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On the April 5 ballot: Explaining Proposition B. It retains tax on out-of-state car purchases

car lot
Martin Kleppe | Flickr

On April 5, all St. Louis County voters, and residents of more than four dozen municipalities in St. Louis and St. Charles will see a variation of the following proposition, known as Proposition B  (A, V, or 1) on their ballot.

It reads:

Shall the [insert local jurisdiction] continue applying and collecting the local sales tax on the titling of motor vehicles, trailers, boats, and outboard motors that were purchased from a source other than a licensed Missouri dealer? Rejection of this measure will result in a reduction of local revenue to provide for vital services for the [local jurisdiction] and it will place Missouri dealers of motor vehicles, outboard motors, boats, and trailers at a competitive disadvantage to non-Missouri dealers of motor vehicles, outboard motors, boats, and trailers.

Here’s an outline of what the proposition exactly means for voters.

What does this proposition do?

Creve Coeur is one of the municipalities where the proposition will be on the ballot. Its city administrator, Mark Perkins, says it has a two-fold purpose:

“Proposition B will essentially preserve the existing sales tax on out of state and person to person vehicle sales. The city also believes it is important that we place this on the ballot as a matter of fairness so that our state and local car dealers are not put at a competitive disadvantage compared to those that are out of state.”

If cities and counties are already collecting this tax, why is it on the ballot?

In 2012, the Missouri Supreme Court struck down the sales tax on titling motor vehicles, boats and trailers that were purchased outside the state. In 2013, the state legislature instituted a fix to that ruling.  It allowed jurisdictions to continue collecting the sales tax, but said the tax must be approved by local voters on the ballot by the November 2016 election. If isn’t placed on the ballot or is voted down, the tax will be terminated.   

Why is Prop B being voted on in some municipalities but not others?

It depends on whether a municipality applies a use tax or a sales tax on motor vehicles, boats and trailers purchased out of state. For instance, Des Peres residents approved a use tax in the 1990s for such purchases. Municipalities with established use taxes aren’t required to hold a vote to reaffirm them. Other municipalities, such as Creve Coeur, do not levy a use tax so they must hold an election to continue this sales tax.

How much revenue does this tax bring in for my municipality?

It varies. It appears that the tax revenue related to Prop B is a tiny fraction for most municipalities. Creve Coeur estimates its sales tax revenues related to the proposition amount to $175,000 annually. In Ellisville, City Manager Bill Schwer said it’s around $120,000. In previous fiscal years, those two cities each generated around $5 million in sales tax annually, meaning the revenue collected related to Prop B amounts to less than .05 percent.

Even so, Perkins of Creve Coeur fears rejecting Prop B would set a bad precedent:

“Our concern is if you continue to chip away, then small amounts here and there become large amounts and the city will have to fill that gap by some means in order to continue providing the level of service that we provide our community.”

What happens if my municipality passes it, but others don’t? What if it doesn’t pass in St. Louis County?

In terms of sales tax revenue, it would impact each municipality separately and would not increase the competition of auto dealers between municipalities because the measure only deals with vehicles purchased out of state.

There are some concerns that if it fails countywide or in a number of municipalities, the state and local economy would be damaged.

Doug Smith, president and CEO of the Missouri Automobile Dealers Association, says failure to pass Prop B would severely reduce state auto sales in Missouri.

“We could see reductions between 30 and 50 percent in loss of sales for our dealers,” he said. “So a 30 to 50 percent reduction in sales for any retail business is huge and car dealers are no different than any other retail business in the state.”

Part of the reason for such a loss, Smith said, is because about 70 percent of the state’s dealers are around the borders of the state, like those in St. Louis County.  

Calverton Park Mayor James Paunovich said rejecting the measure might affect North County dealers and cities more than areas to the west because of their proximity to Illinois.