A deal cut in 2006 will help ease the City of Manteca’s projected $2.16 million decline in sales tax due to pandemic lockdowns.
That’s because last year the city made its final sales tax sharing payment to Kirkland that covered a $3.7 million deal that brought Costco to Manteca.
As such as $500,000 in sales tax revenue on average that the city has been collecting since Costco opened in Manteca in 2008 will stay in the municipal general fund instead of being transferred back to the membership warehouse retailer.
That means if the 18 percent decline in sales tax revenue due to the pandemic the city is projecting pans out, the net hit on Manteca for loss of sales tax for spending on day-to-day municipal services will be $1.66 million instead of $2.16 million. The decline is based on the city collecting $12 million a year before the pandemic hit.
The city expects to take a $1.8 million hit on hotel room taxes. Part of that is due to COVID-19 stunting travel and Great Wolf forced to delay its opening due to the pandemic. The real hit, however, based on last year’s revenue patterns in terms of room tax will be lower given Great Wolf was never in the equation for the 2019-2020 fiscal year.
Property taxes are expected to be up due to growth and reassessments triggered by resales and annual 2 percent adjustments to Proposition 13 values.
Costco is a huge generator of taxable sales in the communities they are located in. Due to store sales being propriety information the city can’t legally divulge Costco’s sales tax figures but based on the sales tax deal they hammered out the store is clearly among the top three generators of retail sales tax in Manteca.
The sales tax deal allowed the city to get Costco to site a store in Manteca when they were looking to build a second store in the Modesto area. City officials got wind of Costco real estate reps scouting sites in Stanislaus County. In initial conversations with Kirkland, the city was told Manteca at the time with 62,000 residents had market numbers that were too small for a Costco store and that when the company was ready to expand a location along the Interstate 5 corridor in Lathrop would probably make more sense for them.
When Manteca approached Costco after they were told they’d build a store in Manteca with some type of help to make up for the market not being robust enough at the time the firm originally wanted a straight sales tax split that never ended but Manteca balked.
Costco decided the help they needed was $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 dwyatt@mantecabulletin.com
