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Montana Economic Development Association (MEDA) ressurrects idea of taxing big-box stores ‘Civic’ tax would target mega stores with $20 million or more in annual sales

Big-box stores don’t put money back into communities.

That’s the premise behind a campaign for a new tax proposal targeting large retailers such as Wal-Mart and Target.

Supporters say the tax, dubbed the "civic responsibility" tax, would even the playing field for smaller, locally owned businesses competing with out-of-state-based mega stores.

By JO DEE BLACK
Tribune Staff Writer

http://www.greatfallstribune.com/news/stories/20040509/localnews/383622.html

Detractors counter that it is a punitive measure to punish big business. Furthermore, they say it’s nothing more than a hidden sales tax that will be passed on to consumers.

The idea surfaced during the 2003 Legislature when Sen. Ken Toole, D-Helena, introduced SB 332. That bill was defeated 27 to 23 in the Senate.

"These things (big-box stores) are like giant straws on communities’ economies," Toole said. "They don’t pay their employees well and they just suck money out."

Members of the Montana Economic Developers Association voted recently to resurrect the tax idea in the 2005 session. The group wants to use some of the money raised by the store tax to pay for marketing Montana to potential new employers and other economic development initiatives.

"Corporate America knows more about third-world countries than they do about Montana," said John Kramer, president of the Great Falls Development Authority, outlining his support for the tax idea.

Kramer said Montana’s budget for marketing to potential employers is dwarfed by many states it competes with for jobs.

The majority of the money raised by the tax would go to a trust fund, which could fund local "bricks and mortar" projects, such as civic centers and baseball stadiums.

The proposed tax would apply to retail stores with $20 million or more in annual sales, or gross receipts, in a year. Farm implement and automobile dealerships would be exempt.

Stores with annual sales between $20 million and $30 million would be taxed at 1 percent. Sales between $30 million and $40 million would be taxed at 1.5 percent and stores with sales of more than $40 million a year would be taxes at 2 percent.

Backers estimate a gross receipts tax would have generated $61.1 million in 2003 and $63 million in 2004.

The Montana Economic Developers Association didn’t support Toole’s 2003 effort. The group now sees such a tax as a way to fund development efforts.

"There’s fairly good consensus in the Montana Economic Developers Association that we’ve improved Montana’s economic climate," said Paul Tuss, executive director of the Bear Paw Development Corp. of Northern Montana in Havre. Improvements include lowering the state business equipment tax from 9 percent to 3 percent, he said.

"We have not done a good job of marketing that fact to others," Tuss said.

Share for marketing

Kramer wants 15 percent of collected taxes to go to such marketing efforts and said the rest should be banked for local community projects.

Great Falls City Manager John Lawton said earmarking the money for projects may not sit well with organizations such as the Montana League of Cities and Towns.

"They will want it to go to general operations," Lawton said, adding that he agrees with the plan to create a trust fund for community facilities instead of putting the tax into the state’s general fund. "Otherwise, you’ll never have anything to show for it."

There’s no sponsor for the big-box tax bill yet, but that won’t be a problem, Kramer said.

"Who’s going to oppose this?" he said.

The Montana Retail Association, for one. They worked hard to defeat Toole’s proposal and are already rallying for the 2005 round.

"In the end, this is a hidden sales tax," said Brad Griffin, president and lobbyist for the association, which represents large and small retailers. "We’re not against a sales tax, but don’t shield it in some disingenuous manner."

According to annual reports of publicly traded companies, many large retailers operate on margins of less than 4 percent, he said.

"How likely is it for a business to operate 365 days a year, then cut a check to the state of Montana for half of that and not pass it on to customers," he said. "They’d get hammered by shareholders and Wall Street would kill them."

Anger at "big-boxes"

There’s a great deal of public anger aimed at "big-box stores" and backers of the tax are playing to that, Griffin said.

"People believe big-box stores are putting little retailers out of business and I understand that," he said. "But not one cent of this tax compensates those small businesses that have closed. They (Montana Economic Developers Association) are using that anger to get money for their program."

Evan Barrett, head of the Butte Local Development Corp., said the tax will level the playing field for small business and force large corporations to do something they are not doing now — putting a portion of their profits back into the communities where their stores are located.

Dan Fogleman, a Wal-Mart spokesman, said the retail giant gives its share to communities.

"Last year, Wal-Mart gave $140 million to support communities and our customers and associates (the term Wal-Mart uses for employees) gave an additional $70 million," he said. "We are the largest corporate cash giver in the entire country."

Kramer is bracing for such arguments.

"We want corporations to invest here," he said. "I don’t go to the Target Center in Minneapolis, (paid for by Target Corp.) so I don’t consider that a community benefit. We want those corporations to put money here in Montana."

Kramer gives the tax a 90 percent change of passing during the upcoming legislative session.

Last time, Toole’s bill garnered better support once plans to earmark the tax for the university system, economic development and affordable housing programs were scrapped. Though the final vote was largely partisan, with 24 Republicans voting against the measure and 18 Democrats supporting it, party lines were crossed. Five Republicans voted for the final version of the bill and three Democrats voted against it.

Avoid earmarking

Toole said he’s learned earmarking taxes is poor public policy.

"When you prescribe how money can be spent, you build pet taxes and people hoard it," he said.

Sen. Mike Taylor, R-Proctor, agreed.

"When you start designating money, I get concerned," he said. "You have 150 legislators and they can make the decision about how to spend those taxes."

Taylor ultimately voted against SB 332, but lent his support during part of the debate.

"I thought it was certainly a concept that is unique," he said. "When you are looking for money, it’s amazing what you can come up with."

Sen. Ed Butcher, R-Winifred, voted for SB 332 and said the tax is a good fit with an overall tax reform package.

"I think the Republicans that voted against the bill looked at it as anti-business," Butcher said. "But I have a real problem with the big-box stores. They pull their profits out and discriminate against communities by siphoning off the state income tax they are supposed to pay through expensing."

Toole said he’s not aware of other states that target larger, big-box stores with gross receipt taxes.

The Montana Retail Association’s Griffin said small businesses should use caution before supporting a big-box store tax.

"This is a very slippery slope, with little retailers offering up big ones," he said. "Just because they are goring the big guys now, once something like this is in place, it’s easy to swap out a $1 million target from $20 million, then all of a sudden Main Street Montana is getting hit."

Toole rebuffs that argument, saying his 2003 proposal was aimed only at big retailers.

"These guys are the biggest corporations in the world," he said. "They should carry their fair share and they are not.”

Black can be reached by e-mail at [email protected], or by phone at (406) 791-6502 or (800) 438-6600.

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