Some St. Charles County municipalities may ask residents to support a “use tax” to “level the playing field” between local and out-of-state purchases.
City administrators for O’Fallon, Lake Saint Louis, St. Peters and other cities have been meeting to discuss the feasibility of a use tax and whether to ask voters in their cities to decide, as early as the Aug. 7 elections, to authorize the tax. The deadline to submit ballot language is May 29.
In a presentation to the O’Fallon City Council at its work session on Jan. 25 and at a Lake Saint Louis Board of Aldermen work session on Jan. 16, the administrators outlined their rationale for pursuing a use tax. Other presentations are expected to be made in St. Peters and other county municipalities.
In its simplest terms, a use tax is a sales tax based on the point of delivery and applied to the purchase of goods by Missouri residents and businesses from out-of-state vendors. A sales tax applies to local retail purchases in Missouri. Purchases cannot fall into both groups so they cannot be taxed twice.
With no use tax in place, local businesses and residents have an incentive to cross state lines to buy instead of buying locally and being subject to sales tax. That can cost local jobs and take valuable dollars out of local economies.
A use tax is applied to the same type of products subject to sales tax; any items exempt from a sale tax are exempt from a use tax. Currently 45 states and nearly half of Missouri cities with populations of 2,000 already have a use tax in place. That list includes Wentzville and Foristell as well as the state of Missouri and St. Charles County.
A use tax always equals the sales tax rate in a local jurisdiction, even if that sales tax is lowered or raised or subject to a sunset clause, and is collected and distributed by the state of Missouri as are sales taxes. A local use tax would be added to purchases already subject to county and state use taxes.
Tom Drabelle, O’Fallon’s director of communications, who made the presentation to that city’s councilmembers, said a use tax is meant mostly for business-to-business transactions and less for consumers. State law now stipulates that a use tax only applies to online purchases of more than $2,000. Businesses and residents are “supposed to report those purchases as part of federal [tax] reporting,” Drabelle said.
Having a use tax in place also could be significant later, as governments more widely attempt to collect taxes on internet purchases, which ultimately may be up to the federal and state government. “There is a kind of universal belief that whatever format an internet tax might take, it would take the form of a use tax in Missouri,” Drabelle said.
Local use taxes also may become a bit of a windfall for individual cities. A use tax could generate as much as $2.98 million annually in O’Fallon, which is the county’s largest municipality, and $400,000 annually for Lake Saint Louis, according to the Missouri Municipal League.
Drabelle and Lake Saint Louis City Administrator Paul Markworth both said a use tax will support local businesses by removing the incentive to purchase out of state.
Municipalities wanting to place use tax language on the ballot must do so in each of their individual elections. This is not a countywide ballot measure. However, the plan is to present the issue at the same time to voters using similar ballot language to avoid confusion.
O’Fallon City Administrator David Strahl told his council that an August vote may avoid having it voted on during a busy November election with a packed ballot. Drabelle said approval would require 57 percent of voters in a particular municipality voting to approve a use tax; however, O’Fallon City Attorney Kevin O’Keefe said at the meeting it would require a simple majority vote for approval.
Markworth told aldermen in his city that each city should clearly state how use tax revenues would be used before it’s voted on.
In O’Fallon, councilmembers said use tax revenues would probably go to pay for street and road repairs, though Mayor Bill Hennessy had some concerns about whether the allocation would remain the same from year to year. Lake Saint Louis aldermen also favored designating the additional revenue for city street and road projects. However, Markworth said on Jan. 29 that the city also may be looking to providing funding for its police force, possibly hiring additional officers.