Cap Local Sales Tax Rates:
Senate Bill 1242

[updated June 1, 2002]

   This bill died in the 2002 legislative session.

   Missourians for Tax Justice supported SB 1242, which was sponsored by Sen. Michael Gibbons. This bill limited county and municipal sales tax rates to a certain percentage of the state sales tax rate.

   With the limits set by this bill, and with the state's sales tax rate at the present .04225 percent, the maximum county rate would be .02535 percent; the maximum municipal rate would be .0169 percent. Thus the TOTAL of all sales taxes in Missouri could be no more than 8.45 cents per dollar.

   In some places in Missouri, almost that much sales tax is already in effect. Franklin and New Franklin - each with total sales tax of 8.225 cents per dollar - have the dishonor of having the highest sales tax rate in the state. But many other municipalities are not far behind.

   Capping local sales tax rates is long overdue. Senator Gibbons stated that this bill was meant "to get discussion going on this tax issue." A hearing on the bill was held by the Senate Ways & Means committee on March 19. MTJ testified for the bill. Other than Sen. Gibbon's statement, there was no other "discussion."

   MTJ believes this bill presents a practical and reasonable way to cap the ever-growing sales tax rates. Our only suggestion for improving the bill is to include in it a limit on the state sales tax rate as well. We recommend freezing state sales tax at the present rate (4.225 cents per dollar). Without a cap on state sales tax, local rates can grow any time the state sales tax is increased.

   The only reason some polls show that voters prefer sales taxes is that people really aren't aware of how much in sales taxes they pay. In 1998, the average family (nationwide) paid about 5% of household income in state and local sales taxes. The nationwide total is equivalent to a tax of $2,000 per household. For Missourians, the amount is probably higher.

   Studies have shown that Missouri makes above average use of the sales tax to finance government. And Missouri is more liberal in allowing local governments to levy sales taxes than all other states except Texas. From 1971 to 1996, the number of local governments which rely on sales tax increased 131% nationwide. But in Missouri, that increase was 436%.

   Sales tax is inherently regressive. The burden of this tax falls most heavily on persons with the lowest income. In addition, what is taxed and what is not adds to the injustice of this tax.

   Local governments need equitable options for necessary revenue. Neither the present property tax or sales tax or the tax on domestic utilities meet the criteria for equitable taxation. The trend of turning to sales tax to fund every local need is a disturbing one that this bill could help correct. But local governments must be given the option of using taxes that are based on the ability to pay.

   A bill that allows school districts to levy a surcharge on state income tax (with voter approval) has been perfected by the House. (The bill is HCS for HB 1392.) The House wisely rejected allowing school districts to levy a sales tax for school funding needs. We think this legislation is a big step in the right direction. It provides a guide for providing an equitable revenue option to local governments even before they've reached the sales tax limits established by SB 1242.