Local Leaders Express Concern Over Sales Tax Proposal in Missouri House

Several leaders with ties to Richmond Heights and Clayton say a proposal to phase out income taxes in Missouri in favor of a state sales tax of up to 7 percent would hurt local businesses and city revenues.

At issue is HJR 8, also known as the Missouri Jobs and Prosperity Act. The bill, introduced by State Rep. Andrew Koenig, R-Winchester, would put to state voters the question of whether to replace individual and corporate income taxes—along with state sales and use taxes—with a sales tax of up to 7 percent, a summary of the committee version of the bill states.

The new sales tax rate would take effect in January 2015 at a level of 4 percent and be increased over a four-year period "to make the tax revenue-neutral and to provide continued funding for programs," the summary states. Individual income tax would decrease at a rate of 25 percent per year.

The bill has been laid over since April 12, and a hearing has not been scheduled. It's not clear whether the issue will again be discussed before the close of the legislative session, which ends May 13.

Richmond Heights businesses could be negatively affected by the legislation, City Manager Amy Hamilton stated in an email.

In general, residents pay a collective sales tax of 7.575 percent—4.225 percent in state sales tax, 0.85 percent in St. Louis County sales tax and 2.5 percent in city tax, Hamilton said. Additionally, some commercial locations have the authority to charge up to an additional 1 percent in sales tax.

"The state has calculated that in order to remain revenue neutral and eliminate state income tax by replacing it with a statewide sales tax, the statewide sales tax rate would need to be at or over 10 percent, not including the local and regional sales tax rates," Hamilton stated. "As the sales tax rate climbs to absorb the elimination of income taxes, more buyers would shop online or in Illinois to avoid the sales tax, hurting Missouri businesses. Loss of business would be detrimental to our local businesses, the city of Richmond Heights, St. Louis County and the state."

Clayton City Manager Craig Owens stated in an email that the city has not conducted an analysis to determine how the legislation might affect local tax revenues.

State Rep. Stacey Newman, D-Richmond Heights, said she and other Democratic legislators are proposing amendments to highlight what she described as loopholes in the bill.

"If you're wealthy, this is a fabulous thing," Newman said. "If you're not wealthy, this is a horrid thing."

She said the legislation would represent a tax increase for 95 percent of Missourians. Among the reasons the bill concerns her: Food purchased for home consumption would not be exempt. She said the state's current sales tax rate of 1.225 percent on those types of purchases could increase to 7 percent, referring to estimates from the Missouri Budget Project. The rate could go higher once local sales taxes are factored in.

Other nonexempt purchases would include rent, child care and Girl Scout Cookies, she said.

But she said it's her understanding that a majority of the Democratic caucus are opposed to the measure and that some freshmen Republicans are having second thoughts.

"There's not full-fledged support to get this out," Newman said.

It's unclear when House members will again review the legislation. They have done so twice for 10 minutes at a time, Newman said.

The proposed legislation also concerns the St. Louis County Municipal League, assistant director Steve Ables said. The Clayton-based group works to strengthen city governments and serves as a go-between for cities with governments at the county, state and federal levels, according to its website.

"We don't see any benefit to it," Ables said. High sales taxes resulting from the legislation could drive Missouri shoppers into Illinois and Kansas in search of lower prices, he said. That's particularly true for purchases of "big-box items" such as washing machines and refrigerators, he said. It's also unclear how city services would be affected because of uncertainty over how much revenue the legislation would generate for the state.

Executive director Tim Fischesser has been lobbying against the measure in Jefferson City, Ables said.

The Municipal League has written a policy statement in opposition of legislation such as HJR 8.

"The League opposes the use of a higher sales tax rate to replace the corporate and individual income taxes," the policy states in part. "Missouri's cities rely upon sales taxes for general fund and enterprise fund operation.  If the state sales tax rate is dramatically increased, municipalities would be crippled in seeking voter approval of new sales taxes and Missouri businesses would lose retail to adjoining states and the Internet."

Pat Dolan is representative for the St. Louis County Council's District 5, which includes Richmond Heights. He said Wednesday that he would prefer not to comment until he has the opportunity to review the bill. He had not responded to an email seeking comment on the issue.