A use tax to capture revenue for out-of-state sales will be put before voters this coming April.
The personnel, finance and public works committee will recommend approval of ballot language that was presented Monday night.
A use tax is a sales tax imposed on the purchase of goods by Missouri residents from out-of-state vendors. The use tax is applied to the same type of products subject to traditional sales tax, the Missouri Municipal League (MML) said.
“What’s kind of confusing about it is a lot of people think when they see the Union sales tax is 9.475, they automatically assume that the vast majority of that goes to the city,” Rost said. “But we only have two percent sales tax coming in.”
The tax is 2 percent. Of that, 1 percent is general revenue, one-half cent is for transportation and one-half cent is for water/sewer projects.
The purpose of the tax, Rost explained, is that if the state begins collecting taxes on internet sales and out-of-state sales, the city tax also will be collected at that time.
The use tax is imposed on purchases made by Missouri residents from out-of-state vendors. The state of Missouri imposes a statewide use tax at 4.225 percent.
Cities and counties may impose an additional local use tax. The amount of use tax due on a transaction depends on the combined (local and state) use tax rate in effect at the Missouri location where the tangible personal property is stored, used or consumed. Local use taxes are distributed in the same manner as sales taxes, the Municipal League website says.
The sales tax applies to purchases made at retail stores within Missouri, while the use tax applies to purchases made from out-of-state vendors. Purchases cannot fall into both groups so there is no way that a purchase would be taxed twice.
“This is a mechanism to allow the taxes to be collected that are due to the city,” Rost said.
It is not a tax increase or a new tax, he added.
City Attorney Tim Melenbrink said the ordinance has to be passed for the city to collect the tax.
The difference is where the goods are purchased and shipped.
“We can’t impose a sales tax on sales that occur (out of state), but with a use tax you do,” Melenbrink said.
State statute requires that cities and counties pass a referendum before taxes can be collected on out-of-state purchases such as motor vehicles, boats and trailers, and some internet sales.
In 2016, the city of Union could have collected approximately $49,000 in use tax.
The estimate was provided by the MML based on gross sales, not including online sales, and current sales tax.
The Missouri Supreme Court ruled in 2012 that collection of out-of-state taxes without a use tax was unconstitutional. In 2013 state legislators passed a bill temporarily reinstating the collection of those taxes by local governments.
Without the voter-approved use tax, collection of those taxes ceased in November 2016.
Franklin County passed a proposition allowing the tax to be collected last year.
New Haven voters also will have a ballot issue. Washington already collects the tax.
The proposed ordinance was created using a model ordinance from the MML. Ballot language has to be filed by the end of January. It will go to the board of aldermen at the next full board meeting.