The unsustainable cost of untaxed online sales.
Every time someone visits a store in Jefferson City and purchases a product or service, a municipal sales tax equaling 2% of the transaction is imposed, unless the transaction or purchaser is exempt by law. This amount includes our 1% city general sales tax, which provides our single largest revenue source and allows us to pay for core services such as police, fire, public works, and planning and protective services. The last few years have seen a dramatic slowing in annual sales tax receipt growth, which causes significant concern for budget purposes.
Burdening this slowing growth is the fact that sales taxes are not imposed on transactions executed online. This challenge is not unique to Jefferson City, and it has been experienced for years by communities everywhere. To compensate for revenue lost to untaxed online sales, more than 100 cities in Missouri impose use taxes on the use, storage, or consumption of tangible personal property in their jurisdiction, unless the purchase is already subject to sales tax, including Springfield, St. Louis, and Kansas City, and you can view others at dor.mo.gov. Purchasers pay one or the other, but not both. (In practice, use taxes and sales taxes tend not to capture an otherwise identical set of transactions, likely because the duty is on the purchasers to report their own owed use taxes. However, use taxes tend to bring in certain large ticket purchases and commercial and industrial purchases not subject to local sales tax.) Jefferson City voters rejected a 2% use tax when it was proposed in 2018.
While sales tax receipts slow, annual use tax eligible sales increase dramatically. We are approaching a point where total sales tax growth will stall and then begin decreasing each year while potential use tax revenue continues to climb. This creates an extremely challenging environment for our city budget.
The $1,837,222 of use tax revenue lost in 2018 equals more than 15% of our annual sales tax receipts and more than 5.5% of overall general fund revenue. Half of this amount, $918,611, would have gone to the general fund, dwarfing our relatively flat rates of general sales tax growth. Whatever our particular policy preferences, we must appreciate the consequences of our decisions. In this case, the consequences are significant and tangible: $918,611 equals 27 new police vehicles, or 12 new snow plows, or 12 more miles of repaved roads every year. (These are examples only; we’re not going to buy 12 snow plows every year.)
The choice now is between adopting an alternative revenue solution to even out these losses or deciding which core services and infrastructure priorities to reduce. Our budget is already very lean, and it must balance. Continuing to exempt a growing percentage of purchases based solely on how the transaction occurred will cost our community and its future more and more each year.
Continuing to exempt a growing percentage of purchases based solely on how the transaction occurred will cost our community and its future more and more each year.