Roger Imdieke: Solution needed for 'Amazon effect' on local tax base
One of what I consider to be a serious emerging —or should I say emerged — issue, is what I call the “the Amazon effect.” That is, the impact that Amazon, Etsy, Wayfair, eBay, Apple and others have on the vitality of small business, big-box stores and even malls. And in turn the erosion of the local tax base.
Local government units, including schools, townships, cities and counties, have long depended on property taxes to generate the revenue necessary to provide services to our constituents.
Other than recently granted options to impose a local option sales tax, it is virtually the only source of revenue for local government. And for many small towns and counties, that is not an option.
While consumers have shifted their buying habits to online purchases, local government's source of revenue has not changed. We continue to depend on property taxes to manage our budgets.
The impact was first seen on main streets of small towns. “Mom and Pop” stores have gone out of business at an alarming rate. Whole streets are nearly boarded up with vacancies. And it is not uncommon for these properties to go into tax forfeiture, after efforts to sell the property fail.
Not only does the revenue disappear, too often these properties become a liability as counties find themselves paying for the demolition and disposal of these buildings.
Regional centers around the state of Minnesota are experiencing rising vacancies in formerly prosperous malls. The Kandi Mall in Willmar is a classic example. Huge amounts of square footage stand vacant, even with the recent addition of Kohl’s.
The Star Tribune, in an article that appeared in the Sept. 20 business section, cites the transformation of Southdale Mall, our nation’s first enclosed shopping center. Much of its space is being converted to non-shopping use as a result of online shopping.
Stand-alone big-box stores and larger cities too have been affected. Recently, Walmart closed the last of their existing stores in St Paul. Kmart has been gone for some time. And in October 2018 the landmark Sears store near our state Capitol closed its doors.
Now many of these big-box store companies would like their operating stores to be taxed at the same rate as their shuttered or “dark" stores.
What are the options for local government? If we are to continue to provide the services that are expected of us, we will have to spread these costs among the surviving properties. Homeowners, farmers, and surviving small business owners will have to pay the bill.
That is a difficult lift in a time of low commodity prices and struggling main street businesses. Or, we can change the paradigm for the way we provide and pay for public services.
It was reported by Fortune Magazine that Amazon paid no federal income tax on $11.2 billion profit in 2018.
As reported by the New York Times in November 2018, “New York’s leaders have also agreed to remake the Queens waterfront, move a distribution center for school lunches, and provide a package of $1.7 billion in incentives from the state and hundreds of millions more from the city,” this in an attempt to attract an additional Amazon headquarters.
Though NPR reported that Amazon has raised its minimum wage to $15 an hour, it still falls far below the U.S. median. The $15 an hour wage comes to an average of $31,200 per year before taxes. This compares to the U.S. median income of $46,644. For many families, dependence on public services remains.
In communities with landfills, the expected life of the landfill is being diminished by the extreme use of packing materials in consumer packaging.
As online shopping is replacing bricks and mortar as the way consumers shop, perhaps we should consider finding new ways to generate revenue to fund local government. Forbes reports that in 2019, the average American received 21 packages in the U.S. mail or home delivery. In Minnesota, that comes to nearly 119 million packages.
A flat stewardship fee of $2 per package would generate $237 million per year in Minnesota. Put another way, a 5% stewardship fee on the amount of purchase would generate $277 million (the average package shipped is $47).
In conclusion, our current funding mechanism is unsustainable. We must consider new ideas for funding local government. With online shopping eroding the revenue base for local units of government, it is only reasonable for digital sellers to help fill the void.
Roger Imdieke is a Kandiyohi County Commissioner and small business owner.