THOSE SALES TAX DEALS
Why Manteca chases all of those pennies
The sales tax deal the City of Manteca cut with Living Spaces Furniture rubbed more than a few people the wrong way. It’s the third such deal. Others brought Costco and Bass Pro to Manteca while a hotel room tax split deal is bringing Great Wolf Resort.
Some call it corporate welfare. Others say the city is picking winners and losers.
The bottom line is the city is trying to survive and provide services and amenities in 2018 using a government funding model that predates World War II.
There was a time when most people worked in the same city they lived in. As a result their employer paid property taxes that helped provide municipal services to their employees on top of property taxes the employees paid. Those same employees bought almost all of their goods in the town where they lived. The company typically secured many of its support services and some of the supplies they needed from the same merchants. The property taxes and sales taxes helped provide services.
Now it is the norm for people to work in San Jose, do a lot of their shopping on the way home in Pleasanton or Tracy where they pay sales tax to those cities, and live in Manteca where the city gets less than 15 cents of every dollar homeowners pay in property taxes.
Making the siphoning of taxes from employment and shopping pattern changes more acute is the growing use of Internet which is essentially a sieve when it comes to collecting the use tax portion of sales tax.
Manteca is not the only city by far that cuts sales tax sharing deals to snag major retailers who can bring in large sums of sales tax.
The California Legislature needs to fix the system. To find the solution they need not look any further than a new car dealership.
Cities at one time we making incredible deals with new car dealerships to lure them from other jurisdictions or to keep them in their town by using public money to put in infrastructure or make zero or no interest loans or even performance loans to build showrooms. Performance loans basically “loan” say $500,000 to help build a dealership. It has an interest rate attached to it. But if the dealership hits performance targets such as a certain annual sales volume or created a certain number of new jobs over time the loan and interest were forgiven.
A lot of cities were cannibalizing car dealerships in neighboring cities given selling a new car for $30,000 generates $300 in local sales tax.
Sacramento put an end to the pilfering of new auto dealerships by switching the collection of sales tax from the physical point of sale to where the new car will be “garaged” after it is bought or leased.
If you have no stomach for sales tax deals or if you simply want to accomplish a higher degrees of fairness in the tax system then you need to push for Sacramento to require the collection of sales tax based on where you are “housed.”
Rest assured such a proposal will be greeted by government types or businesses with howls that it will be a nightmare to figure out.
This would come from a government that utilizes technology to collect tolls for crossing the Golden Gate Bridge by reading your license plate, cross referencing it with DMV information and sends you a bill.
This would also come from businesses — many who operate out of their home — that tap into a wealth of data at their disposal to determine your preference in everything from books to the color you prefer for T-shirts and knows exactly what nine number ZIP code to send your purchase.
Given Sacramento is a two hour drive from the Silicon Valley it shouldn’t be too tough to find a firm capable of coming up with software allowing a business to easily access the sales tax rates for 482 cities and 57 counties. The cost of developing, distributing, and maintaining such software should be borne by the state that can retrieve its costs by charging each business per outlet that conducts taxable sales transactions. Given there are more than 6 million businesses in the state from corporate chains to one man shows and everything in between and perhaps half are required to collect sales tax, the state should be able to come up with a robust and efficient tax software. They could even require the software to automatically divert payment in real time at the time of a transaction whether is by ATM, online systems as PayPal, credit cards or cash and debt loaded cards. Drivers’ licenses could be adapted with chips to key in your city of residence plus verify age for specific purchases.
Such a system would also streamline the system for those that collect sales tax and drastically reduce or eliminate non-payment of sales tax collections whether it is by fraud or through a firm’s financial duress.
Meanwhile cities that provide services for people where they live won’t be at a disadvantage because another city snags the economic benefits of a large employer but doesn’t have to worry about providing services to part of the firm’s workforce that doesn’t live in the same city or can’t afford to live there.
At the same time a city that lures a mega-mall or other large retail concerns that draw shoppers from other cities won’t be draining the financial lifeblood those cities need to provide services to their residents.
Until a system that collects sales tax based on where people are “housed” expect cities to make deals in order to survive.