Kalispell to Consider Retail Transaction Fee

The Kalispell City Council will take up a potentially controversial proposed retail transaction fee June 27, which could add a 9-cent additional cost to certain purchases as a way to fund much-needed street maintenance.

City Manager Jane Howington put forth the idea earlier this year as one way to shore up the street maintenance assessment, which currently brings in about $1.75 million annually. But Kalispell officials estimate the annual cost to adequately repair and repave all the areas in need around the city at approximately $4.5 million.

“We don’t have money to rebuild our streets,” Howington said. “We’re patching and patching.”

“Obviously, $4.5 million can’t be put on the backs of 9,000 property owners,” she added.

Howington sees the proposed transaction fee as one way to defray the costs of maintenance beyond city residents to the many visitors – estimated at 80,000 to 100,000 per day – also imposing wear-and-tear on local infrastructure. She noted that other attempts to raise revenue for street maintenance have been unsuccessful, like proposals to raise the gas tax, or bills at the state legislative level to change Montana law so cities of Kalispell’s size could introduce a local option sales tax, similar to Whitefish’s resort tax.

“What we’re trying to do is introduce new concepts that are used elsewhere in the country,” Howington said. “Is $4.5 million the drop-dead number? No, that’s what we’re going to council with as the initial proposal.”

She noted that city council members will begin looking at her proposal at a work session June 27, where no votes are allowed, as the beginning of a process that could take months before an eventual decision is made – or council members could reject the proposal altogether.

But clearly, the business community is monitoring the proceedings carefully. Kalispell Chamber of Commerce President Joe Unterreiner emailed the organization’s members June 8 with a survey to gauge their reactions to the proposed transaction fee, with the goal of presenting the results to council at the work session.

The proposal would introduce a fee of 9 cents on all retail transactions, whether it’s a bag of groceries or a car, beginning Jan. 1. The corresponding change in street maintenance assessments would take effect on property tax bills in fall of 2012.

Merchants would be charged by the city for their estimated number of transactions. It would then be up to the merchant to add that fee to every transaction, or absorb the cost. Kalispell would collect the proceeds from the transaction fee at the same time as other taxes.

“What our intent would be would be to have this coincide with some other types of reporting,” Howington said, “so they could do it all at the same time.”

The difference between a fee and a tax is that a fee is a fixed amount while a tax is a percentage of income.

The street maintenance fund also pays for sidewalk maintenance, leaf collection, snow removal and other needs. Adopting a retail transaction fee would, according to Howington, allow property owners to see a decrease in the street maintenance assessment they currently pay.

A Feb. 10 memo to council estimated the street maintenance assessment for a medium-size residential unit could drop from $180 to $50; a bank’s assessment could drop from $1,250 to $100-$200 based on its size; and a food store’s assessment could decrease from $1,425 to $100-$200.

According to that same memo, collecting the fees would be, “a combination of self-reporting; verified by annual random audits, and assessments using trip generation numbers if a retail establishment fails to report/remit their transaction fee and information.”

Howington said the transaction fee proposal could be better than a local option sales tax in that the revenues generated could be directly allocated to the street maintenance fund, as opposed to the general fund, ensuring, “this isn’t going to be a big slush fund.” She also suggested an accompanying cap or moratorium on increases in other fund assessments as a way to protect citizens. And she stressed that the June 27 work session was merely the start of the proposal.

“We need to get public involvement in the process,” Howington said. “We have to start looking at things in a different way and see what comes out.”