Suppose you buy a 50-cent bag of peanuts in Kalispell. If Kalispell City Manager Jane Howington gets her way, those peanuts will cost you 59 cents: 50 cents for the nuts, and nine cents for the act of making the purchase. Howington calls the nine-cent fee a “retail transaction tax.”
I call it a de facto variable rate sales tax, and an incredibly regressive one at that. For the peanuts, the tax rate is 18 percent, twice what one pays in Seattle.
For $100 of groceries, the rate is .09 percent, which seems more reasonable — but for a one-dollar cup of coffee it’s nine percent, which is still pretty high. It will fall most heavily on people making small purchases. Some of those people will be affluent downtown professionals meeting for coffee or a drink, some will be tourists stopping for a meal, but many will be people with low incomes purchasing food and other essentials.
What’s behind this? Kalispell’s need to find $4.5 million per year for street maintenance without raising street assessments to a level provoking a property taxpayers’ rebellion.
According to a 13 April 2011 story in the Daily Inter Lake, the RTT would “…would lower by two-thirds property owners’ street assessments, which are levied in their property taxes. It would place the burden for the use of city streets on those who use them, including tourists and those who don’t live in the city.”
Kalispell does not have direct data on the number of retail sales transaction within the city limits, so it estimated the number using a traffic analysis tool:
The city doesn’t know exactly how many retail transactions actually occur, so it was relying on a model developed by the Institute of Transportation Engineers to calculate the number of trips made in the city each year.
However, Howington said Friday the city initially had misunderstood estimated trip generation numbers from the institute, and had consequently miscalculated how much the transaction fee should be.
The Washington, D.C.-based institute estimates trips per type of land use. Its numbers actually represent two portions of one trip, so the city would have to divide that number by two to get both the “going” and “coming” segments of a trip to the grocery store, for example.
That method may produce an in-the-ballpark estimate of the number of transactions, but I wonder whether it provides an acceptable frequency distribution of the amounts of the transactions.
A frequency distribution would be very useful. The larger the transaction, the more money a flat rate sales tax generates. But with a retail transaction tax, the only thing that matters is the number of transactions. With a flat rate sales tax, exempting transactions smaller than, say, ten dollars might not reduce revenues that much. But with a retail transaction tax, exempting transactions of less than ten dollars might reduce revenues by an unacceptable amount. (In fact, it’s not hard to imagine a befuddled bureaucrat trying to maximize the number of transactions by proposing a law requiring separate checks for customers at local cafes.)
In theory, this information should be easily available. Almost all retail sales transactions are recorded by electronic devices. Mom and Pop outfits have the least sophisticated equipment, but larger stores already collect data on retail transactions for inventory control, financial accounting, and tax accounting. From a technical standpoint, these data could be easily collected and analyzed by the city in a way that does reveal the identity of individual businesses. Whether that’s politically feasible is another question.
And that’s unfortunate. Intelligent governing, the kind of governing that executes governmental responsibilities fairly and efficiently, requires large amounts of economic data. A city considering a tax on retail sales transactions should not have to use a vehicle traffic estimating tool to make an educated guess on how many retail sales transactions occur within its boundaries.
Having taxed my car’s shock absorbers in old downtown Kalispell the last few days, I agree that road repairs are needed. But a regressive de facto sales tax is not my first choice for raising the money.