Over the past few weeks, I’ve been asked a number of questions about the city’s consideration of a property tax. One specific question seems to come up quite often:
“Why isn’t the city asking for a sales tax increase instead?”
My response? “That’s a great question!”
There are three basic questions you have to ask to answer that:
- What taxes are available to the city?
- What amounts can be collected?
- What restrictions, if any, are there on the funds?
Let’s go back a moment and understand “sales taxes” in general. The state of Missouri specifically authorizes what taxes a city may collect and in what amounts the tax can be charged. Today, there are basically 6 taxes authorized by statute. Those are:
- General Revenue Sales Tax (already at maximum)
- Capital Improvements Sales Tax
- Economic Development Sales Tax
- Transportation Sales Tax
- Storm Water/Parks Sales Tax
- Fire Protection Sales Tax (already at maximum)
The city of Neosho does collect, in some amounts, every tax listed above. Our current city tax rate is a combined 2.5%. (If each were at their maximum, the total would be 3.25%.)
The issue that comes into play next is that the state limits (or caps) how much each tax can be – regardless of if the voters approve. That’s were Neosho is kind of stuck.
The most flexible tax, the General Revenue sales tax, is capped by statute at 1% and Neosho already collects the full 1%. The same goes for the Fire Protection sales tax. It is capped at 0.25% and the city collects that full amount. That takes those two taxes off the table for consideration.
That leaves the four remaining taxes and a combined available amount of 0.75% that the city COULD consider. In theory, if the voters did approve an increase of all four taxes (each requiring a separate line on a ballot), the city could collect an additional $1 million or so. But then the issue becomes what restrictions are there on those remaining taxes? That’s the last issue.
Based on the financial issues we face, primarily servicing our debt, we can’t use those remaining taxes for that purpose. So raising a tax that we cannot use to address our issues doesn’t make much sense.
Bottom line, barring a change from Jefferson City, the sales tax options we have don’t really help that much. And that’s how I would answer the question of “Why isn’t the city asking for a sales tax increase instead?”
I hope this helps.
So why are property taxes a better option?
ReplyDeleteProperty taxes have a few advantages. Here are four.
ReplyDeleteThe city can set the rate based on need.
The funds collected can have fewer restrictions on use.
They are less volatile during economic cycles (both up and down).
They are more predictable over time.
I personally want to see "restrictions" on what city fathers can do with tax income...especially with the history of our city fathers the last few years...so that is not what I would call an "advantage."
ReplyDeleteby saying that funds are "less volatile" you mean that's good for the city but not necessarily for the taxpayers. If they are taxed through sales tax, a family pays fewer taxes by spending less...something they can actually control to some degree...they have no power to lower their own property tax...they can't adjust that to their current economic situation..
I realize you are our mayor now, but I would hope you would not always see things from the city side....take care of the citizens and think from their perspective now and again.
Anon 9:16,
ReplyDeleteCouple of comments:
I'm not looking out for anyone except the people of Neosho. If a property tax goes on the ballot, it will be up to the voters, no me, to decide its fate. Giving the voters a chance to vote is taking the side of citizens. Explaining the consequences of a vote (yes or no) is not taking sides - it's simply informing the voters of what they get with a tax and what they could lose without one.
Is it a fair tax?
ReplyDeleteI'm not sure what "fair" means in this case, but a property tax does tend to require those that own more to pay more. So from that perspective, I'd say it's a "more fair" tax than others may be.
ReplyDeleteFrom a business perspective, I don't think you'll find many business owners that think it's "fair" simply because businesses tend to pay a higher % of the tax (because many own higher priced real estate, big buildings, equipment, etc.) La-Z-Boy would be a good example.
Hope that answers your question.
So right now businesses aren't paying any sort of property tax?
ReplyDeleteThere is NO property tax being collected by the city of Neosho.
ReplyDeleteYou pay property taxes to the County, Crowder College, Library, Neosho R-5, etc.
No one, including business, pays property taxes to the city of Neosho.
are you telling me that a person who owns rental property does not figure taxes when he sets his rental rate? So when he sets that rental rate, he includes maintenance, insurance and taxes he must pay to any and all levels of government (county, college, library, school, etc.) so I say, Sir, that the man with the rental property does not "pay" the taxes, he collects them from his rents and then passes it on....those unable to afford a home of their own are "paying property taxes."
ReplyDeleteThose "with more" are not necessarily paying "more."
Don't think I said that even once, Anon. I do agree that property taxes would absolutely impact a rental rate.
ReplyDeleteThose that have more will often pay more, but that doesn't mean they won't recover it on the backside. That's a reality we face everyday.