MERCHANT TAX TOPIC OF SURVEY

CAPE GIRARDEAU -- City and Chamber of Commerce officials are studying ways to tax Cape Girardeau businesses in a fairer and easier manner than the current merchant-license system.

To that end, the chamber's Retail Steering Committee is surveying local businesses to determine if a majority of merchants would favor scrapping the current tax system in favor of a different method.

The survey outlines three possible alternatives. They are: a net earnings tax, basically an income tax on businesses; a payroll tax on total wages of each business; and a business tax of $1 for every $1,000 in gross earnings, with a rollback provision that would be implemented after one year.

The proposals deal exclusively with the merchant-license tax and not the special gross-receipts taxes on motels and restaurants.

About 1,100 to 1,200 Cape Girardeau businesses have been sent the survey, said Curt Smith, chairman of the chamber's Retail Steering Committee.

The deadline for returning the survey forms is Feb. 8.

After that, the chamber committee will review the survey results.

Smith said Sunday that the committee will ultimately make a recommendation to the chamber and to city officials regarding the tax issue.

"We feel we ought to be involved in any revision because it is a license and a tax on us," said Smith, a local businessman who operates a computer store.

He said city staff members, including City Attorney Warren Wells and Assistant City Manager Al Stoverink, have been working with committee members in seeking ways to impose a fairer tax.

Stoverink said Sunday that merchant support is essential if any changes are to be made in the current license-tax system.

"There is no way we can effectively make the change without the support of the business community and the people who pay the tax," he stated.

The merchant-license tax has been a topic of discussion among Cape Girardeau businessmen and city officials for years, both Smith and Stoverink said.

Some merchants have questioned the fairness of the current taxing system.

Smith said steering committee members have also been critical of the tax. "We don't feel the current ordinance is fair and equitable, and we know that it is hard to administer."

According to the survey form, "The current ordinance dates back to 1936 and basically taxes the privilege of engaging in business within our city limits."

Some people, such as doctors and lawyers, are exempt under state law from the city license tax, Smith said.

Under the current city ordinance, some merchants pay a flat fee that ranges from $5 to $300, while other businesses are taxed $1 for each $1,000 in gross receipts, with no limit as to the total tax.

In 1989, 445 businesses or 31 percent of Cape's licensed commercial establishments paid the flat tax, while 960 businesses or 69 percent paid license taxes based on their gross receipts.

The taxes paid under the gross receipts method brought $464,542 into city coffers, compared with $17,283 generated by the flat-rate tax, the survey form disclosed.

Of the nearly $500,000 collected in merchant-license tax revenue in 1989, 34 percent of that was paid by 20 gross-receipts businesses. Those 20 businesses included major retail stores and supermarkets, said Smith.

As of last November, there were 389 flat-rate payers and 863 gross-receipts payers under the city's license system.

"Banks pay a flat fee," Smith pointed out. "A lot of the more service-oriented businesses pay a flat fee."

But retail stores pay a gross-receipts tax, which generally amounts to a much larger tax bill, Smith said.

Smith said the impetus for changing the taxing system has come from auto dealers, who have been concerned about the fact there is no limit on the amount of the tax.

"When the law was written in 1936, automobiles cost about $400. Now automobiles are $15,000, $20,000 and $30,000," noted Smith.

As a result, the license tax, paid under the gross-receipts method, has grown considerably.

Stoverink said the old law lists a lot of different business classifications in explaining which ones must pay flat rates and which ones must pay on the basis of gross receipts.

"There has always been a lot of confusion over who is required to pay what tax," he observed.

"Personally," said Stoverink, "ever since I started as finance director in 1985, that merchant's license has been an issue that I wanted to be able to do something with."

In recent years, the issue has sparked lawsuits against the city from unhappy auto and equipment dealers.

Smith pointed out that no taxes are popular. But, he said, the city can't afford to eliminate the current tax without implementing an alternative tax.

In addition, he said, the chamber committee believes some type of merchant-license system is useful. "We want to have a license for doing business in Cape because that's a way to ensure that you have reputable businesses."

Smith said the three alternatives suggested in the survey form appear to have merit.

"All three of those options appear, at least to us conceptually, to be fair and equitable and easy to administer."

The survey asks the merchants if they favor rewriting the current license ordinance and whether they would vote for such a change if an election is necessary.

Stoverink said that, under the state's Hancock Amendment, a vote would be required to implement any new tax.

The assistant city manager said he believes the current license-tax system is not the best.

"I think there definitely is a better way to do it, but again you get into the issue of fairness.

"The problem with making the change is that you have so many businesses, small businesses, that have a pretty nominal fee right now."

If a gross-receipts tax is implemented across the board, then some businesses, now paying nominal fees, would wind up paying higher taxes.

"The gross-receipts tax may not be the fairest way to do it," said Stoverink. A net earnings tax, he maintained, might be "the fairest approach" in that those businesses that make the most would pay the most.

Smith said there is no intent to raise more money for the city. In fact, the proposal to impose a $1 tax for every $1,000 of gross earnings includes a rollback provision to ensure that there is no revenue windfall for the city, he pointed out.

"We're not looking at increasing taxes overall," agreed Stoverink. "What we are talking about is license-tax reform and not an increase," he added.

Stoverink voiced support for the chamber committee's efforts.

He said the survey is an important way to gauge the feelings of merchants in regards to possible tax changes. He said he would encourage merchants to fill out the survey and return it to the chamber office.

Smith said there has been good cooperation between members of the city staff and the Retail Steering Committee over efforts to implement a fairer license tax.

"We didn't want to come up with something and end up at loggerheads with the city administration and the City Council," said Smith. "There is complete cooperation here and, to me, that is the best way to do it."