A Missouri Supreme Court decision made earlier this year could cost Franklin County a million dollars in sales taxes each year and cause some businesses to cut jobs, creating a cascading effect on the local economy.
County commissioners said this week that was what they heard after attending legislative meetings of county officials from across the state in Jefferson City.
The Supreme Court ruling in Craig A. Street v. The Department of Revenue declared that local sales taxes can only be levied on the sale of motor vehicles, boats, recreational vehicles and trailers that are sold by businesses within the state.
The ruling was made in January, but went into effect March 21.
Presiding Commissioner John Griesheimer said the Supreme Court’s decision would cost the county $1 million or more a year, based on 2011 sales tax revenues.
Griesheimer said projections from the Missouri Association of Counties put the hit to Franklin County at $482,000, but the figure didn’t include sales between individuals.
He estimated that the hit from private-to-private sales would be even greater, bringing the total cut to over $1 million.
The county has two half-cent and two quarter-cent sales taxes.
The four taxes generated about $15.6 million in total last year.
The county also receives revenue from property taxes. Last year those property taxes — for both general revenue and road and bridge — totaled about $5.9 million.
Griesheimer said the majority of neighboring counties and cities will see similar revenue cuts.
The only entities that wouldn’t experience as sharp of a drop in revenue are those with existing use taxes, like the cities of Washington and Warrenton and Washington and St. Charles counties, he said.
The city of Washington currently has a 2 percent option use tax, said Mary Sprung, the city’s finance manager.
That means Washington could still collect 2 percent in taxes on vehicles purchased by city residents, even if the vehicle came from out of state or from a private individual.
The use tax currently is levied on vehicles purchased out of state.
The city received $342,774.70 from the state for motor vehicle and marine purchases in 2011.
That 2 percent option use tax would match the city’s current tax rate, which consists of 1 cent for general revenue, and half a cent for both transportation and capital improvements.
Union City Administrator Russell Rost said his city will feel the impact.
“It’s going to affect our taxes, no doubt,” Rost said.
The Missouri Municipal League estimates it will cost Union $51,003.22 in sales tax revenue.
“That is based on current sales,” Rost said.
“You would expect (the court’s decision) to impact any city close to the (state) border,” including Union, he said.
The ruling would cost St. Clair an estimated $14,815.89 a year, based on a percentage of state remittances in 2011. Pacific could see a roughly $21,989.28 hit.
The court’s ruling won’t impact state revenues though. The state’s 4.225 percent sales tax will still be collected on all vehicles registered by Missouri residents.
Griesheimer said a vehicle purchased across the Mississippi River in Illinois would not be subject to the county and municipal sales taxes, therefore making such a purchase cheaper than buying it locally.
“I can see people driving to Illinois to purchase vehicles,” Rost said.
That could cause buyers to go out of state, resulting in a loss of sales for Missouri dealerships and even a loss of jobs, he said.
Griesheimer said Missouri legislators are trying to figure out a fix, but counties and municipalities will have to wait until the end of the current session in mid-May for a potential solution.
Commissioner Ann Schroeder said the ruling could impact other entities too, as sales taxes have become more common in recent years.
The sales taxes, like the one approved by New Haven voters in April for city parks, often include stipulations of rolling back existing property taxes.
Proponents of the taxes often promote them as fairness issues, with sales taxes paid by everyone, not only those who own property.
“Right now, I’m not confident the Legislature will fix it,” Griesheimer said. “All bets are off.”
Could Go to Voters
If nothing is done on the state level, he said local governments could go to voters for an option use tax.
Griesheimer said doing so would need a regional approach, beyond just Franklin County.
It may not come to that, however.
House Bill 2100 was introduced on March 30. Thursday, April 19, the bill was passed out of the House rules committee. It was passed out of the transportation committee a week prior.
The bill would define a “sale at retail for sales tax purposes to include a motor vehicle, trailer, boat or outboard motor registration with the director of the Department of Revenue, regardless of whether the sale took place in this state.”
Missouri Municipal League officials said the bill wasn’t perfect, but should be supported to prevent what could be a loss of upward of $30 million in revenues for entities across the state.
Griesheimer said the tax cuts from out-of-state and private-to-private vehicle sales, combined with a possible per parcel reimbursement cut from the state to county assessors, made for a “triple whammy” for counties across the state.
The cut would reduce what assessors get from the state from roughly $3.48 to only $3 per parcel.
Franklin County has roughly 71,975 parcels as of 2011, according to the assessor’s office.
That would mean a cut of roughly $34,500 from the office. The cut will be even larger as the number of parcels increases.