Help towns and villages in a region to reach agreement to share sales taxes collected by Wal-Mart and other big-box retailers

One of the consequences of our country's failure to enforce federal and state antitrust laws is the huge growth of Wal-Mart, and number of "specialty retailers" trying to emulate Wal-Mart in a specialized area (such as books, music, DVDs/videos, beverages, hardware, home furnishings, automobile parts, appliances, office supplies). Because of this failure to enforce the antitrust laws, Wal-Mart and about 99 other major retailers have been able to take away a high percentage of customers from smaller, independent competitors, who are then forced out of business, which deprives the community of jobs, higher-paying jobs, and business opportunities, and makes the community increasingly dependent on the major retailer as the town's independent businesses, one after another, go out of business or are so financially crippled that they hang on in death throes, without profits and exhausting the owner's savings or home equity to try to stay alive and weather the storm - but with little or no relief in sight, because of the lack of any Town Attorney General to understand what is happening and bring appropriate suit to stop the unlawful practices.

It has come to the point where Wal-Mart or other major retailer is able to put nearby towns and villages in competition with each other for the location of a new store being opened up somewhere in the area. The major retailer understands that if it opens up on one side of a line dividing one town or county from another, the town or county on the wrong side of the line will not only get no sales tax revenues from the new store, but the residents in the losing town or county can be expected to buy from the store on the other side of the line, and contribute sales-tax revenues to the other town or county, thereby causing a double injury to the resident's own town and/or county.

It is this all or nothing sales-tax policy that makes the leaders of a town or village so willing to accept a 2nd or 3rd or 4th Wal-Mart SuperCenter, because of the expenses that can be paid with the all-or-nothing revenues, and the injury to the town if the pot of sales tax revenues go to a competing county and town.

The solution to this problem is reflected in the term NIMBY (not in my back yard). By having all towns, villages and counties in a marketing area agree in writing, in advance, to a formula for sharing of sales-tax revenues, the towns, villages and counties would then have a NIMBY attitude about a proposed new store, and hope that the store goes elsewhere, because this would would better protect local businesses (the further away the new store was located) without significantly reducing the amount of sales tax the town would get under the sharing agreement.

Actually, it would be best if a statute were enacted requiring such sharing of sales tax revenues, but in absence of any such legislation the towns, villages and counties in an area are free under New York law to enter into, and enforce, a sales-tax revenue sharing agreement. The result would be to prevent major retailers such as Wal-Mart from playing off one town, village or county against another, including substantial subsidies that are often negotiated with the town getting the new store.

In Cathedral City, California, Wal-Mart had entered into an agreement whereby Wal-Mart was to receive 100% of the sales tax revenues for a certain number of years, and at the end of that period the sales tax revenues would be paid to Cathedral City. On the day that the revenues were to be turned over to Cathedral City, Wal-Mart moved its store to location outside of Cathedral City.

As Attorney General, if something similar to that happened in New York, I would seriously consider commencing a lawsuit against the retailer for fraud and misrepresentation, as well as breach of contract, both express and implied, as well as a claim for unjust enrichment and restitution. The important thing to remember is that there are often remedies for a problem, if somebody in your community is concerned with community problems and remedies. The Town Attorney General is such an official. Towns do not need the NYS Attorney General to protect the town. The town is able to protect itself by the hiring and use of a Town Attorney General.

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 see 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.