Enter into Sales-Tax Sharing Agreements with Nearby Towns to Reduce Town v. Town Competition for Big Box Stores

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One of the main reasons that Wal-Mart and other major retailers have come into your area is that your community envisions that it would lose money if the major retailer opened up instead in a nearby town. Your town would then be making many of its purchases in the other town and your own tax would lose needed tax revenues. This competition between towns not to lose sales tax revenues is understandable, but does overlook the painful fact that no matter where the major retailer opens up, all of the towns in the area will suffer economic loss, particularly local businesses and local real estate values, as well as hourly rates for employees and business opportunities for others.

An obvious cure for this situation is to have it make no difference what town the major retailer selects for its new big box. This can be done by an agreement or compact among the towns, villages and counties in an area on how sales tax revenues are to be divided up, depending on where the retailer finally sets up its new store. The formula should be based on population in each of the municipalities within so many miles, the distance of the municipality from the retailer's new store, the deliveries or shipments by the store into the municipality, and the actual purchases attributable to customers through credit card transactions or by the store's clerk taking down the purchaser's zip code (as is done in many Radio Shack stores,probably for some other purpose).

This tax revenue sharing idea was conceived by Charles Kuralt's brother, Wallace Kuralt, owner of a chain of book stores in North Carolina and surrounding states, who was put out of business by the major bookstore chains who invaded his trading areas offering the same books at substantially lower prices (using discounts), because of their ability to buy books from the nation's book publishers at substantially lower prices per book than the prices being paid at the same time by Kuralt's Intimate Bookshops. Kuralt's idea, published at Wallace Kuralt's Proposal for Sales-Tax Revenue Sharing by Communities to Prevent Municipalities from Fighting to Obtain a Major Retailer Slated for the Area. Kuralt, now deceased, stated:

The municipality that spends its development money wooing the mega-mall and the mega-store does so in the spirit of stealing a march on its "competitors," the counties around it. The residents of those counties drive to the new business center on roads maintained by the disfavored county and bypass the existing stores in their own areas, and all of the income of sales taxes to the benefit of the "favored" county.

The competition is sometimes fierce, especially when the development is also close to a state border. The adjacent counties or states have little or no control over the officials of the favored county and its officials, yet stand to suffer heavy losses in their own municipalities if the other county "wins" the "prize." It seems sensible - and only fair - that the benefits now enjoyed exclusively by the "winning" county be allocated on a proportional basis according to the home addresses of the customers and employees of the new business center.

Such a system would have to take into account the relatively high expense of servicing the center incurred by the host county, but would provide a fair contribution to the costs of the surrounding counties, as well.

Many retailers now note the zip code of the customer when making the sale. Using these numbers, or those collected by a scientific random sampling of the shoppers from time to time, officials could spread the largesse over all affected municipalities.

The idea of employing the "use" tax, though this tax be somewhat more difficult to implement and maintain, could also be examined as a means of making equitable the benefits produced by the new center, if only to encourage the counties to co-operate in using revenue-sharing.

Certainly the decision to share the funds would dampen to some extent the zeal of the local officials in spending their good money in seeking to accommodate the developers in the first place.

Note: I'm not sure whether any such agreement among municipalities has ever existed. Such an agreement does routinely exist between a host community and a major retailer opening up a new big box in the community, as a way in which the town, village or county competes for the Big Box and the sales tax revenues it represents, and in the process finances the major retailer and undermines its own local businesses who have no such sales-tax subsidy.

From a legal standpoint, it would be interesting to commence an action by one town against another for unjust enrichment (and perhaps other claims), to collect through litigation (instead of agreement) an appropriate percentage of the sales tax revenues, based upon the retailer's obvious intention, from the start, to sell to persons living outside of the boundaries of the host community.

Email This Proposal to Gov't Officials, Chamber of Comm., Trade Assoc., Small Businesses, Other Interested Persons