MONROE — Let’s say a farmer decides to buy a new tractor in Monroe.
He has it delivered to his farm in a nearby town.
The sales tax on that big-ticket item, which could be hundreds of dollars, just went with him.
And that has officials in Monroe upset.
A new state law that tries to cash in on Internet sales also radically shifted how sales tax revenue is doled out.
Before the law passed, Monroe received 8.5 percent sales tax on every retail purchase made in the city, no matter whether the item was picked up cash-and-carry or mailed off for delivery elsewhere. After the law took effect July 1, the city lost its share of sales tax on anything shipped or delivered out of town.
Now, every dishwasher, every tractor, every load of lumber sold in Monroe but shipped out of town means a loss of sales tax dollars for the city. In Monroe, that has the potential to add up to big bucks. Officials say they lost about $71,000 during a three-month period in 2008.
“I was so upset I called the governor’s office,” Mayor Donnetta Walser said. “They are looking at our situation. We are a small city with a limited staff to deal with these issues.”
The city has worked hard to bring jobs to the community, Walser said.
“A lot of people commute to our city to work, and that’s a good thing,” she said.
What’s not good: The city loses sales tax dollars and still has to pay for the infrastructure that supports those businesses, she said.
The city is limping along financially, after a bad economy contributed to a reduction in the city’s budget. This year’s $63 million budget is $3 million less than last year’s. The city cut 12 positions and reshuffled duties at City Hall.
The sales tax is one of the city’s primary sources of revenue. If the city loses too much in sales tax revenue this year, the situation could be grim.
The law, called Streamlined Sales Tax, shifts sales tax receipts from the place an item was bought to the city where it is delivered.
The law affects only shipments or deliveries within the state. There is no change for deliveries outside the state or over-the-counter sales where customers take home goods from the store. The law is part of a national effort to make it easier to collect sales taxes on sales made over the Internet.
The city has added commercial and industrial developments along Fryelands Boulevard and is trying to develop a commercial property on North Kelsey anchored by a new Lowe’s Home Improvement. NC Machinery became a dealer for Caterpillar, the heavy equipment manufacturer, in June.
NC Machinery alone has the potential to generate tens of thousands of dollars in sales tax revenue.
Con Foss, the branch manager, estimated yearly sales at as much as $4 million. About 60 percent of the customers who purchase new equipment choose to have it delivered, he said.
The city made the business welcome and it’s a good place for the company, which looked long and hard at sites around Snohomish County before choosing Monroe, he said.
As part of the law, the state is supposed to reimburse cities for what they’ve lost. Monroe just received its first payment — about $54,000. The mitigation is $75,000 less than the city expected, said finance director Carol Grey.
Other cities that received payments in Snohomish County include: Arlington, $46,329; Everett, $93,699 and Lynnwood, $157,736. Everett Transit also received a mitigation payment of $66,477, since it receives a chunk of sales tax dollars.
The mayor said its hard to know if the problem is a skimpy mitigation check or a bad economy. The payment was based on the “net loss” of sales measured by a business-by-business comparison of sales patterns in each city before and after the law took effect, according to the state Department of Revenue.
In at least one instance, the law worked in Monroe’s favor. A medical facility in town ordered expensive equipment and had it delivered to Monroe, Walser said. But instances like that aren’t enough to make up for what’s lost, she said.
The law seems to unintentionally benefit bedroom communities, dumping sales tax there, rather than those where people work, Councilman Geoffrey Thomas said.
“What it does is penalize cities that want to have family-wage jobs,” Thomas said. “It’s better for us to be a bedroom community rather than providing family-wage jobs like our city has been doing. I don’t think the Legislature gets what they’ve done here.”
Monroe’s mayor has another worry: What if the mitigation payments end as lawmakers search for a solution to the state’s own multimillion-dollar migraine? The Legislature appropriates money from the state’s general fund for the mitigation.
“It would have been better for Monroe if this hadn’t passed,” Walser said.
Reporter Debra Smith: 425-339-3197 or dsmith@heraldnet.com.
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