Prop U - What you need to know

What is a Use Tax?

In the simplest terms, a Use Tax is a Sales Tax on the purchase of goods primarily by Missouri businesses from out-of-state and some online vendors. The amount of Use Tax due on a purchase is equal to the Sales Tax rate in effect at the point of delivery. When an out-of-state purchase is made and there is no Sales Tax applied, the Use Tax would be applied. This means the same amount of tax would be applied on both in-state and out-of-state purchases.

How does a Use Tax work?

Because the Use Tax rate mirrors the Sales Tax rate on retail purchases made within the City of O’Fallon, the Use Tax will always be equal to the Sales Tax rate. That means with a Use Tax in place, a business buying out of state will pay the same tax rate charged on products purchased locally. If the business buys locally, the Sales Tax applies. If the out-of-state purchase does not have sales tax applied, then the Use Tax applies; therefore a Use Tax is not a double tax.

Are Use Taxes common?

More than 105 Missouri cities and 45 States already have a Use Tax, including the State of Missouri and Saint Charles County. O’Fallon currently does not have it. When making out-of-state purchases, O’Fallon businesses already pay a Use Tax to the State and Saint Charles County. The entity that does not receive the Use Tax is the City of O’Fallon. Currently, businesses can go out of state and not pay the 2% portion that would apply if O’Fallon had a Use Tax in place. With a Use Tax in place, the same amount of Sales Tax applied on local purchases would apply to out-of-state purchases.

This website was prepared and paid for by the City of O’Fallon, Bill Hennessy, Mayor; 100 North Main Street, O’Fallon, MO 63366 solely to educate and inform residents about questions that may be presented at the polls. It is NOT intended to advocate, support or oppose the passage or defeat of any measure or candidate. Each voter should vote based on his or her own judgment.

What is Prop U?

Proposition U will approve a Use Tax to be imposed primarily on the purchase of goods by O’Fallon businesses from out-of-state vendors.

What is a Use Tax?

In the simplest terms, a Use Tax is a Sales Tax applied to the purchase of goods by Missouri residents and businesses from out-of-state vendors. The amount of use tax due on a purchase is equal to the Sales Tax rate in effect at the point of delivery.

It is important to note that a use tax is not double tax. If sales tax applies to the purchase, you will never pay a use tax.

How is O’Fallon going to use the money?

The City Council has committed that any funds raised from the Use Tax will go to street and road improvements, particularly upgrades to our Subdivision streets. Our estimates show that the City will need an additional $4 million a year to keep up with subdivision street repairs in the coming years. The funds raised by the Use Tax will help fill that gap.

Is this a new tax?

Our businesses already pay a Use Tax to the State and Saint Charles County, so this is nothing new. The only entity who does not receive the Use Tax is the O’Fallon. This creates a huge incentive for local businesses to bypass O’Fallon businesses when buying equipment or materials from out-of-state vendors. Currently, they can go out of state and save money by not paying the O’Fallon portion of the Sales Tax, hurting our local businesses. A Use Tax closes that loophole and makes sure our businesses are not at a competitive disadvantage.

This is nothing new. St. Charles County and the State of Missouri already have a Use Tax and those already have to be paid. The issue is that rate does not include O’Fallon’s portion resulting in the current Use Tax being less than our Sales Tax rate, making local purchase more expensive than those made from out-of-state vendors. Proposition U ensures that this is no longer the case.

Why do we need a Use Tax in O’Fallon?

The Use Tax Rate mirrors the Sales Tax rate that applies to retail purchases made within O’Fallon. So, with a Use Tax in place, a business who buys out of state would pay the exact same rate as they would pay when buying products locally and paying Sales Tax. It is important to remember that Sales Tax applies to in-state purchases and Use Tax applies to out-of-state purchases, so you will never pay both. If the business buys locally, they pay Sales Tax. If the business goes out of state, they pay the Use Tax.

The Missouri Municipal League looked at public information from the Missouri Department of Revenue for use tax taxable sales and purchases by locality.   Based on this, the estimate for the City of O’Fallon is $2.98 million. (Based on 2015 data, the most recent available.)

Is this only a business tax?

It is primarily a business tax, but there are cases where it may apply to individuals. Missouri State Law says that when individuals make more than $2,000 in purchases from out of state (not including personal property such as vehicles, boats, etc.) that the individual must pay a Use Tax by declaring those purchases on your annual tax returns and paying voluntarily at that time.

Why is O’Fallon asking for yet another tax? Aren’t we taxed enough?

Actually, most Missouri Cities and most States already have a Use Tax. O’Fallon is one of the few nationally that do not have it. In Missouri alone, More than 105 cities with a population of higher than 2000 already have a Use Tax. St. Charles County and the State do too. And, 45 of the 50 states also have a Use Tax.

This is revenue that O’Fallon would utilize to help keep the City up to the standards you, our residents, expect. As we all know, in today’s world, it’s easier than ever to bypass local businesses and buy things from out of state. The Use Tax does not keep anyone from shopping out of state. It just ensures that the sales tax rate would be the same whether the purchase is made in state or out-of-state.  

Are any items exempt?

If an item is exempt from the state and local Sales Tax, it is also exempt for the state and local use tax. This includes raw materials and component parts used in manufacturing, machinery used in manufacturing, farm equipment, etc. A full list of exempt items is available on the Missouri Department of Revenue’s website.