Many cities, counties oppose sales tax holiday

By Ben Holman

Nevada Herald

Last year's state and local sales tax holiday resulted in a $10.8-$18.5 million loss in state and local sales tax revenue, according to a report from the University of Missouri. That has some city and county officials concerned that a proposal to make the holiday permanent might mean deep losses to small entities that can't afford it.

The tax holiday, which took place last August, exempted clothing, school supplies, office supplies, computers and software from state and local taxes for a three-day weekend. However, legislation allowed municipal and county governments to opt out of the holiday -- an option which 180 municipalities and 66 counties chose to take, including Vernon County and the city of Nevada.

"Whether it's $11 million of $19 million, the impact on the state and especially on local budgets is significant," said Gary Markenson, executive director of the Missouri Municipal League, in a press release from the Missouri Association of Counties. "Maybe the state can afford to lose that kind of revenue, but many hard-pressed cities and counties cannot."

According to Lynn Ewing, Vernon County Prosecutor, had the county not opted out, the tax holiday could have cost the county around $230,000 in tax revenue.

David Darnold, presiding Vernon County commissioner, said that the county's budget is already tight and that the county could not afford to lose that revenue.

"It looks like we made the right decision by opting out," said Darnold.

The Missouri Chamber of Commerce does not agree with the county and municipal organizations, however. According to a report in the St. Louis Business Journal, the Missouri Chamber of Commerce conducted its own study and found that the tax holiday had no negative impact on state tax revenue. In fact, the study showed that cities that participated in the holiday benefited more than those who opted out. Cities that participated reported a 3.1 percent increase in sales tax in the third quarter compared with the prior year, while the 241 cities that opted out saw only a 2.2 percent increase.

According to an Associated Press report, the state legislature feels that the holiday was a success and the House has introduced a bill that would make the tax holiday a permanent event.

''It was not only a success for those shoppers out taking advantage of the sales tax holiday, it was a boom for business,'' said Sutherland, R-Warrenton, in the report. The holiday is projected to cost the state more than $2.5 million for the 2006 budget year.

House Bill 64, which is working its way through the Missouri House, would make the sales tax holiday permanent and local government leaders fear that they will lose their opt out option. The legislation, in its current form, only allows local governments to opt out after a vote of the people.

"Only the elected officials know whether their jurisdictions can afford the sales tax holiday," said Dick Burke, executive director of the Missouri Association of Counties, in the MAC release. "They are elected to make those difficult decisions, and they should be allowed to do so without the expense of a costly election on this issue."

In response to the pressure from the Missouri Association of Counties and the Missouri Municipal League, Rep. Carl Bearden will sponsor a floor amendment to House Bill 64 that will remove the requirement that a political subdivision may "opt out" of the sales tax holiday only after a vote of the people, according to an article in the Rolla Daily News. If the Bearden Amendment is adopted, any political subdivision may "opt out" by vote of its own governing body.

The University of Missouri study also included these findings:

* Studies in other states indicate that consumers shift purchases to the tax holiday.

* Missouri data indicates that some sales shifted to jurisdictions which participated in the sales tax holiday.

* A Florida study indicated that retailers did not offer the same price markdowns during a sales tax holiday period as before and after. Therefore, consumers received only about 80 percent of the tax savings.