Impact of sales tax holiday disputed

JEFFERSON CITY, Mo. -- A study by the Missouri Chamber of Commerce concludes last year's experiment with a sales tax holiday didn't cost the state any revenue and actually helped boost collections for local governments that participated.

Missouri Municipal League executive director Gary Markenson, however, called the study "an absurdity." Missouri Department of Revenue spokeswoman Jessica Robinson said the agency's internal analysis of the tax holiday's impact proved inconclusive.

A state law enacted in 2003 established a one-time tax holiday held over three days last August. Most purchases of clothing, computers and school supplies were exempt from Missouri's 4.225 percent sales tax. Local sales taxes were also lifted in cities and counties that didn't opt out of the holiday.

The chamber presented its study last week to the House Ways and Means Committee, which is considering a bill to make the holiday an annual event with mandatory participation by all cities and counties.

"The most significant finding of the study is that the holiday did no harm to state or local government tax revenue levels," said Jeff Craver, the chamber's director of fiscal affairs.

The chamber based its report on tax information provided by the revenue department. The study found state sales tax collections during the third quarter of 2004 to be consistent with collections from the same period in 2003, when there was no tax holiday. An increase in sales for non-exempt items helped offset the losses from exempt sales, the study says.

Holiday opponents maintained that consumers would simply time purchases they already planned to make to coincide with the holiday and not increase total purchasing.

The study also found that as a group cities that participated in the holiday enjoyed a 3.1 percent increase in revenue collections over the prior year while cities that opted out of the holiday experienced a 2.2 percent boost.

Apparent loss in Cape

Cape Girardeau city finance director John Richbourg said it appears the city suffered a revenue loss due at least in part to the holiday, although he stressed the method used to reach that conclusion isn't perfect.

"Collections in every month around that month grew, but August did not grow as far as sales taxes for the city are concerned," Richbourg said.

Cape Girardeau experienced 4.99 percent growth in sales tax collection in July 2004 and 3.31 percent growth in September 2004 compared to the prior year. In August 2004, however, collections were down 1.66 percent from the previous year. Richbourg estimates the revenue loss to the city for that month at about $50,000.

According to the revenue department, 179 of 571 Missouri cities and 66 of 114 counties chose to opt out of the 2004 holiday.

The House bill to provide annual tax holidays would eliminate the opt-out provision for local governments. However, it would provide state reimbursement for any lost revenue cities and counties might experience from participating.

The municipal league's Markenson, however, said his group isn't mollified by that provision because it doesn't set forth objective criteria for the legislature to determine whether losses occurred and could leave local governments holding the bag.

"They could say the state chamber is correct and not reimburse, or they could choose not to appropriate the money," Markenson said.

Markenson said the decision to waive taxes temporarily should be made locally. The league prefers that cities and counties be able to opt in to participate rather than being forced to do so or, as was the case last year, having to take the unpopular step of opting out. The Missouri Association of Counties has taken a similar position.

State Sen. Jason Crowell, R-Cape Girardeau, is sponsoring the Senate version of the tax holiday bill, which he said is stuck at an impasse over the opt-in versus opt-out argument. Crowell called the position of opponents flawed, as the holiday simply allows taxpayers to keep more of their own money.

"The counties and Municipal League should have nothing to say about it because it is not their money," Crowell said.

Crowell hopes a compromise will be reached so a bill can be passed in time for a holiday to be held this August, but he doesn't know what form that compromise might take.

The bills are HB 64 and SB 47.

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