Missoula business owners see benefits of sales tax, but worry about effect on shoppers

Editor’s note: This is the third in a three-day series on the local options sales tax as an alternative means of generating local government revenues while providing property tax relief. Read the Day 1 report. Read Day 2. 

Doug Ness has shopped locally in Missoula for decades, buying shoes from Runner’s Edge, records from Ear Candy and books at Fact and Fiction. Opening a locally owned wine store seemed like a no-brainer.

However, the possibility of a local option sales tax might deter customers from spending money at businesses like his Missoula Wine Merchants, Ness said, and that makes him nervous.

So he’s less than enthusiastic that Missoula’s political leaders are pushing the Legislature to give local governments the authority to levy such a tax – with voter approval.

“Everything is immediately more expensive for the consumer,” Ness said. “If someone spends the same amount every month or every year on wine, that’s going to be less wine that they buy and more dollars going to taxes.”

Missoula Wine Merchants offers 600 different wines as well as a monthly wine club subscription and wine tastings. Every aspect of his business could be taxed, Ness said.

And while city and county officials say a local option tax would provide property tax relief, it wouldn’t offset a decrease in his store’s sales, Ness said.

“The bulk of our customer base is local people or people who live in Missoula. We get some tourists in the summer and so forth, but Missoulians are obviously not used to paying a sales tax,” Ness said.

Clint Burson, director of government affairs for the Missoula Area Chamber of Commerce, says Missoula needs to start with a wide-ranging conversation about how to reduce property taxes.

“I think with what we’ve seen in Missoula with property taxes continuing to go up and up and up, it’s a discussion that needs to happen, and it needs to happen for everyone in the state. What we see in Missoula is certainly not unique,” he said.

The extra revenue from a sales tax would help maintain roads, bridges and other infrastructure in the city, while also lowering property taxes paid by business and home owners, Burson said.

In 2017, Missoula County reported about $2.3 billion in retail sales. So even a half-cent tax could provide about $11.8 million more in additional funds.

That funding could help with industrial and office site development, municipal water and sewer in more areas of the county, a project opportunity fund, and more.

According to a report by Garner Economics, a half-cent sales tax translated into better business investment and infrastructure in Texas counties.

And there is considerable concern at all levels about Missoula’s rising property taxes.

The top 25 percent of properties have seen their taxable values increase an average of 40 percent over the last decade. That’s a big deal for Tim France, owner of Worden’s on North Higgins Avenue.

“The elephant’s in the room at this point in Missoula, Montana,” he said. “I spend more money per month for tax in this town than I would ever dream I would make. It’s roughly doubled in 10 years. From my perspective, can I sell sandwiches for $25 each? Not with a national chain across the street selling them for $3.99.”

The city needs to keep fighting for a sales tax option, so tourists can help fund municipal services and lower property taxes, he said. France owns the property where Worden’s sits and knows that’s a contributing factor to keeping the doors open.

“That’s probably the only reason that I can still afford to be here is that I paid it off. Otherwise, there’s no way I can even afford to be on this corner anymore. I’ve been here for 38 years,” France said.

While France has opposed a sales tax in the past and knows where legislators are coming from, he’s realized that times have changed.

“If you’re going to maintain services, infrastructure and the quality of the environment around here, you gotta pay for it, and the only way to pay for it is through taxing,” he said. “Right now, the property owner is isolated as the scapegoat for the Legislature to continue, basically, to burden us because they’re afraid to address other possibilities such as sales tax.”

Market on Front owner Ben Sokoloski favors a sales tax because of the long-term benefits, such as improved infrastructure and lower property taxes.

However, he’s aware that a sales tax could bring hardship to some in the short term.

“Missoula’s socioeconomic baseline varies,” he said. “We have high net-worth individuals, individuals working paycheck to paycheck and individuals that receive benefits. I think that a local sales tax could be a potential short-term burden on individuals who are already taxed or strapped.”

A bill that’s working its way through the 2019 Legislature would impose a 4 percent sales tax in counties surrounding national parks, with a portion of the revenue helping to alleviate property taxes.

A proposal for a statewide local option sales tax has already died this session. However, government officials said the lobbying efforts will continue in 2021.

While the gateway cities bill allows the opportunity for up to a 4 percent sales tax in a handful of communities, Sokoloski believes that Missoula should have that option as well.

“I think with the amount of tourism coming into this community and the wonderful work that the Chamber of Commerce does, that the Downtown Partnership and Destination Missoula do to attract visitors, it would seem appropriate to have a tax based on the amount of tourism we receive,” Sokoloski said.

If the community is improving and property taxes are decreasing, businesses will learn to adapt, he said.

“I think all change has a degree of challenges,” Sokoloski said. “I think that other communities in Montana which have adopted a similar tax, they have faced these challenges and oftentimes improved, or survived or thrived, because they’ve changed and adapted to the current environmental situation. It’s not impossible because it’s been done.”

Todd Frank, owner of The Trail Head on Front Street, advocates for a sales tax in smaller communities that need the money for infrastructure improvements, but believes Missoula may not need the tax.

Property taxes for buildings in the heart of Missoula are high, but when the land is sold in the future, Frank hopes the value of the property will eventually pay him back.

“Four percent on everything we sold would be a hit to our customer base locally, for sure,” he said. “But if it was paired with a property tax reduction that offset that, then maybe in the end it would work out.”

Filing paperwork for a sales tax would be factored into business costs.

“The administrative costs would be more,” Frank said. “There’s more paperwork to do, there’s more documentation. So there are costs associated with it from a retail standpoint, for sure.”

However, he agrees that a tax would allow tourists to pay into the revenue stream and help those who live on a fixed income.

“When I go to other communities and spend time in them, we’re doing a lot of things right in Missoula, and there are expensive things that take a lot of money to do. If there’s a way we could help get some money from every person who comes through Missoula and make that less burdensome on the local people, it would be very difficult to make the argument that that’s not a good thing,” Frank said.

The Montana League of Cities and Towns and Mayor John Engen have advocated for a sales tax option for years, regardless of a city’s “gateway” status to a national park. However, that effort has not swayed state legislators.

According to Linda McCarthy, executive director of the Downtown Missoula Partnership, a sales tax also would help track the growth in sales within a shopping district, since businesses submit quarterly or annual reports to the state.

“Because we don’t have that, we don’t have the ability to acquire and provide sales data that is a key tool for retailers or restaurateurs or other investors and developers to invest in your community, so it’s another disadvantage,” McCarthy said.

The money would be put to good use, she said.

The tax could help the downtown district convert Front Street and Main Street from one-way traffic to two-way, which would improve vehicle access to and from major businesses, McCarthy suggested.

“If you make it easier for people to come and go downtown, you typically have more foot traffic and an increase in sales and activity in the downtown district,” she said.

While the benefits seem uncertain to him, Ness said wine is a way of life, and keeping his merchandise at a reasonable price is important.

“People only have so much money, in general, that they’re going to spend on what could be viewed as a luxury item or a non-essential item like wine,” he said. “It’s pretty essential in my life and it is for a lot of others. It just seems to me if those prices increase, they’re going to buy less of them.”

https://www.missoulacurrent.com/business/2019/03/missoula-options-tax/

https://www.missoulacurrent.com/business/2019/03/montana-resort-tax/