:

Data show that an estimated 60 to 70% of sales tax revenue generated within the City of Ashland is paid by those that do not reside in Ashland. This sales tax increase will have the largest impact on those that do not live in Ashland. (emphasis added)

This continues the trend of many cities thinking they are smart by taxing “the other person,” even though plenty of other cities and counties are trying to do the same thing. You think your residents are getting a good deal by taxing those outsiders, but your residents are getting jobbed in the same way by the other cities and counties around them. This practice is at its most extreme with traffic ticket revenues. (The adoption of use taxes is the opposite of this—use taxes imposes sales taxes on residents of the community.)

Ashland has a relatively low property tax rate, which will be decreased further if the sales tax passes. This just further increases Ashland’s reliance on taxing shoppers and outsiders instead of people directly paying for the municipal services they use. Residents make smarter decisions about what municipal services they want when they are the ones paying for them, not when they can outsource the cost of running their municipality to non-voters. This is true with the earnings tax in St. Louis and Kansas City, and it is true with outlandishly high sales taxes in Joplin, Hazelwood, and Ashland.

I recognize that people in Ashland are not trapped. Residents and visitors may choose to shop in Columbia or Jefferson City if local sales taxes are too high. But that doesn’t mean it is good public policy to increase the sales tax rate as much as you can. The purpose of government is not to maximize revenue just for the sake of it.

I don’t claim to know for certain what “too high” is for sales taxes, but watching Ashland try to pass another general sales tax on top of the state, county, and local sales taxes the residents already pay makes me think that Ashland is almost certainly above it. Sales taxes have an important role in funding state and local governments, but Ashland city officials are taking things too far with their latest proposal.

The post Ashland Wants to Make Its Sales Tax How High? appeared first on Show-Me Institute.

At the Show-Me Institute, we focus on policy issues, not partisan races. Next week’s ballot is relatively light on policy votes, but there are some interesting proposals before voters nevertheless.

In St. Louis County, there are three charter changes to consider. These changes would establish a salary commission for the county council, give greater protection to whistleblowers within county government, and clarify that county appointments to boards and commissions must be approved by the county council. The last one should not be necessary, as that is the current law, but apparently the current law isn’t enough, hence the proposal to tighten up the wording. I think the whistleblower protections are necessary, and the appointment proposal is much needed as well, albeit unfortunately.

Ferguson and Blue Springs are both considering use taxes. My position on use taxes is that they are fine if they are offset with reductions in other, more harmful taxes. In the case of Blue Springs, the city should use the new money (if the tax passes) to reduce its dependence on special-taxing districts and consider privatizing municipal utilities and golf courses. For Ferguson, a use tax increase could be offset by a lower property or utility tax rate. Either way, if these cities (and others that may have a use tax vote next week) are simply using the use tax as new money, voters should think twice about just granting local governments more money.

In the Holly Hills neighborhood of south St. Louis City, voters are considering a new special business district tax to do things that government ought to already be doing in the first place, such as public security and park maintenance. The existence of this proposal is first and foremost an admission that city government is failing, but creating a new, small, tax-funded agency with limited oversight is unlikely to be the savior supporters think it will be.

Finally, there are numerous school and fire district bond issues and tax increases on the ballot. One that stands out is the proposed tax increase in Hickman Mills School District in the Kansas City area. You can check out the performance of the schools in that district at MoSchoolRankings.org. The school district board is proposing a $1.35 per $100 of assessed value tax increase. That is one of the largest increases I have ever seen. For a $200,000 house in the school district, that is a $513 tax increase. Is that worth it to the parents, voters, and taxpayers of that district? We shall see . . .

Remember, the world is run by the people who show up, so show up.

The post August Ballot Issue Rundown 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.

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The post Charging Station Changes, Use Tax Votes, and Gas Tax Holidays 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.

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.

The post Municipal Advocacy With Your Money? appeared first on Show-Me Institute.

The county’s situation illustrates the point my colleague Elias Tsapelas and I made in our recent paper: Missouri local governments were not prepared for the economic downturn caused by the COVID-19 pandemic. Policy decisions can affect how damaging a downturn is and how difficult it is to recover. If county lawmakers had made different policy decisions, they may not have ended up needing federal dollars to stay afloat.

