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Sales tax fallout hits dealers, others
For months, Missouri car dealers and potential customers have been doing business under new rules that have put dealers at a competitive disadvantage.
Customers can cross a state line and save hundreds of dollars on a new vehicle. If the product is bought out of state, it's sales-tax free thanks to a Missouri Supreme Court ruling last year that invalidated the collection of local sales tax on those purchases.
In Southeast Missouri, which can be a relatively short drive to four neighboring states, the enticement to cross that state line can be huge.
The problem is one few Missouri dealers want to talk about, but it's a topic of conversation in the halls of the Capitol, county courthouses, city halls and chambers of commerce.
As businesses try to cope with the new reality, there's movement on several fronts to allow local governments to once again collect a sales tax -- or introduce a "use tax" -- on out-of-state vehicle purchases.
Bob Neff, general manager of Ford Groves in Cape Girardeau, said some customers have asked about the tax issue and the dealership has been able to work with them on pricing to defray potential losses to out-of-state dealers.
"As a businessperson, working with a level playing field seems the fairest way to do business," Neff said.
Local lawmakers and chambers of commerce are in support of a bill that would create a way to levy taxes on out-of-state vehicle purchases.
"This issue is a city and community concern as it will affect jobs and revenue," said Cape Girardeau Mayor Harry Rediger by email Wednesday.
Border areas such as Cape Girardeau are being targeted, as evidenced by advertisements from dealerships in Illinois touting a tax savings as a reason to cross the border to make vehicle purchases. One from Coad Ford in Anna, Ill., proclaims "Finally, a reason to come to Illinois!" It listed a potential savings of more than $900 on a $25,000 vehicle, versus making the same purchase in Cape Girardeau. Representatives at the Coad dealerships in Anna, Ill. and in Cape Girardeau did not return requests for comment.
"That's just an unfair advantage," said Cape Girardeau city manager Scott Meyer.
The discrepancy stems from a Missouri Supreme Court ruling in March that prohibited cities and counties without local use taxes from collecting taxes on vehicle, boat, trailer or other purchases made outside the state. Before that time, no matter where a person made such purchases, sales taxes were paid at registration according to the local sales tax rate associated with the buyer's home address.
Since then, only the state use tax of 4.225 percent has been levied in areas with no local use tax. Efforts to pass legislation to override the decision were blocked by Gov. Jay Nixon, who cited concerns about the retroactive nature of the tax and about reinstating a tax without a public vote.
A bill advanced by Sen. Mike Kehoe, R-Jefferson City, would allow local sales taxes -- instead of use taxes, which are levied where a vehicle is used instead of its purchase location -- to be levied on vehicle purchases. It won Senate approval Monday and was read for the second time in the House on Wednesday.
Before the bill was introduced, officials in several Missouri counties, including Bollinger, Perry, Scott and Stoddard, have placed a use tax issue on their April ballots to offset revenue losses.
A Missouri Department of Revenue report circulated last year by the Missouri Association of Counties estimated potential losses to Cape Girardeau County at $250,000. Last month, Presiding Commissioner Clint Tracy said the county would not place a tax question before voters.
John Mehner, president of the Cape Girardeau Area Chamber of Commerce, said the chamber board has not taken a position, but he was supportive of the bill introduced by Kehoe.
"We think that helps Missouri car dealers, local dealers and local members and I am supportive of that," Mehner said.
Losses to the city of Cape Girardeau are estimated at almost $280,000 by the DOR report. Estimates are based on a portion of vehicle and marine sales taxes collected in 2011 -- about 21 percent of those sales taxes were believed to be from out-of-state purchases.
The Jackson Area Chamber of Commerce has come out in favor of the bill, as have Jackson city officials.
"The Jackson Area Chamber supports the measure and is glad that it is being done an a legislative level. We always look to support measures that protect local and state businesses," said chamber director Brian Gerau.
"We have no official numbers on the revenue lost as a result of the Supreme Court's decision. However, according to information received from the Missouri Municipal League, an estimate of the amount of revenue that we might lose is from $60,000 to $70,000," Jackson Mayor Barbara Lohr said in an emailed statement Wednesday. Lohr said she felt it was appropriate to collect a tax where the vehicle would be used, "thereby providing revenue to maintain roads and bridges being deteriorated by that vehicle operating on those roads and bridges."
In Bollinger County, commissioners have been holding town hall-type forums to educate residents on a proposed use tax, which Presiding Commissioner Travis Elfrink said is easily misunderstood. Elfrink said the use tax is not a "new tax" as people assume, but is a way to recoup what the county has lost since the court decision. It amounts to about $7,000 per month for the county.
"Once we explain to them what a use tax is, they are all for it," Elfrink said. The next meeting with commissioners is set for 6 p.m. Monday at the Grassy Fire House, he said.
The Bollinger County Chamber of Commerce agreed to endorse the "Bollinger County User Tax," according to Patricia Welker, administrative assistant to the chamber.
1 Barton Square, Jackson, MO
1501 N Kingshighway St, Cape Girardeau, MO
131 S. Winchester St., Benton, Mo.
1 Barton Square, Jackson, Mo.
321 N. Main St., Perryville, Mo.
204 High St., Marble Hill, Mo.