Commercial property owners in Clay County may soon see a tax cut if voters decide to roll back the property surtax by 10% on Nov. 8. This represents roughly $1.7 million total in tax revenue and it would make Clay County the first county in Missouri to reduce the surtax since 1985.

This proposal has ignited a lively debate among government officials in the county about whether this tax cut is necessary and what it would mean for school districts, police departments and other government services.

Some, like Clay County Presiding Commissioner Jerry Nolte and Clay County Auditor Victor S. Hurlbert, have voiced support. Others, including North Kansas City Mayor Bryant DeLong and Western Commissioner Jon Carpenter, have said they will be voting no.

The official ballot language for this proposition is as follows:

Shall Clay County, Missouri reduce the commercial property surtax levy on all property in Subclass 3 of Class 1, from $1.59 per $100 assessed valuation to $1.44 per $100 assessed valuation effective July 1, 2023?

In-person absentee voting began on Oct. 25, and for this election, voters in Missouri can vote early without an excuse.

Missouri established the commercial property surtax in 1985

The commercial property surtax is a tax specific to Missouri, and it was established by the state in 1985 to replace inventory taxes. Instead of calculating the total value of a business’s inventory, which can fluctuate from year to year, the state uses property values that remain more consistent.

For commercial property owners in Clay County, this means that, in addition to the property taxes that all property owners pay, there is an additional surtax at a rate of $1.59 for every $100 of assessed property value.

The initial levies were set based on what each county would otherwise expect from its former inventory tax, and they have remained the same in all Missouri counties since 1985. The levy can only be changed by a county vote, and both Clay County and Laclede County voters will decide whether to lower their respective surtax rates. 

Only commercial property owners would see a smaller tax bill. It would not directly affect residential homeowners or small businesses that rent their commercial space from a landlord.

“Without question, the biggest tax cut numbers will go to the largest owners of commercial property,” Carpenter, the western commissioner in Clay County, told The Beacon. “Those tend to be very large corporate entities with property holdings across the country.”

Prop A would result in $1.7 million in lost revenue for Clay County

Last year, the total surtax revenue was $17 million, and with a 10% cut, the taxing jurisdictions in Clay County would lose about $1.7 million in revenue. As property values increase in the county, this lost revenue would grow.

This is why DeLong, mayor of North Kansas City, has said he will be voting no.

“Clay County is growing, and more businesses and residents bring higher demands on public services, aging infrastructure, and limited resources,” he said in an email to The Beacon. “Proposition A would hurt the families and small businesses of Clay County by defunding our high-quality schools and public services.”

The biggest portion of property tax revenue goes to the school districts. Tammy Henderson, the executive director of legislative affairs for North Kansas City Schools, said the district would lose $700,000.

“One of the things that our school district will make darn sure of is that it doesn’t impact our students,” Henderson said.

Patrick Ishmael, director of government accountability at the Show-Me Institute, a libertarian think tank, said that the tax cut would not necessarily mean that taxing jurisdictions would lose revenue. Rather, he said, their revenue would grow more slowly.

“If you look at the total property tax pool, it generally grows year to year,” Ishmael said. “With this reduction in this particular property tax, it’s not even really clear whether it would show up in any sort of meaningful way.”

Instead, he views this tax cut as an investment in business growth in the county.

But Carpenter doesn’t buy this. He said a 10% reduction in a tax rate will result in 10% less revenue, and as property values continue to increase in the county, the lost revenue will increase as well.

“It’ll be a couple of million dollars per year to start,” he said. “But in the years to come, with all of the growth that’s happening and the valuations going up, that $2 million figure will only increase in terms of the amount of revenue lost.”

What could Clay County Prop A mean for homeowners?

During the Clay County Commission meeting where commissioners voted 2-1 to place Proposition A on the ballot, Carpenter raised the question of a shifting tax burden that could come as a result of this tax cut.

The reasoning goes that, over time, taxing jurisdictions like cities and the school districts will need to make up the lost revenue by raising the tax levy. As a result, homeowners would pay a greater share of the tax burden than before.

“To me, that’s just common sense,” Carpenter told The Beacon. “If we’re going to cut taxes for the biggest commercial property owners in Clay County, we’re either going to have to make cuts, or we’re going to have to raise taxes on everyone else to make up for the tax giveaway we gave to the big commercial property owners.”

Henderson, from the school district, shares this concern. North Kansas City Schools has a webpage dedicated to educating voters about Proposition A, which also says approving this measure could increase residential property taxes in the long term.

She said that this is part of a longer trend where the tax burden has shifted over the years from commercial property taxes to residential property taxes, which she said is a result of a variety of economic development tools.

“​​It’s just a cold hard fact,” she said. “If you still want those services, and you are reducing the amount of money those organizations and entities receive through county sources, some of them may not have a choice but to come back.”

Ishmael does not believe that this would be a definite result of this proposition. He believes that a reduction in the surtax would cut revenues in the short term, but it could result in growth over the long term that would compensate for the short-term cut.

Clay County has the third highest surtax rate in the state

Among the 115 counties in Missouri, Clay County’s surtax rate of $1.59 per $100 in assessed property value is one of the highest. The highest rate is $1.70 in St. Louis County, followed by $1.64 in the city of St. Louis.

The proposed reduction would set Clay County’s surtax rate at the same level as Jackson County’s, but still much higher than neighboring Platte County, which has a rate of 36 cents per $100.

Proponents of this ballot measure believe that this change will make Clay County more competitive for businesses seeking to relocate to the area. 

“If approved, it would put (the surtax) at the same level as Jackson County, which is certainly an improvement,” Ishmael said. “But I think that more would probably be better and more may be coming in the future.”

In the short term, he said, a tax cut is a tax cut. But in the long term, his hope is that more businesses will come to Clay County and invest in the local economy, leading the county to higher revenues later on.

Clay County is one of the fastest growing counties in the state. Between 2017 and 2018, the county gained 3,772 residents — more than Platte and Cass counties combined. (Jackson County gained 2,587 residents.)

Carpenter believes that the growth in Clay County is a result of strong government services, and he said that the county is growing because of competitive tax rates, rather than in spite of them.

“There’s a reason we have these debates over and over again,” he said. “Some folks want to make the case for trickle-down economics, and I think it’s been borne out plenty of times that that’s not reality.”