Relying less on sales taxes, which have a volatile revenue stream, would make the county’s total revenue stream more stable. (It should be noted that the county’s participation in the sales tax pool has already decreased some of the harmful effects of sales tax competition in the county). In addition, less misuse and abuse of tax subsidies would keep private developers from siphoning away taxpayer dollars. (More of this and less of this and this).

Of course, the COVID-19 pandemic did have undeniable effects on government finances. As predicted, revenues fell in 2020. St. Louis County’s sales tax revenue alone dropped by $27.2 million from fiscal year 2019 to fiscal year 2020. In addition, the county incurred new, pandemic-related costs. But county citizens are struggling too and “additional revenue sources” is code for tax increases. Page suggested that a property tax increase or implementing a use tax could be in the cards for St. Louis County. From a policy standpoint, a use tax is the preferred consideration, but it’s also worth keeping in mind that the county will receive more revenue from the gas tax increase. Why must a short-lived economic downturn force a tax increase on taxpayers?

I’m not here to judge how the county wants to use the stimulus money (but if I were, I would suggest the money be used in these ways). I’m here to point out that if the county had been more fiscally responsible prior to the economic downturn, we may have avoided this situation entirely. Policymakers should keep this in mind and prepare for inevitable downturns in the future.

The post St. Louis County Needs Federal Dollars to Stay Afloat appeared first on Show-Me Institute.

The post Senate Bill 153: Online and Local Sales Taxes appeared first on Show-Me Institute.

Expanding the sales tax base to include all online goods should not be done in a manner that would entice cities to depend even more on sales taxation and make rates higher. As part of expanding the tax base, Missouri should reform the system. The pertinent question is how to determine the tax rate. Does the location of the seller, shipper, or buyer matter most? There are arguments for and against all three possibilities. For in-state sellers, it would be fairly simple to just use the seller’s sales tax rate. But many sellers would be out of state, so participating in a multi-state agreement would be a requirement (and I could support that).

Setting the rate by the location (or nexus) of the in-state shipper may, overall, be the easiest, except for the fact that all of the harmful incentives we have had with shopping centers (tax subsidies, high rates, etc.) would be transferred over to logistics centers—a trend we are already seeing. A city with a large logistics park would simply set a very high sales tax rate in that area to make non-residents pay for as much of the city’s services as possible. That would be repeating the mistakes we have made under the present system.

Determining the rate by the address of the buyer would be preferable for fiscal discipline (voters would be approving the taxes they have to pay, like property taxes), but without a simplification of the rate system that could make for complicated collections. Our many cities, numerous city sales tax options, and many special taxing districts would make it very hard to determine a precise tax rate for everyone. There need not be only one answer to these questions. A hybrid decision is possible, and perhaps necessary.

Would additional taxes from obscure special taxing districts also be collected as a part of this? Are they technically use taxes or sales taxes? If it is a use tax (as I think a basic reading of the rules says it would be), then the special taxing district taxes might not have to be collected. If it is a use tax, does the typical $2,000 resident exemption (Missourians only file a use tax return if they accumulate $2,000 in taxable purchases on items that use taxes apply to in a given year) still apply? If that exemption applies—and, again, a basic reading of the law says it should—how could a seller possibly know where you stand on the exemption as a buyer? Do you need to apply for a refund from the state at the end of the year? That could be an enormous amount of paperwork for all involved to properly account for that exemption. Would it be better to eliminate that exemption and lower the rate to account for that?

The various bills that have been introduced attempt to cover some of these questions, but major bills like these are likely to be heavily amended if they are passed, so I think these questions are still fair. And the Packers should have gone for that touchdown . . .

The post Sleepless in Sedalia – Or Further Discussion of Online Sales Tax Issues appeared first on Show-Me Institute.

One such topic is the internet sales tax. Ever since the Supreme Court handed down its Wayfair decision, states across the country have been adjusting their laws to allow for the collection of internet sales taxes from businesses that don’t have a physical presence in the state. The issue has gained some traction in Missouri over the past few years, but the legislature has yet to act.

