1 MILLION IN TAX COULD BUY CITY GEAR, FUND RAISES

Cape Girardeau city employees could get a pay raise and the city could buy some needed equipment from $1 million in use-tax revenue collected the past several years.

Only a lawsuit stands in the way.

City Manager J. Ronald Fischer would like nothing better than to spend the money, which is in escrow pending the outcome of the lawsuit challenging the use tax.

Associated Industries of Missouri, an organization representing business and industry and based in Jefferson City, filed the suit in an attempt to overturn a use-tax increase of 1.5 percent.

The group wants the use-tax law declared unconstitutional, because the organization says it penalizes companies that buy products out of state.

The use tax is like a sales tax, only Missouri businesses pay the use tax on products they buy from out-of-state vendors. The state shares the revenue from the extra 1.5 percent of the tax with cities, depending on their population and size. Businesses or individuals that purchase less than $2,000 of out-of-state products in a calendar year are exempt from the use tax.

Fischer said the city's share has been about $300,000 a year since the use-tax increase for cities was implemented three years ago. Prior to 1991 the use tax was 4.225 percent. It is now 5.725 percent. The additional 1.5 percent means cities share an estimated $50 million a year.

In May, the U.S. Supreme Court ruled the state's use-tax plan was unconstitutional in political subdivisions where the use tax was higher than the local sales-tax rate.

In Cape Girardeau the sales tax is 5.975 percent. In Jackson it is 6.225 percent. Both are above the 5.725 percent use-tax rate.

In March, a Cole County circuit judge hearing the AIM lawsuit issued a decision to close out the legal proceedings, but AIM is asking the Missouri Supreme Court to determine if refunds will be issued where the additional use tax has been deemed unconstitutional. The group also is asking the state's high court to decide if the use tax violates the state constitution.

Some cities are already spending their share of the revenue from the 1.5 percent of the use tax. They are hoping that the use-tax law will be upheld.

The tax applies to Missouri businesses that buy products from outside Missouri and is supposed to keep out-of-state companies from having an unfair advantage in selling products in Missouri.

"If you order a product by catalog from Wisconsin and don't have to pay a sales tax on that product, that would make it difficult for a business selling the same or a similar product in Cape Girardeau to compete," Kay Dinolfo, information specialist for the Department of Revenue, said.

An AIM spokesman said the tax unfairly forces businesses to buy products in their home state, adding that sometimes there is no choice. If a product isn't available in Missouri, the company must go outside to purchase it anyway.

Meanwhile, city salary increases are a hot topic as Cape Girardeau officials prepare the budget for the next fiscal year. The police department is asking for a 10 percent raise -- about $300,000 a year. However, Fischer has said he won't recommend an across-the-board pay increase for city employees, because there are other pressing budget needs, such as equipment.

The city's hourly employees are eligible for raises under a performance-based program. They can receive a 2.5 to 3.5 percent pay raise annually following a positive job evaluation.

The step program costs the city $250,000 a year. Each additional percentage point would cost $75,000.

Salaried employees receive about the same pay increase as hourly workers, Fischer said, which works out to be 3 percent on average.

The city staff is scheduled to make its salary recommendations to the city council at the May 15 meeting.

AT A GLANCE

The use tax applies to Missouri businesses that buy products from outside Missouri and is supposed to keep out-of-state companies from having an unfair advantage in selling products in Missouri.

Some cities are already spending their share of the revenue from the 1.5 percent of the use tax, hoping that the use-tax law will be upheld.

Cape Girardeau has held its share of about $1 million in escrow.