Critics howled “corporate welfare” back in 2006 when Manteca cut a sales tax deal that brought Costco to town.
Now — 12 years after it opened — the sales tax split of which 55 percent went to the city and 45 percent to cover the $3.7 million cost the Kirkland, Washington-based warehouse chain incurred to build the Manteca store has proven to be a winner for Manteca taxpayers. Once the $3.7 million was paid off, which was earlier this year, 100 percent of the local share of the sales tax collected at the Daniels Street store is going to Manteca
The store, when it opened in 2008, brought taxable consumer dollars back to Manteca and drew them from nearby communities such as Lathrop and Ripon just as the Great Recession started reducing sales tax.
And now the 45 percent of the annual sales tax that Costco once kept will flow into the city’s general fund or about $400,000 a year.
To measure the impact in terms of police officers whose salaries the Costco sales tax receipts could cover, the city’s initial share was enough to pay the salaries and benefits of 3 police officers in 2009, the same year plunging revenues due to the Great Recession led to the layoffs of 12 police officers. Without the Costco sales tax cut the city would have had to make more service reductions including in the police department.
And now that Costco has been paid off, all of the local sales tax — roughly $400,000 more a year — will go to Manteca. That is the equivalent of 2½ officers at $150,000 per officer. If all the Costco sales tax receipts Manteca is now keeping on top of the half cent public safety tax that is split between paying for fire and police personnel went exclusively to paying for police officers it would cover 7 officers.
Critics at the time argued the city was being cheated of 45 percent of the sales tax that could have helped covered municipal services at the time.
The problem with the argument was Costco had no intention of coming to Manteca in 2006.
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. Thanks to proprietary sales tax information the city received as the sales tax split deal was being formulated, the city discovered every year Manteca residents shopping at the Modesto and Tracy Costco’s they were dropping $600,000 in local sales tax.
Manteca municipal officials found out through commercial leasing agents with Kitchell that Costco was going to locate another store in the region and were considering the east side of Modesto.
Costco is a huge generator of taxable sales in the communities they are located in.
Manteca municipal leaders figured if that happened it would have been years before Manteca had a chance at landing a Costco. And down the road that may not have happened as Lathrop would have grown making the appeal of locating on the Interstate 5 corridor as being a central location for the Manteca-Lathrop-Weston Ranch region that would have been a tough one for Costco to pass up.
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 recent annual payments to Costco, the city is collecting more than $810,000 in local sales tax from the Manteca store on taxable sales of $81 million. Non-prepared food items are not taxable.
To contact Dennis Wyatt, e-mail firstname.lastname@example.org