Before using the internet sales tax as a new stream of revenue, here are a few things policymakers should consider:

• Revenue Neutral – Raising taxes on Missourians during a once-in-a-generation pandemic should be a non-starter. To ensure the overall tax burden of Missourians stays the same, the internet sales tax should have a mechanism to make it revenue neutral in perpetuity. To balance the increased sales tax, the legislature should agree to lower another tax (corporate, income, sales, etc.) at a rate corresponding to the projections for internet sales tax collections.
• Accountable – If the legislature wants another source of revenue, it should include measures that ensure the funds are collected accountably. Instead of simply adding to the billions collected each year in sales and use taxes, these new funds should be tracked separately. Doing so would allow Missourians the opportunity to track how much money is being raised as a result of the legislation, and also help ensure the move remains revenue neutral by seeing how other taxes will be adjusted each year accordingly.
• Transparent – In such trying economic times, it is more important than ever that taxpayers know where their tax dollars are being spent. Any government that wants to begin collecting a new tax should be required to regularly publish its transaction data. My colleagues have been writing about the need for checkbook transparency for years, and any effort to raise taxes should include this policy as a precondition.

In the coming months, discussions about Wayfair will likely begin again, and supporters of small, responsible government need to pay attention. Collecting an internet sales tax can be done in a responsible way, but under no circumstances should the budgetary problems of today be used to justify raising taxes on Missourians for years to come.

The post Now Is Not the Time for Higher Taxes appeared first on Show-Me Institute.

Those decisions are newsworthy on their own, but there was an interesting quote from a Columbia council member regarding the failed proposals. Councilman Matt Pitzer said voters have a natural tendency to reject use-tax measures because voters don’t trust government to spend their tax dollars responsibly. How might trust be restored? According to Pitzer,

We do that by making smart financial and fiscal decisions . . . and being open and transparent in our spending and where the citizens’ tax dollars are going.

I could not agree more, which is why we started the Checkbook Project, which is intended to track the expenditures of each Missouri municipality over the past five years. Notably, when we requested data for the project from Columbia, the city was more than accommodating in providing the data we requested. At no cost to us, we got the information in an easily searchable Excel file. Also notable is that when we made the request of Ashland, the city was going to charge $20.00 for their records—still a pretty reasonable figure, in stark contrast to some of the responses from other municipalities we’ve received to date. (More on those interactions in a later blog post.)

When government asks for more money out of our pockets, we have every right to know what that money will be spent on. Even when policymakers are conscientious in their management of tax dollars, we should remember (per H.L. Mencken) that conscience is merely “the inner voice that warns us that someone might be looking.” When municipalities commit to transparency, they introduce that very possibility, and the expectation of public scrutiny should result in better policy. 

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Dr. Patrick Rishe of Washington University in Saint Louis argues the current MLS stadium deal is one of the best he’s ever seen, as it includes numerous safeguards for the city and taxpayers and doesn’t use sales taxes to fund construction. Moreover, only 39% of stadium costs will be paid for by the public, compared to the usual 65% to 70%. Therefore, it’s a good public investment—and it certainly isn’t “corporate welfare.”

While his premises are true, the conclusions Dr. Rishe draws are not.

• Rishe states that this deal protects taxpayers in ways previous stadium deals did not. For instance, the ownership group must pay for cost overruns from construction, and the team has to stay in Saint Louis for 30 years (if the MLS doesn’t fold before then). These are reasonable provisions, but they don’t have anything to do with whether a stadium will grow the economy or redevelop downtown. The contractual safeguards simply manage the city’s risk; they don’t guarantee any of the glitz and glam proponents are promising. The stipulation that taxpayers won’t cover cost overruns doesn’t mean the benefits used on to justify the public expense, like economic growth, will be realized.
• Rishe points out that use taxes, which are paid by businesses, will go toward funding the stadium—not sales taxes paid by all city residents. Supposedly, it follows that residents won’t pay for the stadium unless they own a business or buy tickets. But while sales taxes won’t go directly to the stadium, city residents must increase their sales tax rate to get the stadium. That’s because use tax revenue can only be diverted to the stadium if voters first approve a sales tax hike for the MetroLink expansion. So while your sales taxes won’t pay for the stadium, you have to pay extra sales taxes for the stadium.
• If 39% is a breathtakingly low public contribution for a private venture, I’m in the wrong business. Cities across the country have been scammed by sports teams for decades, and the fact that other cities have agreed to worse deals than this one is hardly reason to celebrate. If $60 million is such a negligible contribution, why doesn’t the ownership team simply pay it themselves? Only cash-addicted millionaires would look at an offer to pay 61% of the cost for their own pleasure-dome as a selling point. (As for the $150 million expansion fee the ownership group is coughing up, recall that when the MLS announced the fee would be $50 million less than originally announced, stadium boosters didn’t reduce their ask for public assistance.)
• Rishe contends that giving away $60 million in handouts isn’t corporate welfare because MLS teams don’t turn a good profit. First, the profitability of an enterprise doesn’t bear on whether or not its receipt of subsidies counts as welfare. And second, if the teams currently in the league aren’t turning a profit, what does that say about the long-term prospects of a franchise in Saint Louis? We already have one stadium without a team downtown—do we want to risk adding another?

