Local business owners are urging Jefferson City officials and residents to pass a use tax, which could appear on the August ballot.
Jefferson City staff will draft a use-tax ordinance and present it to the Jefferson City Council in May after local business owners during last Monday's council meeting said out-of-state retailers have an unfair advantage. If approved by council, it would appear on the Aug. 7 ballot.
A use tax is a sales tax on goods purchased by Missouri businesses and residents from out-of-state vendors where the purchaser pays the tax instead of the seller. A sales tax, on the other hand, applies to purchases made from a Missouri retailer.
Residents would not pay both taxes for the same purchase, Jefferson City Finance Director Margie Mueller said.
The use tax would be 2 percent, matching the 2 percent city sales tax, Mueller said. The city's sales tax is split into categories — 1 percent for general, 0.5 percent for capital improvements and 0.5 percent for parks.
Several local business owners said a use tax would create a fairer playing field when competing against online and out-of-state vendors.
"If you're not in retail, it's probably not that big of a deal. But if you're in retail, it's a big deal because it's tough already because of (the) convenience factor," said Gary Wilbers, owner of Ascend Business Strategies. "We can't change that, but (out-of-state vendors) shouldn't get an unfair advantage because they get out of sales tax or use tax if they're not in our community. You may say on a $10 item it isn't a big deal; but when you start going up in dollars, then that becomes a bigger deal all the time."
A use tax is not an internet sales tax, Mueller said.
Bob Scruggs, owner of Scruggs Lumber, said a use tax would help small businesses that support local charities and groups, adding he thinks large online retailers do not show the same local support.
More than 160 Missouri cities have use taxes, according to the Missouri Municipal League. Missouri and Cole County also collect use taxes.
In 2017, Cole County collected more than $1.37 million in use tax revenue, County Finance Officer Debbie Malzner said.
The Missouri Department of Revenue reported nearly $77.9 million in taxable sales and purchases subject to use tax in 2016 from Jefferson City.
Vendors and purchasers are required to self-report to the state how much they owe in use tax. A purchaser is not required to file a consumer's use tax return with the state if purchases subject to use tax are less than $2,000 in total, according to the Department of Revenue.
Based on the state's numbers, Mueller said, Jefferson City could receive about $1.5 million in additional revenue if the city had a use tax.
Scruggs said he thinks the potential extra revenue from a use tax would give Jefferson City another opportunity to fund public safety services and infrastructure.
"We've got a good fire department; we've got a good police department; and we talk about roads, we talk about streets, sidewalks, curbs and sewers in this town," he said. "That money that you get from taxes is going to pay for our fire, it's going to pay for our streets, it's going to pay for our police. Everybody is looking for funds right now to enhance their cities, and this is one way to do it without causing a whole lot of trouble."
While some Mid-Missouri municipalities like Sunrise Beach, Linn and Callaway County passed use taxes over the last decade, Boone County and Columbia voters recently rejected proposed use taxes in November. Fulton and Wardsville voters rejected proposed use taxes earlier this month.
With this in mind, education will be key, business owners and city officials said. If the City Council passes the use tax ordinance, Wilbers plans to start a committee to educate voters. He said communities that had educational campaigns had a higher chance of passing a use tax than those without a campaign.
"I don't like taxes no more than the next person, but I think once people understand it's actually hurting our local retailers and why, through an educational campaign, we can get people to understand why it's so important," Wilbers said.
The education committee's biggest challenge would be overcoming the negative connotation of "tax" and differentiating between a use tax and a sales tax, Scruggs said.
"What (residents) have to understand is if someone comes into my store right now, we're collecting the sales tax and that's all we do. We don't put a use tax on anything — it's just a sales tax, and that's the end of it," Scruggs said. "So voters have to understand that when you shop in Jefferson City, you're not going to pay an additional tax on top of your sales tax."
Council members told the News Tribune previously that putting a use tax ordinance on the August ballot was a top priority.
In 2012, the Missouri Supreme Court said cities can collect sales tax on out-of-state motor vehicle purchases only if the cities have local use taxes, so Jefferson City must either receive voter approval to continue the sales tax on out-of-state motor vehicle purchases or pass a use tax before November 2018.
If the city does neither, it no longer will receive sales tax on out-of-state vehicle purchases starting Nov. 1, losing $240,000 annually, Mueller said.
The sales tax on out-of-state motor vehicles purchases is based on where the vehicles will be registered. When residents purchase vehicles out of state, they don't pay the sales tax until the vehicle is licensed, according to the Missouri Municipal League. Some out-of-state dealerships allow purchasers to pay the sales tax and the dealership then pass it on to the home state, according to the Department of Motor Vehicles.
This is not a one-time shot, though, Mueller said. If a use tax is not approved before November, the council could put it on a future ballot. If voters passed it, then the city would begin receiving the out-of-state vehicle purchases tax again.
City staff first presented information about the use tax to the Jefferson City Finance Committee last summer. Since then, Mueller said, city staff has been doing more research and sending information to interested local entities.
The U.S. Supreme Court currently is debating a case for whether online retailers that ship goods to states where they have no physical presence should collect sales tax from customers, which Mueller said may influence a use tax.