Clutching a dollar in one hand and a baseball toy in the other, 10-year-old Justice Boyes approached the checkout counter at Deals dollar store. In a store plastered with posters that read, “Nothing more than $1,” the register flashed the total price, “$1.08.”
Even in a dollar store, few things cost exactly $1. That’s because of a little thing called sales tax.
Lucky for Justice, whose mom handed him an extra quarter, the tax didn’t prevent him from making his purchase. For some shoppers, however, the extra pennies can determine whether they can afford an item. Added together over time, pennies and fractions of pennies can make or break a budget, for a family paying bills as well as for the city of Columbia, which relies on sales tax as its largest source of general revenue.
“Of course I notice it,” said Larry Jesse of Sturgeon as he took his receipt at Wal-Mart, tucking a package of toilet paper under his arm. Jesse and his wife, Jeannie Jesse, come to Columbia about three times a week to shop.
“Sales tax is too high, but we have no choice,” Jesse said. “We don’t have anything in Sturgeon.”
The Jesses illustrate many of the reasons for and against using sales tax. While sales tax generates revenue for the city, it also makes it harder for some families to make ends meet.
It could become even more difficult, depending on the outcome of the Nov. 8 election. Five of six upcoming city ballot propositions deal with sales tax. Four would extend existing taxes to fund parks, an ice rink, a multipurpose building and farmers market, public safety projects and roads. One would add a one-eighth-cent sales tax for streets and sidewalks. If all the propositions pass, sales tax in Columbia would rise to 7.475 percent. If none pass, the rate would eventually fall to 6.975 percent.
“People come here from out of town and use our streets, parks and trails,” Columbia Finance Director Lori Fleming said, explaining that sales tax allows the city to charge visitors for using city services. “This is a good method to pay for things.”
Aside from transportation development districts, or TDDs, which charge a half-cent sales tax, the total tax on retail sales in Columbia is 7.35 percent. State and county taxes account for 5.35 percent; the other 2 percent goes to the city and provides it with more than $35 million per year, or nearly 37 percent of total general government revenue.
For folks like the Jesses, a tax of nearly 8 cents on the dollar is tough to take.
“Gas, electricity, propane — everything’s gone up, except for paychecks,” said Jesse, who added that a construction job that used to leave him with $100 a week after bills now leaves only $40. An increase in sales tax would pinch his spending even more.
Sales tax can creep up on shoppers, especially when making larger purchases.
“People have to leave items at the counter because they didn’t think of sales tax,” said Deals cashier Janet Hall. “It happens all the time.”
Hall said she once had a woman who refused to believe the price difference sales tax created. She had 50 items in her cart and didn’t want to pay when the price came to more than $50.
“She thought we were overcharging her and left without buying anything,” said Hall.
Higher sales tax prompts some to shop elsewhere. Mike and Connie Martin of Ashland said they shop in Jefferson City whenever possible because its sales tax is just more than 6 percent. It is one of the lowest among midsize Missouri towns.
Columbia resident Otto Trachsel said he avoids high city sales taxes by doing most of his shopping in other parts of the state when he visits for business.
“If the tax is supposed to charge people who aren’t from here, then the people who live here should get a break,” Trachsel said.
Some residents, however, don’t mind paying sales tax because it pays for amenities they think are valuable. Connie Morrow of Columbia said she would support taxes to fund parks and programs for kids, but not for repaving roads.
“I don’t mind sales tax,” she said. “It just depends on what it’s for.”
The sales tax rate alarms Kelly Davis, who as the Midwest regional officer of the Washington, D.C.-based Institute for Taxation and Economic Policy, or ITEP, researches how taxes affect people of different income levels. Davis said ITEP is non-partisan and cannot advocate either for or against the propositions.
It can, however, educate voters on how different taxes work.
“Voters need to understand that sales tax is regressive, meaning it affects people at lower incomes at a higher rate,” Davis said. “Lower-income residents tend to spend everything they earn, so everything is taxed. People with higher incomes can afford to save more and pay less of their income in sales tax.”
“There’s not much we can do about that,” said Fleming, who said the city tries to make up for that regressivity through programs for low-income residents.
“With budget cutbacks at the state and federal level, it is putting a greater responsibility on local governments. We’re being asked to do more with limited resources,” Fleming said.
The city is following a national trend to rely more on sales taxes for revenue, she said.
In Columbia, sales tax provides 37 percent of general government revenue, while property tax provides just 6 percent.
TaxesThe city’s low property tax rate, 41 percent, puts it in the lowest quarter of Missouri cities with populations of at least 10,000, while the sales tax rate is in the top quarter.
Despite reservations about the proposed sales tax extensions and increase, Davis praised the City Council for proposing new ways to pay for services and programs, especially given state budget cutbacks.
“Many municipalities are simply cutting programs,” she said.
Davis suggested four alternatives to sales tax when funding civic projects: increasing property tax coupled with targeted tax relief; collecting user fees for services; implementing a local income tax; or looking for more state and federal funding.
A property tax increase would be tricky because there would have to be ways to prevent landlords from passing the tax on to their renters in higher rental costs, Davis said. These “property tax circuit breakers” already exist in 35 states, according to an ITEP policy brief.
“The city’s really between a rock and a hard place,” said Davis. “On one hand, they want to fund these services and projects, but on the other, they want to be fair.”
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