Taxes, we learned in high school civics class, pay for such public goods as roads, parks and fire departments.
At dozens of stores and restaurants in the St. Louis area, though, consumers pay taxes that directly benefit a private developer or property owner. Missouri has more than 600 such districts, and a new study by the Show-Me Institute, a free-market think tank, finds that the amount of sales taxes they collect has nearly quadrupled since 2010.
These entities come in two varieties: transportation development districts and community improvement districts. Both theoretically can provide public benefits – TDDs by improving roads and CIDs by allowing neighborhoods to tax themselves for such services as security and beautification.
In practice, many of the districts use tax money for purely private purposes. TDDs build roadways and parking lots whose only use is providing access to a shopping center. If a property is declared blighted, a process that’s ridiculously easy in Missouri, a CID can be used toward the cost of a development itself.
If you scrutinize receipts closely, you’ve probably seen these taxes. The Walmart in Maplewood levies a 1 percent TDD tax. The restaurants in Ballpark Village assess both a CID and a TDD for a total of 2 percent.
These taxes have become standard development tools in Missouri. St. Louis has authorized both a CID and a TDD for the midtown City Foundry development, and plans to do the same for a proposed Major League Soccer stadium.
In Kansas City, the four-star Intercontinental Hotel cited torn wallpaper and stained carpet to win a blight designation, which let it set up a CID to pay for a $16 million renovation. Instead of paying for new carpeting themselves, the hotel owners charge a 1 percent tax that guests don’t see until checkout.
Similarly, owners of the Marriott Grand in downtown St. Louis created a CID and TDD in 2010 to essentially pay the hotel’s mortgage.
Transparency is a big problem with these districts. State Auditor Nicole Galloway found last year that the Department of Revenue didn’t adequately track CID boundaries, and that many districts failed to file financial reports.
By law, merchants in a TDD are supposed to post a notice near the cash register warning customers of the extra sales tax. Few do.
Economic theory says rational consumers should vote with their feet, directing their spending toward businesses that sell the same goods without an extra tax. If the tax is small and opaque, however, that comparison shopping is less likely to happen.
“There’s no oversight of these districts, and you usually don’t know (about the tax) until it’s too late,” says Patrick Tuohey, who wrote the Show-Me Institute study with colleague Graham Renz.
The authors make a few suggestions for reforming CIDs and TDDs, the most dramatic of which would forbid the districts from levying new sales taxes.
That would end the practice of taxing shoppers or hotel guests to finance a development, but property owners could still tax themselves to meet legitimate neighborhood needs. St. Louis’ long-established downtown CID does that with an assessment that pays for security and other services.
Renz and Tuohey also suggest requiring a citywide or countywide vote to establish a TDD or CID. Currently, districts can be set up by a single property owner or developer, who usually appoints all or most of the board. That’s a recipe for chicanery.
As Galloway said after a 2017 audit, “Insiders have rigged the system to take advantage of Missourians.” It’s time to return control to the unsuspecting taxpayers who are paying these insiders’ bills.