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Sales taxes popularity growing for economic development

Sales taxes popularity growing for economic development

State law offers few alternatives

January 22nd, 2012 in News

Justin Barbosa pays Carla Frye for his lunch Friday at Chez Monet in downtown Jefferson City. If passed, the Transformation Tax would be added to nearly everything purchased within the city limits, including meals.

Photo by Julie Smith

With the Transformation economic development sales tax on the ballot in less than three weeks, some still have questions as to how the tax would be regulated and why it has been proposed as a sales tax.

Transformation is the economic development strategic plan put forward by the Jefferson City Area Chamber of Commerce. It proposes a 10-year half-cent economic development sales tax that, if passed, would raise more than $41 million to complete a list of 30 projects around the city. The tax, sponsored by the city, is on the Feb. 7 ballot.

A lot of how the tax, if passed, would be established is laid out by a Missouri statute. The state authorized a local option for economic development sales taxes in 2005, trying to give cities and counties options to find funding for specific projects that could create jobs.

According to RSMo 67.1305, an economic development sales tax can be authorized for no more than a half-cent.

If the tax passes, it would put most of Jefferson City's sales taxes up to 8.225 percent, but in Transportation Development Districts, of which the city has three, the new sales tax rate would increase to 9.225 percent.

The statute states if a city sponsors the local economic development sales tax, the tax board must be established and consist of five members.

"One member shall be appointed by the school districts included within any economic development plan or area funded by the sales tax ... three members shall be appointed by the chief elected office of the city with the consent of the majority of the governing body of the city ... one member shall be appointed by the governing body of the county in which the city is located."

If the tax had been sponsored by the county, the state statute stipulates the establishment of a similar tax board, but with seven members: one appointed by the school districts in the area, four appointed by the County Commission and two appointed by the cities, towns or villages within the county.

Richard Sheets, deputy director of the Missouri Municipal League, said many communities are looking to sales taxes as preferred funding mechanisms now, a change from the way cities, towns and counties used to do things.

"Sales taxes are very, very popular. Cities used to rely on property tax, but that's a very unpopular tax," Sheets said. "So cities rely on that sales tax."

He said for economic development, a sales tax is really the only vehicle for funding projects.

Another option given to areas by the state is a regional economic development district, which needs to be created by two or more cities or counties and would use incremental financing, something that only funds public infrastructure and cannot be used for retail projects. The district operates similar to a tax increment financing, or TIF, district, which would require a determination that the development area has not grown or developed through private investments and could not be expected to grow without the implementation of a district. Like the economic development sales tax option, the district also would be able to implement a sales tax rate of up to a half-cent.

Go to our Transformation section online to read details about the proposed projects and join the forum discussions.

For the comprehensive package of coverage, see our newspaper or e-Edition for Sunday, Jan. 22, 2012.