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County municipalities move toward placing use taxes on Aug. 7 ballot

Would you be willing to pay a use tax on internet purchases over $2,000?

St. Charles County municipal officials continue to move toward asking their voters to support a “use tax” to make up for lost sales tax revenue from out-of-state and some internet purchases.

The O’Fallon City Council gave a first reading to an ordinance at its Feb.8 meeting that would place a proposition on the Aug. 7 ballot asking voters “yes” or “no” to approve instituting a local use tax on purchases from out-of-state vendors that cost more than $2,000.  The council is expected to vote on the ordinance at its Feb. 22 meeting.

O’Fallon is one of several municipalities in St. Charles County that are discussing or planning to put a use tax measure on their Aug. 7 ballots. If put on the August ballot, the measure would need to garner a simple majority of the vote to pass.

Officials from O’Fallon, Lake Saint Louis, St. Peters, Dardenne Prairie and other cities have met to discuss the issue, and leaders from those cities say that a use tax would help even the competition between local businesses and online retailers. The cities have until May 29 to place ballot measures on their Aug. 7 ballots.

St. Peters Board of Aldermen may consider the issue at its Feb. 22 meeting. Likewise, presentations have been made to the Lake Saint Louis Board of Aldermen on Jan. 16 and to the Dardenne Prairie Board of Aldermen on Feb. 7.

A use tax is a sales tax based on point of delivery and applied to the purchase of goods by Missouri residents and businesses from out-of-state vendors. Currently, sales tax applies only to local retail purchases in Missouri.

The rationale for a use tax is to capture lost sales tax revenue. In today’s market, businesses and residents have an incentive to cross state lines to make large purchases rather than buying locally and being subject to sales taxes. City officials say lost revenue can cost jobs and take dollars out of the local economy.

A use tax is applied to the same type of products subject to sales tax and any items exempt from sale taxes would be exempt from a use tax. Currently, 45 state and 105 Missouri cities with populations over 5,000 have use taxes in place, including Wentzville, Foristell, the state of Missouri and St. Charles County.

A use tax is always equal the local sales tax rate. Use taxes now are mostly meant for business-to-business transactions and less toward consumers. Current state law limits a use tax to online purchases of more than $2,000. Eventually, having a use tax in place may be a requirement that may have to be in place to collect taxes on internet purchases.

A Supreme Court ruling in the early 1990s limited the ability of states and communities to impose sales taxes on internet purchases, explained Dardenne Prairie Mayor David Zucker.

Zucker said authorities at the time may not have wanted to strangle the internet in its infancy, but that baby has grown into Amazon.

“My great concern is that our local businesses that employ our friends and neighbors are at an economic disadvantage in trying to compete with retailers who are out of state and who transact business with the internet,” Zucker said.

Zucker said the Missouri Municipal League has estimated that a use tax might generate as much as $2.98 million annually to O’Fallon, $400,000 for Lake Saint Louis and $190,000 annually for Dardenne Prairie.

Zucker and some aldermen were skeptical that such a measure would pass. Alderman John Gotway [Ward 3] implied that customers won’t want it. “I’m not going to eat that,” Gotway said. “That goes into my cost of doing business. It’s passed on to the customer.”

Zucker said one idea to help encourage passage is to have cities put the measure on the ballot at the same time to mount a coordinated campaign.

Sales tax revenue is a critical revenue source for local governments and, with the rapid expansion of e-commerce/internet sales, traditional local sales tax revenues could continue to decline, St. Charles County officials warn.

In a budget message last year, County Executive Steve Ehlmann said declining sales tax revenue makes it imperative that county government “lives within its means.”

Sales tax revenue is 58 percent of revenue for the general fund, which supports most of the county’s administrative departments.

County Finance Director Bob Schnur told the County Council at its Feb. 12 meeting that despite higher employment and better economic news, the county’s growth rate in sales tax revenue has continued to drop the last four years. He said internet sales are taking their toll on how much sales tax is generated.

In 2014, the county’s rate went up by 7.41 percent, in 2015 the increase was 5.21 percent, in 2016 sales tax was up by 3.81 percent and 2017 it was up just 1.66 percent.

Schnur said the only thing the county can do is keep eye on spending.  He and other county officials say the Supreme Court may revisit its earlier decision on internet sales tax, possibly as early as April.

Councilmember Mike Klinghammer [District 6] said trends in internet sales may continue and may affect how services such as 911 emergency services are funded. The 911 system is currently funded from sales taxes on telephone landlines. “They are going the way of the buggy whip and we cannot charge enough sales tax on buggy whips to make any real amount to provide necessary services,” Klinghammer said.

Meanwhile, revenue for the county’s dedicated use tax for county parks was up 12.5 percent.  The use tax for parks was approved by voters in 1997 and is largely charged to businesses buying out-of-state equipment.

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[Editor’s note: Reporter Nathan Rubbelke contributed to this story.]
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