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Sales taxes in KC are high, but do voters think so?

Updated: 2013-10-14T05:13:44Z

By MIKE HENDRICKS

The Kansas City Star

A penny here, an eighth of a cent there. Pretty soon, all those sales taxes begin to add up.

In some parts of the Kansas City area, sales taxes add an extra dime to the bill for every dollar’s worth of goods you buy. They tack an extra 12 percent onto the cost of restaurant meals in the Power & Light District and at the Ameristar Casino.

In November comes another sales tax election in Jackson County, prompting policymakers and elected officials to ponder a question that’s coming up more and more:

How high can sales taxes rise before voters balk at future rate hikes, either by refusing to approve tax measures at the polls or casting out elected leaders who dare to impose increases?

“At some point, people are going to push back,” said Troy Schulte, Kansas City city manager.

Proponents of a 20-year, half-cent sales tax to fund medical research in Jackson County hope we’re not at that point just yet. Besides, county voters have shown again and again that they are not “tax adverse,” said Steve Glorioso, spokesman for the Committee for Research, Treatment and Cures.

“They have approved tax increases,” he said, “for good ideas for the police, anti-drug programs, sports stadiums and even for animals in the zoo.”

However, campaign officials also acknowledge that going for a sales tax to underwrite the proposed Jackson County Institute for Translational Medicine was a last resort. Rather than gamble on getting taxpayers to foot the bill, they’d hoped to secure a dependable funding stream from the federal government, the pharmaceutical industry or charitable foundations.

But when those efforts fell short they proposed a sales tax that will raise the base rate in Kansas City to 8.85 percent, higher than Denver, Dallas, St. Louis, Minneapolis and most other large or medium-sized cities west of the Mississippi River and east of the Rockies.

“We’re a very high-taxed city,” says Crosby Kemper III, who in addition to running the Kansas City Library is chairman of the Show Me Institute, a St. Louis-based think tank and government watchdog group.

Whatever happens on Nov. 5, area policymakers will be watching closely. If the medical research tax passes, for instance, will that make it more difficult to pass the next tax measure coming down the tracks, such as a tax to pay for a commuter rail system?

“Is this the tipping point?” said businessman Dave Nepstad, who owns a coffee stand in the Commerce Bank Building downtown. “I don’t know. I guess you’ll have to ask Malcolm Gladwell about that.”

Special districts

Gladwell, author of “The Tipping Point,” was writing about societal trends rather than the point at which taxpayers refuse to open up their wallets.

Yet not even national experts on tax policy know where that line is.

Local officials have been fretting about sales tax pushback at least as far back as the late 1980s, when rates were laughably lower than they are today.

Back then sales tax was 5.7 percent in many cities on the Kansas side of the Kansas City area. On the Missouri side, 6.225 percent.

A quarter century later, you’ll find few if any cities in the area with a base sales tax rate below 7.725 percent, and most are in the mid to upper 8s.

Except it’s getting harder and harder to find shopping areas in town that charge that base rate.

“A city might have a base tax rate of, say, 8.35 percent,” said Jeff Pinkerton, senior researcher at the Mid-America Regional Council. “But there may not actually be many places where you could actually only pay 8.35 percent, due to the special taxing districts.”

On both sides of the state line, city councils have been glad to sanction the creation of CIDs and TDDs, short for Community Improvement Districts and Transportation Development Districts.

In both cases, property owners along a given street or in a given area ask for city permission to raise their own real estate taxes, impose a sales tax of up to 1 percent on their customers, or do both so they can raise money for things like snow removal, added security or parking lots.

Name a prominent shopping area in town, and it’s likely to be in one or the other.

The Country Club Plaza is part of a CID, and so are Zona Rosa and the Schlitterbahn water park in Kansas City, Kan. The Power & Light District is a TDD, and so is Oak Park Mall.

The Ameristar Casino is both, charging customers 2 percent on top of the base sales tax rate of 8.1 percent in the Clay County portion of Kansas City.

On the plus side, the money raised goes to make those areas cleaner, safer and more accessible. People notice the improvements, but they’re also beginning to notice the costs of those taxes piled atop all the others, said Kansas City Councilman Ed Ford, who heads a committee that evaluates new taxing districts.

“I think it’s one of those things,” Ford said, “that when you go in and get your burgers and fries, and afterward your bill comes up 15 cents more than you expected, people notice.”

Nepstad, owner of that downtown coffee stand, not only notices, he cringes every time the sales tax rate goes up, because he includes the sales tax in the price of his drinks.

So when the 1 percent streetcar tax was added recently, his choice was to eat that cost or raise prices.

“I haven’t raised them yet,” he said, “but it’s coming.”

Carl Markus said his customers also have noticed the higher taxes. The downtown jewelry store he manages, the Polished Edge, has to charge 2 percent above the base rate because it’s in both the Power & Light and streetcar districts, but he doesn’t apologize for it.

“I tell them we’re getting the light rail,” he said. “If you justify why (taxes) are the way they are, people are happy. It’s part of being in a city.”

Research tax

Most of the $40 million that the medical research tax would raise each year would go to pay the salaries of top researchers and their staffs at the University of Missouri-Kansas City and two private hospitals, Children’s Mercy and St. Luke’s.

Med tax supporters say those dollars would be a good investment that would improve health care options in the community and create jobs.

But opponents maintain that, while those goals are admirable, it’s an inappropriate use of sales tax dollars. Sales taxes typically fund public works projects or local services or government-run institutions that serve the broad populace.

“Local sales taxes are regressive, are getting too high in our community and in any event should be used carefully to provide services that only government can provide,” Citizens Association chairman Dan Cofran said in an email following his board’s decision to oppose the tax.

Glorioso counters that people generally complain about the regressive nature of sales taxes as a matter of convenience. Groups like the Citizens Association and Freedom Inc., which also opposes the med tax, have previously supported sales tax issues, he said.

“The concern about a regressive tax tends to be higher if a resident doesn’t like the proposal for which the tax is intended,” Glorioso told The Star’s editorial board recently.

Sales taxes have been on the rise nationwide, in part because of cutbacks in federal aid to state and local governments.

“To me, it all started with the balanced budget act of ’96,” said Ford, who was on the City Council then and now. “What used to be considered a state or federal function is now considered a local function.”

To make up the difference in their budgets, local leaders increasingly have turned to the sales tax. After all, it’s a much easier sell than increasing even less-popular forms of taxation, said Joseph Haslag, Kenneth Lay chairman in economics at the University of Missouri.

“Property taxes and income taxes,” he said, “seem to be the bigger bogeymen.”

Should the research tax pass in Jackson County, the base rate in Kansas City would be 8.85 percent, up from 8.35.

While Haslag said that might cause some people to change their shopping habits to avoid paying the higher tax, it’s not like there are all that many options.

With Olathe and Overland Park already at 8.5 percent, for instance, smart shoppers would want to factor in the cost of making the drive, said Chicago-based sales tax expert Diane Yetter.

“It’s probably only makes more of a difference on the big-ticket items,” she said.

To reach Mike Hendricks, call 816-234-4738, or send email to mhendricks@kcstar.com.

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