1. Budget trends for local governments Judith I. Stallmann stallmannj@missouri.edu Community Development Extension Centra meeting August 9, 2006

2. Budget trends for local governments Overview of taxes Local expenditure trends Local revenues Sales taxes –Sales taxes and the economy –Sales tax holiday –Internet sales ©Judith I. Stallmann

4. Missouri’s tax rankings, 2002 State and local combined % of income Rank Per capita Rank All taxes9.52%42 nd $266735 th Property (mainly local) 2.44%39 th $68437 th Sales and gross receipts (local) 3.80% 1.5% 22 nd $106627 th Charges and fees (local) 2.44% 2.0% 40 th $68541 st ©Judith I. Stallmann

6. Local budgets

9. ©Judith I. Stallmann

13. Local sales tax revenues

14. Local Sales Taxes Currently lists 46 sales taxes for local governments in the state Some available to all cities and counties Others available only for specific cities or counties Some available to special districts— new but growing in importance © Judith I. Stallmann

15. Food exemption

16. ©Judith I. Stallmann Food exemption

17. Changes affecting sales tax revenues Changes in tax laws Business cycles People spending a smaller percentage of their income on things subject to sales tax –Retail prices for many items have fallen resulting in lower tax collections –People spending a larger percentage of their income on services, most of which are not taxed Internet and catalog sales increasing ©Judith I. Stallmann

18. Source: DED http://www.ded.mo.gov/researchandplanning/indicators/taxable_sales/index.stm

19. Economic Share in Missouri by County 2004 Change in Economic Share by County: 1994-2004 http://www.ded.mo.gov/researchandplanning/indicators/share.stm

20. Change in Economic Share by County: 1994-2004 Population trends: 1900-2000 http://www.ded.mo.gov/researchandplanning/indicators/share.stm Source: Rex Campbell

22. Internet taxes

23. © Judith I. Stallmann

25. Internet sales tax revenues Potential gains Catalog sales not currently taxed “Pure” e-commerce Gains or losses State and local: Standard definition of tax base is boarder or narrower than that currently used by state Local: Taxation at point of delivery when seller is in another local taxation jurisdiction © Judith I. Stallmann

26. from point of sale collections Data © Judith I. Stallmann

27. Data

28. Internet taxation Largest potential revenues are not consumer expenditures but business expenditures on the internet © Judith I. Stallmann

29. Sales tax holiday

30. Rank on state and local sales taxes as a % of income, 2002 StateRankState rateLocal option Arkansas75.125Co., city Kansas194.9Co., city Illinois356.25Co., city, other Indiana396None Iowa305Co. Missouri214.225Co., city, other Nebraska285Co., city Oklahoma204.5Co., city Tennessee96 (8)Co., city © Judith I. Stallmann

31. Participating in sales tax holiday Cities in counties on the state border are more likely to participate Cities in counties that are participating are more likely to participate © Judith I. Stallmann

32. Not participating in sales tax holiday Larger cities are less likely to participate— they have the retail and less competition from other cities Cities with higher sales tax rates are less likely to participate—they have more to lose If there are a large number of cities in a county a city is less likely to participate –The number of cities in surrounding counties does not affect participation by cities © Judith I. Stallmann

33. If the family spent the entire tax savings on tax-free items, for every $100 spent they could spend $7.53 more: 1/(1-tax rate) 1/(1-.07) 1/.93 = 107.53 Tax holiday © Judith I. Stallmann

34. For every $100 spent on tax-free items, consumers have to spent an additional $100 on taxable items that they would not have otherwise spent for the city to break-even on tax revenues. Not many families can spend outside of their budgets to that degree. Tax holiday © Judith I. Stallmann

35. Why is sales tax so popular? Paid in small amounts rather than a large chunk like property or income tax so not as noticeable to consumer Some of the tax falls on people outside the community For the local government, revenues flow throughout the year The state provides the collection mechanism at fairly low cost © Judith I. Stallmann

36. Thank-you