Mike Morwit is a nice enough guy.
He owns Mike’s Miner Mart & Liquors.
Mike is by all accounts a good boss, pays his bills on time, donates to community endeavors, pays his taxes, and even volunteers for such tedious but necessary tasks as serving on the Manteca Public Safety Tax Oversight Committee.
Jeff Liotard is another good guy.
He owns Mountain Mike’s Pizza as well as ChilaBerries Frozen Yogurt. Jeff is a carbon copy of Mike when it comes to how he treats workers, his ethics, and his devotion to community. And just like Mike, he pays his taxes.
So why did the City of Manteca cut a deal to help a publicly traded company to compete against them?
It has everything to do with California’s archaic tax system used to support essential municipal services such as police and fire protection.
Six years ago, Manteca cut a deal to get Costco to locate here.
It was a no brainer from the city’s perspective. Since Costco documents purchases as they slide each member’s card they knew exactly how much money they were drawing out of Manteca in a typical year. Costco was taking in about $60 million a year in taxable sales from the 95336 and 95337 Zip codes at the Modesto and Costco stores. About half of that was in taxable items which happen to include fresh pizzas as well as liquor. They are items that provide the cornerstone of the businesses owned by Jeff and Mike. That meant the city was losing $600,000 in local sales tax to Modesto and Tracy. Manteca residents for all practical purposes were paying taxes to underwrite municipal services in Modesto and Tracy and not Manteca every time they shopped at Costco. Add to that $300,000 a year in Measure M tax for public safety they would pay each year if Costco were in Manteca.
Manteca got wind that Costco was exploring the possibility of building a store in East Modesto. Manteca approached them. Costco said the Manteca market yet wasn’t big enough. Manteca’s municipal economic gurus looked around. They surmised if a Costco were built in East Modesto that Manteca may not get one. That’s because Lathrop by the time the numbers got right may have been more appealing with a commercial corridor on I-5 that could serve Lathrop, Manteca, and Weston Ranch.
Manteca asked what it would take to get the next Costco store. Costco’s bottom line was $3.7 million that they figured would cover the difference between returns initially in an East Modesto versus Manteca store. Manteca then negotiated a limited sales tax split until Costco generates enough taxable sales to cover the $3.7 million.
Manteca retrieved tax dollars that had been siphoned off plus captured new tax dollars from Ripon, Lathrop, and Escalon residents all at the expense of Modesto and Tracy.
Costco didn’t kill off Mountain Mike’s or Mike’s Miner Mart. It did, however, take a piece of the “set” consumer pie in Manteca for pizza and liquor.
And it was all made possible by the city enticing Costco here with $3.7 million.
Manteca as a whole essentially gets the equivalent of four firefighters or police officers each year from Costco. The number of such equivalents Costco sales tax receipts will fund will jump up to six when the sales tax split ends when the $3.7 million is paid off.
If the city hadn’t done the deal, there would be four less front-line public safety employees on the job today.
Manteca isn’t the only city to make such deals out of necessity.
When enough cities - and legislators - realized that municipalities were doing everything they could with financial enticements to lure car dealerships from one jurisdiction to another, Sacramento put an end to it. Now wherever you buy a car you are charged the sales tax where it will be “garaged.” Modesto’s sales tax may be 0.875 cents less per dollar than Manteca’s, but buy a car there and if you live in Manteca you will still pay Manteca’s sales tax.
The same concept could be applied to all consumer taxable purchases with the exception of restaurants and entertainment venue.
The two exceptions would cover the extra costs a city incurs by providing services to tourists. Trying to separate tourists from residents would be impossible. Sales tax from those endeavors would stay in the city they are generated,
As to tracking sales tax, if we can make apps that do all sorts of frivolous things, a computer system using government-issued residency cards should be do-able.
There would need to be a regulation forbidding an enterprise licensed to do business from conducting taxable transactions with a customer who doesn’t have such a card.
It might sound a bit like 1984 but it would for the most part mean that the cities that provide the services people need and demand would be collecting sales tax from the people who use them regardless of where they shop.
It might not be the perfect solution but it is better than the piranha act complete with financial incentives cities are now doing in a bid to secure enough tax revenue to fund services.
This column is the opinion of managing editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA. He can be contacted at firstname.lastname@example.org or 209-249-3519.