PERRY/Mayors want sales tax power
Wednesday, February 6, 2013 12:00 AM
Many mayors and local officials support legislation to allow municipalities increase sales tax within its city limits, earmarked for specific purposes when 60 percent of voters approve.
Rep.Jeff Smith (R-Columbus) introduced "The Citizens for Economic Development Act" in the House (HB523) and Sen. Kelvin Butler (D-McComb) introduced it in the Senate (SB2145).
The Mississippi Municipal League supports the legislation.
Proponents argue the legislature in Jackson should not get in the way of a community that chooses to increase its own taxes to provide specific services. Local citizens with direct influence on local government spending local money for local projects: sounds very reasonable.
Opponents argue the taxes also impact people unable to vote on the measure, specifically impacting rural Mississippians who shop in towns or cities which may increase sales tax without input from the country folks.
Allowing a city or town to raise taxes brings economic competition for consumers and businesses. If one town raises taxes while another town keeps taxes low, a consumer might base a shopping decision or a business may base a location decision on that additional 1 percent increase in costs. However, unlike companies which face anti-trust violations for fixing prices, leaders of neighboring towns could meet and all decide to raise taxes to keep things fair and generate more "revenue." That doesn't create much completion unless businesses and shoppers flee to unincorporated areas.
I've never met a government that doesn't like more money and I suspect given the chance, many towns and cities would raise sales taxes tomorrow. I generally believe we should make it difficult for government to raise our taxes. But a sixty percent threshold does provide somewhat of a safeguard against rash tax hikes.
Mississippi municipalities once had the authority to raise and lower sales tax which created a confusing network of tax jurisdictions complicating business services, particularly those with more than one branch. Grocery stores, retailers, restaurants and other businesses that had multiple locations in different towns had to adjust their local registers and corporate accounting to reflect the spider web of different tax rates.
A pro-business tax reform was instituted to form our current state sales tax system in which the rate was increased, but uniform across the state. Municipalities no longer directed their local sales tax rate; and to compensate, the state collects and diverts the amount owed to the municipality. Business accounting and services were simplified and this continues to be an advantage. A 2008 Tax Study Commission created by then Governor Haley Barbour studied the sales tax issue and noted, "the Commission found that Mississippi's method of collection and distribution to the municipalities is one of the simplest in the nation and is very business friendly."
Today, new technology and digital registers make a hodge-podge tax policy easier to navigate. Various tax rates based on a municipality would still impact businesses with older infrastructure, small businesses, and local business more than regional or national corporations.
Barbour's Study Commission included local optional sales tax as one of its policy suggestions. The Commission advocated authorizing municipalities and counties to levy a local sales tax for specific capital projects, approved by a 60 percent majority of voters, and automatically ceasing once the intended purpose is met. The Commission also suggested a requirement that local governments publish annually the types and amount of taxes collected by them (including state diversions), disclose how they spend the money and reveal the nature and amounts of discretionary ad valorem tax exemptions.
Other sales tax recommendations by the Commission included modification or removal of exemptions; creation of a 1 percent diversion to counties like the municipal system; and collection of internet sales tax for products from out-of-state companies.
If a government wants to raise taxes, it should receive both the credit for whatever services those taxes pay for, as well as the ire of those who oppose tax increases. If that ire exceeds 40 percent of voters, then those taxes, under this legislation, would not increase.
Perhaps we should return to the old structure: undo the statewide sales tax and its diversion to municipalities, cut the sales tax rate statewide and allow individual cities to choose how high to raise them - back to seven percent or up to eight or only at five or whatever. Those would be local decisions and allow local communities to compete with each other both to provide services and to provide tax havens. If a city wanted to raise the sales tax rate to ten percent and run businesses and consumers out of town, it could do so. But then, such an economic calamity would be a high price to pay for conservatives to be able to say, "I told you so."
Governments will seek to raise taxes. This legislation defines the battlefield: the legislature or a local election.
Brian Perry is a columnist for the Madison County Journal and a partner with Capstone Public Affairs, LLC. Reach him at firstname.lastname@example.org or @CapstonePerry on Twitter.