Mike Matthes: Death and Sales Taxes

“In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin

Franklin never envisioned the Internet, which would allow consumers to purchase goods of all kinds from all over the world — free of taxes. And while tax-free shopping is likely appealing to a large number of us, it also carries consequences that have a serious effect on the funding of essential services we all use daily.

First, let’s talk about the current tax rates in Columbia. Our residents, through annual surveys, tell us we need more police officers, additional firefighters, better maintained streets and sidewalks, and improvements to infrastructure. I agree.

Columbia has chosen to generate revenue for these important services, and for parks, transit, and the airport, through sales tax. Sales taxes on goods purchased in Columbia equalize the cost of those services between residents and visitors, both of whom use the services that the tax supports.

The sales tax rate in Columbia averages 7.975 percent and falls within the average sales tax range of communities throughout mid-Missouri. The city only collects 2 cents of the total sales tax. Boone County collects 1.75 cents, and the state collects 4.225 cents. In 2016, Columbia will collect about $22.4 million in sales tax revenue for the general fund if sales tax revenues grow, as forecasted, by 3 percent.

Last month, we talked about the property tax rate in Columbia in the late 1940s being as high as $1.25 per $100 of assessed value. Today, the property tax rate for Columbia is 41 cents — one of the lowest municipal property tax rates in Missouri. In 2016, we’re planning to collect about $7.3 million in property taxes for the general fund. Columbia’s philosophy for many, many years has been to leave the property tax rate low so that schools and the library can utilize this revenue source for their important financial needs.

So, for 2 cents on the dollar in sales tax and 41 cents per $100 in property taxes, combined with gross receipts taxes and PILOT (payment in lieu of taxes), Columbia must fund modern police and fire departments, maintain streets, provide award winning parks and trails, and provide for public transit and a commercial airport.

Cue some storm clouds.

Providing the services that residents desire requires adequate revenues. And that’s where we’re suffering the consequences of the loss of sales tax revenue from online shopping. You’ve heard me say before, concerning declining sales tax revenues, “The Internet is eating our lunch.” Well, it’s eyeing our supper too.

What Can Be Done?

Locally, Macy’s is closing its doors. We’re losing 81 jobs, and 140,000 square feet of retail space is now vacant. It’s a chilling reflection of a recent report from Civic Economics titled “Amazon and Empty Storefronts.” The report noted Amazon sold $44.1 billion worth of goods in the U.S. while avoiding $625 million in state and local sales taxes. Amazon’s sales account for the equivalent of 30,000 retail storefronts, equaling 107 million square feet of commercial space, which would have paid $420 million in property taxes. As for the workforce, Amazon sales resulted in a net loss of 136,000 retail jobs. And that’s just Amazon.

In Columbia, we are estimating that the loss of sales tax due to internet sales could be as high as $10 million annually. That has a monumental impact on Columbia’s general fund. Additional police officers and firefighters, street and sidewalk maintenance, and transit and airport enhancements could all be funded using this revenue.

We must recover the jobs and revenue currently lost to Internet sales. I am asking you to join me in supporting the Federal Marketplace Fairness Act. Already, 24 states (but not Missouri) have voluntarily adopted the simplification measures of the Streamlined Sales and Use Tax Agreement, which allows states to fairly and efficiently collect sales taxes on Internet purchases. I encourage you to learn more by visiting MarketplaceFairness.org. I hope you will contact your federal and state legislative representatives to let them know you support these bills.

While I remain optimistic about our economy and strive to close on a more positive note, this year’s sale tax revenue was based on a 3 percent increase. In the first quarter of our fiscal year, October 1 to December 31, our sales tax collection was flat. Zero growth. And the first quarter is historically our best. By all indications, the second quarter will be flat too.

We’ve already taken steps to help ensure our current budget remains balanced. I’ve asked that non-essential hiring for positions vacated by retirement or resignations be paused for one month from the date the position becomes open. I’ve instructed department directors to evaluate and suspend purchases, if possible, of vehicles and other equipment until further notice. The savings we expect to generate from these measures, and earlier savings realized from refinancing our bond debt, should prevent layoffs and keep us from dipping into reserves.

Columbia is a strong and resilient city. By keeping our eye to the future and supporting measures such as the Marketplace Fairness Act, we can make Columbia the best place for everyone to live, learn, work, and play.