The County Sales Tax Dilemma

I know you all have kept up with the recent firestorm when the county commission decided to raise the county local sales option tax .5 a percent. Lots of arguments for and against this tax. Let me enlighten you on the way it works and what the real impact is to you the county taxpayer.

On August 5th, all municipal cities except for Memphis and Millington voted to raise the local option sales tax in their cities to raise money to fund municipal schools. The .5 cent sales tax increase would raise the local option sales tax rate to its limit of 2.75%. The state has a sales tax rate of 7% which gets us to 9.75%. The rest of the county would remain at 9.25%. The .5% sales tax increase proceeds would go directly to the city and the city (like Bartlett) would receive 100% of the proceeds from the .5 % increase to go to schools. Here is the breakdown of the projected income from the sales tax increase for Bartlett, Lakeland, Arlington, Collierville, and Germantown:

Bartlett – 3,890,000

Arlington – 483,416

Lakeland – 264,624

Collierville – 4,225,088

Germantown – 2,455,206

Millington – 1,388,948

City of Memphis voted in the past couple of weeks to place a referendum on the November 6th ballot to raise the Memphis local option sales tax .5% as well due to a large city deficit in spending. Next year, the City of Memphis is no longer obligated to pay its maintenance of effort for MCS and will pick up roughly 60 million a year in revenue. The sales tax increase would produce around 47 million in revenue each year for Memphis. The net effect in 2012 would be 107 million swing wiping out the deficit. This would also allow the city council to lower the Memphis property tax rate making the burden lower on its citizens.

Enter Stage Right: The County Commission – The County Commission two weeks ago made he decision to place a question on the ballot November 6th if the citizens want to raise the overall county sales tax rate to the maximum of 9.75%.  The 1963 Local Option Sales Tax law set the maximum rate at 2.75% for local option sales tax rates. In this law, county action supersedes municipal actions. A county sales tax referendum also replaces the language on the ballot for any city sales tax question. Due to the fact that the citizens of the above municipalities voted for the sales tax increase, they cannot vote on the November 6th county-wide referendum. There area is already set at the maximum rate but the ordinance is suspended until the countywide referendum is conducted. Basically it means that,Bartlett has already maxed it rate and has no say on the countywide referendum. If the countywide referendum fails, the Bartlett sales tax ordinance goes into effect. If the county sales tax ordinance passes, it replaces the ordinances passed in these cities.

Was it deceptive? I would say deceptive but brilliant. By waiting on the large suburban blocks to vote on this ahead of time, the county commission basically removed the most obstinate part of the voting block. The vote on this county referendum will be all of Shelby County except for those who have already voted and passed an ordinance. Mainly the cities above will be left out.

Are you mad yet? Do you think that the goal of this was to thwart municipal schools. before you pass judgement and jump off the deep end, we need to look at the impact to such a countywide increase:

By the law the local option sales tax proceeds are divided into two areas: 50% goes to countywide education funding and the other 50% goes back to the area from whence it came: ex. Bartlett, Memphis, Arlington, etc.

The expected countywide take on this .5% increase is around 60 million dollars. 50% goes to countywide education computed by average daily attendance: 50% goes back to the city: Based upon these calculations, here is how the municipalities are impacted:

Bartlett – School allocation: 1,824,253  Sales Tax Allocation: 1,909,541    Estimated Based upon current student ADM: 3,733,394

Arlington – School allocation: 987,388  Sales Tax allocation: 241,708      Estimated Based upon current student ADM: 1,229,096

Lakeland – School Allocation: 165,474  Sales tax Allocations: 132,312     Estimated Based upon current student ADM: 297,786

Collierville – School Allocation: 1,533,714  Sales tax allocation: 2,112,544    Estimated Based upon current student ADM: 3,646,258

Germantown – School Allocation: 1,645,040  Sales tax allocation: 1,227,603   Estimated Based upon current student ADM: 2,872,643

Millington – School Allocation: 441,264 Sales Tax Allocation: 694,474  Estimated Based upon current student ADM: 1,135,738

Memphis – School Allocation: 0    Sales Tax Allocation: 23,000,000

Shelby County Schools – School Allocation: 21.4 million

If you look carefully at the numbers, first glance shows that some will get more money based upon the countywide sales tax. A couple of others get less money. However, it makes it more probable for the municipalities that there will need to be some sort of property tax increase within 2-3 years to make up for those dollars that now go directly to the schools. 

The big loser here is the city of Memphis whose portion of the sales tax will pay for the lions share of the Shelby county school allocation and municipal school allocations. In the county case, the City of Memphis will lose 25 million of its original 48 million dollar projection to funding schools. Those 25 million dollars would have supposedly gone to lower the property tax burden. The other impact to municipalities is that they will not have the

The big winner: Shelby County Property tax payers:  In this case, 30 million is allocated to fund the merged school district. This should decrease the need for a massive property tax increase to pay for the budget of the unified school district.

The worst case: The judge rules that municipal school districts are invalid and the municipalities get no share of the school ADA money and all 30 million dollars got to support the unified school district. In this case, sales tax collections minus the school allocations  could drive down the municipal property tax rates.

The reality is that through all of the irritation with this, you have to look at the impact to the citizens. If the countywide sale tax referendum fails, Memphis will have a massive surplus. Municipalities will fund their schools but a large looming property tax potentially remains.

Pick your poison….


3 Responses to The County Sales Tax Dilemma

  1. Jeff Norris says:

    I’m not jumping off the deep end, but as you know, I like to dig deep when it comes to numbers.

    Are you using ADA figures for students that currently attend schools within each municipality?

    Or the number of students that actually live within each city’s boundaries?

    The aforementioned method creates an appearance that there is very little revenue redirected in each municipality, but the latter would be a much more accurate picture. That is unless the SCS is willing to concede every building within each municipality’s boundaries and all of the students that are being educated in those buildings.

    • Jeff,

      The numbers are based on ADM since ADA numbers are not available yet this year. It is also based upon the current students attending those schools which is the assumption the SES report used. While the numbers are not perfect, they show order of magnitude, pretty close.

      The numbers are different if you only educate kids in Bartlett but the ADA decrements accordingly. Fewer students will yield fewer sales tax dollar as they will stay with SCS..

      • Jeff Norris says:

        And I want to be clear that I am in favor of educating every child in the same building they are being educated in now, if they choose to do so.
        Thanks David.

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