Joe Reagan, head of the Saint Louis Chamber of Commerce, notes (along with others) that the ownership group will invest $5 million over 20 years in youth sports programs. Moreover, an economic analysis shows the stadium will generate $77.9 million in taxes for the city over the next 30 years. Mr. Reagan presents these factors as evidence that the stadium deal is worthwhile. But here too some perspective is in order:

• The ownership group’s commitment to youth sports is commendable, but this is still a $5 million commitment in the context of a $60 million subsidy.
• The analysis stadium boosters rely on makes rosy assumptions and must (at the very least) be taken with a grain of salt. For instance, it assumes every man, woman, and child will spend roughly $50 on tickets, concessions, and food each time they attend a game, and that spending will increase faster than inflation for 30 years.
• More importantly, most of the economic activity at the hypothetical stadium won’t be “new,” but simply redirected from elsewhere in the city and region. This isn’t money that people were planning to keep hidden under the mattress—much if not most of it would be spent on other entertainment options if there were no soccer games to attend. And let’s not forget the $60 million that businesses are losing because of the use tax. But even assuming proponents’ analysis is correct, the stadium would only bring the city an average of $2.4 million annually—less than a quarter of a percent of the city’s $1 billion annual budget!

The history of stadium deals in Saint Louis and across the country shows these projects fail to make good on the promises made by their promoters. If sports stadiums were such lucrative investments, private investors would be flocking to Saint Louis to get their cut. Despite its supposed virtues, the facts and history indicate that the MLS deal is a bad one for taxpayers. 

The post Cheerleading Won’t Make the MLS Stadium a Good Deal for Taxpayers appeared first on Show-Me Institute.

In this post I’d like to address something besides the economic issues with subsidizing stadiums. And that’s the claim (see page 13 here) that “if you aren’t a business paying the Use Tax or don’t go to the stadium, your money will NOT be used for this project.” This claim is simply incorrect.

To understand why, we need to look at how the stadium proposal is connected with another proposed tax-hike. There is a proposal to increase the city’s sales tax rate by 0.5%, with the new revenue dedicated to MetroLink expansion and other “economic development” projects. If approved, this increase in the sales tax (on goods purchased in the city) will trigger an increase in the use tax (a tax paid by businesses on goods purchased outside of the state but used in the city). The money that would be generated by an increased use tax isn’t dedicated to a specific purpose—at least not yet. Funding for the soccer stadium would tap into this new use-tax revenue. But that new use tax revenue will only exist if the sales tax hike is first approved. So, in short, to dedicate use tax revenue for the stadium, taxpayers would have to approve a sales tax hike. And to increase the city’s sales tax rate is to make city residents pay for the stadium, whether they visit it or not. 

In addition, the use tax increase will ultimately be paid by consumers—again, city residents included—through higher prices. Businesses in the city will initially pay the higher use tax, and while they may try to absorb some of the cost, it is nearly inevitable that they will pass some of it on to consumers. And when city residents buy goods and services from city businesses, they will end up paying the increased use tax (in the form of higher prices). Again, city residents will pay for the stadium, just not directly.  

The claim that city residents will not pay for the stadium unless they visit it is specious. Taxpayers deserve straight-talk where their money is concerned, and in this case, they don’t appear to be getting it.

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