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Council expresses doubts about opting out of 2017 sales tax holiday

St. Charles CountyA bill opting out of the August 2017 sales tax holiday in an effort to guarantee a 1 percent pay increase for county employees was to come before the County Council for a vote on Dec. 19, but some on the council are saying “not so fast.”

The proposal, part of the county’s 2017 draft budget, drew a negative response at a Dec. 5 council work session from one councilmember and comments from others worried about needing to find new funding to support law enforcement.

The notion of the county withdrawing from participation in the sales tax holiday came up during November budget discussions. On Nov. 3, County Executive Steve Ehlmann forwarded a budget message to the council that included a proposed 1 percent pay increase for the county’s more than 1,000 employees. However, the 1 percent increase depends on the council approving a resolution withdrawing from the tax holiday [Friday, Aug. 4 through Sunday, Aug. 6, 2017]. The holiday exempts shoppers in St. Charles County from state sales tax on retail sales of clothing valued at $100 or less, school supplies of $50 per purchase or less, computer software of $350 or less and computer sales of $3,500 or less. Municipalities and county governments often participate and waive local sale taxes for that weekend. However, both also have the option of adopting an ordinance prohibiting the annual sales tax holidays from applying to their local sales taxes.

Not participating may provide anywhere from $163,000 to $240,000 in revenue that could go for a half-cent merit increase to be matched by the county. If the county participates in the tax holiday at the local level, the pay increase shrinks to a half percent.

Last year, the council agreed to participate in the holiday after discussing opting out and using the sales tax collected to help deal with issues related the ongoing “heroin epidemic” of drug use in the county.

At the Dec. 5 work session, Councilmember Joe Brazil [District 2] said the continuing epidemic is among the issues causing a tight budget for 2017, with little funding for pay increases for law enforcement and the prosecuting attorney’s office. Dealing with issues surrounding the heroin upswing is costing the county “millions of dollars,” Brazil said.

But at least one councilmember said he thought the county opting out was not a good idea. His position was the same last year.

Councilmember Mike Elam [District 3] said he is not in favor of the bill and noted that estimates on the amount of sale tax generated by the tax-free weekend seem to vary.

“I think it’s a false number,” Elam said of the potential revenue. “I think you’re going to give people an incentive to go to St. Louis County because St. Louis County does not opt out,” he said.

Opting out in St. Charles County means that the county’s sales tax of 1.565 percent would be charged. However, shoppers still would benefit from not being charged state and local sales taxes in municipalities that did not opt out.

Councilmember Mike Klinghammer [District 6] noted that St. Peters has opted out of the sales tax holiday for several year and that the small businesses there may not been hurt greatly. Businesses there still can advertise the sales tax holiday, because shoppers still don’t pay the state sales tax so they receive some benefit, he said.

Council chair Joe Cronin [District 1] said he is torn, because as a merchant, he recognizes that the sale tax holiday draws shoppers and helps families save money on school supplies. However, he also agreed that the county has to find ways in the next year to raise more money for law enforcement and the prosecuting attorney’s office.

Brazil further noted that the county should try to at least pay a cost of living increase to its employees or face falling behind in pay.

St. Louis County may place a sales tax increase, and Jackson County may place a small property tax increase, on the ballot next year to ask voters to support more funding for law enforcement and public health efforts, Cronin said.

“We’re going to have to be a bit more creative in how we fund stuff,” Cronin said. “The sales tax is at about as high as we can go. We can’t go any higher.”

County Executive Steve Ehlmann agreed that the county has to look at other ways of raising money, other than sales taxes, because more people now are purchasing items online and paying no sales tax.

“That’s the long-term challenge I think for our county,” Ehlmann said. “Sixty-three percent of our budget is sales tax and fewer people are paying sales tax on their purchases every year.”

Elam questioned if the holiday would provide the money that the county anticipates.

“My guess is that this is not going the way you think this is going to play out and you’re going to sell out the good will we have with our small businesses and our citizens for $163 grand,” Elam said. He said opting out of the sales tax holiday is a “nickel-and-dime way of filling a hole and it’s only going to fill it for one year.”

In regard to meeting budget needs, Klinghammer said, “We’re battling the tip of the iceberg here and now, but the rest of it is still there looming. Every year it’s going to be compounded more and more without some other revenue sources to replace those that are going down.”

 

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