Passage of Proposition 1 would result in a tax increase for Phelps county residents.
On Tuesday, November 5, Phelps county voters will decide the fate of Proposition 1 imposing a Phelps county "use" tax; i.e. a sales tax imposed where the purchased product is "used". Specifically, this measure proposes a sales tax of 1.125% on purchases of tangible personal property made from out-of-state sellers by Phelps county buyers. Although certain internet vendors such as Amazon have pledged to collect state, county, and municipal sales taxes on their transactions, Missouri law does not require out-of-state sellers without a physical presence in the state to collect such taxes. If an out-of-state seller does not collect the use tax from the purchaser, then Proposition 1 would make the purchaser responsible for paying the uncollected use tax to Missouri's Department of Revenue.
1. Passage of Proposition 1 would result in a tax increase for Phelps county residents.
It might seem silly to belabor this obvious point, but the real import for Phelps county voters is the size of the tax increase from Proposition 1. Information on taxes remitted by the Missouri Department of Revenue to cities and counties is found in a CAFR report. The most recent report posted on the DOR website is for the year ended June 30, 2017 (see https://dor.mo.gov/cafr/documents/taxcountiescities.pdf). For Missouri counties which have a local option use tax in effect — and roughly half of them do — the revenue realized is approximately 10-15% as much as the ordinary sales tax. Consequently, the use tax of Proposition 1 would likely raise between $640,000 and $960,000 annually from Phelps county taxpayers.
2. Phelps county government does not need this revenue increase.
Since three Phelps county government funds receive sales tax revenues, it seems reasonable to assume that these same three funds would receive the proposed use tax funds: County Revenue, County Law Enforcement, and Special Road and Bridge fund. Simply put, County Revenue funds the operation of all the county government offices in the Phelps County Court House; the functions of the latter two funds are obvious from their titles. County Revenue and Special Road and Bridge share the revenue from a 0.5% sales tax passed in 1981; Law Enforcement receives the proceeds of a 0.375% sales tax. The remainder of the 1.125% referred to in Proposition 1 is the 0.25% E-911 sales tax.
The end-of-year statements of cash in County Revenue and Law Enforcement funds from the Phelps county financial statements of 2015-2019 show steady increases (see http://www.phelpscounty.org/directory/county-clerk/). Law Enforcement went from $1,859,664 on 12/31/2014 to $5,723,433 on 12/31/2018. County Revenue went from $887,614 on 12/31/2014 to $1,830,150 on 12/31/2018. The July 2, 2019 County Commission meeting minutes at the same website contain 12-month certificate of deposit bids showing that Phelps county has at least $4,375,000 in reserve in CDs.
By comparison, the end-of-year statements of cash in the Special Road and Bridge fund are more volatile and not nearly as robust, varying as follows from 12/31/2014 to 12/31/2018: $667,720; $550,869; $1,049,826; $752,731; $925,339. It is apparent from County Commission minutes that road maintenance and improvement is a common interest of Phelps county residents. However, there is no commitment in the official ballot language for the Phelps county use tax (www.phelpscounty.org/wp-content/uploads/2019/09/sample-ballots-1-4.pdf) that any of the revenue would be used to build and maintain roads and bridges in the county. In fact, Commissioner Stratman was quoted in the September 12, 2019, Phelps County Focus as saying the county isn't mandating a purpose for its use tax revenue because the Commission doesn't know what future needs will emerge. They want future commissioners to have the flexibility to address them.
The E-911 board already has a surplus of funds; they have made loans to the city of Rolla, as reported in recent E-911 financial reports. Despite the financial well-being of the E-911 board, the County Commission included the .25% tax rate administered by the E-911 board in the use tax proposal of Proposition 1. Furthermore, they expressed the intention of keeping that revenue under the control of the County Commission rather than the E-911 board. (See the Phelps County Focus, August 22, 2019, page 2A.)
Finally, 50% of the current Phelps county sales tax revenue results in a rollback of county property taxes. This is pursuant to RSMo 67.505 which mitigates the effects of windfall increases in taxation when counties and municipalities were granted the power to impose local sales taxes. A legal opinion solicited recently from the Phelps County Prosecutor's Office assured the County Commission that the use tax revenue generated by Proposition 1 would not be subject to the "50% rollback". (See the previous Phelps County Focus article.) That is, 100% of the new use tax revenue of Proposition 1 would be available to fund generic county government expenditures.
3. Every purchaser is responsible for remitting the use tax to Missouri when they purchase goods from an out-of-state seller who does not collect the use tax.
The ballot language of Proposition 1 may suggest to some that "light" Phelps county internet shoppers are not required pay the use tax. This is simply not the case as a careful reading of the ballot language indicates: "A use tax return shall not be required to be filed by persons whose purchases from out-of-state vendors do not in total exceed two thousand dollars in any calendar year." Note that such shoppers are not absolved of the responsibility of paying the use tax, but rather the responsibility of filing a return. If some future County Commission were not satisfied with the revenue being generated by Proposition 1, then they could initiate aggressive use tax collection measures including tax audits. In a recent instance which came to this author's attention, the owners of a small family hotel in Osage Beach purchased playground equipment over the internet. They were unaware of the local use tax requirements and only realized and paid their tax obligation when they were audited.
4. Fairness of the use tax.
An argument used to support Proposition 1 is that a use tax would level the playing field for local business owners. Would it be fair, however, to the far larger number of consumers in Phelps county who already pay more than 7.5% sales tax on every transaction to help fund government? The use tax would substantially increase revenue to county government, resulting in larger generic government at the expense of private persons. Surely it would be fair to the people of Phelps county if they could retain more of the fruits of their labor.