Manteca will see at least a $400,000 bump in sales tax receipts in 2020 without any change in shopping patterns or a new retail store opening.
That’s because the last payment in a $3.7 million sales tax sharing deal that brought Costco to Manteca in 2008 will have been made.
Costco was not interested in building a store in Manteca when city officials approached them in 2006 based on the city population. Kitchell Development that built the Stadium Retail Center in Manteca anchored by Kohl’s, learned that the membership retailer wanted to eventually open another warehouse in the general region whether it was in east Modesto or possibly along the Interstate 5 corridor in Lathrop.
The Modesto store was often packed as it drew heavily from Manteca and Ripon as well as Modesto and elsewhere in Stanislaus County. Costco also viewed a location on I-5 at some point in the future ideal as it could draw on growth on the west side of Stockton as well as Lathrop and Manteca. The Stockton store is on Hammer Lane in northeast Modesto.
Given that Costco is a huge generator of taxable sales in the communities they are located in, Manteca city leaders contacted the Kirkland, Washington based firm.
Manteca leaders in 2006 were worried about “retail bleed” that was seeing large amounts of local residents’ consumer dollars and the sales tax they paid going to surrounding cities.
Costco told city leaders the Manteca market numbers “weren’t high enough” yet to locate a Costco in Manteca. They’d consider Manteca, though, it there was some type of “help” in covering the site development.
When Manteca approached Costco the firm originally wanted a straight sales tax split with no cap but Manteca balked.
In a 2012 interview then City Manager Karen McLaughlin said, “We basically said ‘what is the amount you need to make the deal work’.”
Costco decided on $3.7 million — the cost of building a store in Manteca.
Even after they were told $3.7 million, the City Council wasn’t convinced it was a good deal.
The City Council retained a Los Angeles firm that specialized in such analysis that also – through Costco’s permission – got access to confidential and proprietary information that is collected by the State Board of Equalization on each business that has taxable sales in California.
They used that hard, state-audited data to determine whether a sales tax split deal would really benefit Manteca.
Data recorded every time a club member used their Costco card showed Manteca residents spent $6 million in taxable sales at Costco stores in Modesto and Tracy in 2006.
The $6 million Costco was pulling out of Manteca consumer pockets represented $600,000 in local sales tax that Manteca residents were paying to support municipal services in Modesto and Tracy.
The end result of the discussions with the big box retailer was that it would take $3.7 million for Costco to build a wholesale store in Manteca. The $3.7 million would come out of sales tax the city would receive from Costco shoppers buying items at the store. The deal gave Costco 45 percent of the city’s share of sales tax — excluding Measure M public safety sales tax that the city would retain — in any given year until the $3.7 million obligation was met.
Costco meet several critical criteria to get the council’s nod for the deal. First, Costco could prove they were already taking a significant chunk of consumer dollars out of Manteca. Second, there wouldn’t be a major shift of taxable sales dollars on non-grocery items from existing Manteca stores.
Based on the split, the city received $2,035,000 in sales tax over the 11 years it took for sales tax payments for Costco to recoup its $3.7 million investment.
The $3.7 million was paid from sales tax receipts from Costco without interest. It did not require the city to advance money nor was it an open ended split.
Working in the city’s favor was the timing. The Costco opened just as the housing market imploded triggering the Great Recession.
The Costco deal, along with the tax split that also brought Bass Pro Shops to Manteca plus the first home was sold in the 1,450-home Del Webb community, made it possible for Manteca’s sales tax receipts to increase for the first two years of the recession while sales tax revenue in all other jurisdiction in the Northern San Joaquin Valley fell.
It also has drawn consumer tax dollars into Manteca from nearby cities including Lathrop and Ripon.
To contact Dennis Wyatt, e-mail firstname.lastname@example.org