Manteca’s willingness to split sales tax to get Costco to locate within the city until such time the warehouse store received $3.7 million was driven by hard numbers.
Every year a Manteca resident shopped at the Modesto and Tracy Costcos they were dropping $600,000 in local sales tax.
City Manager Karen McLaughlin noted that the city is “well on its way” toward covering the $3.7 million based on Costco receiving 45 percent of all sales tax received in a given year. Once the $3.7 million figure is reached, all of the sales tax flows into Manteca’s general fund coffers. Manteca is on track to cover the obligation within 10 years despite the recession hitting just as Costco opened its doors on Daniels Street. Costco opened in Manteca four years ago.
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 been grown making the appeal of locating on the Interstate 5 corridor as being a central location for the Manteca-Lathrop-Weston Ranch region tough 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.
“We basically said ‘what is the amount you need to make the deal work’,” McLaughlin recalled.
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 gives 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 is met.
McLaughlin noted that 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.
McLaughlin acknowledged that Costco sold tires and other items such as liquor that competed with existing Manteca retailers but there wasn’t a major expectation that it would simply shift money being spent in Manteca stores to Costco.