Lawmaker revises 'box store' tax play

A bill that would impose a gross receipts tax on "box stores" has been amended to exempt Costco stores, but a company executive says Costco will still oppose the legislation.

Sen. Ken Toole, D-Helena, said Wednesday the bill has been amended to his satisfaction in exempting large retail stores where at least half of the employees are full-time workers. The original version of Senate Bill 272 exempted stores where at least 75 percent of the employees are full time.

In response to Toole's original legislation, Costco announced last month that it was suspending all capital investment in Montana, including plans to build a larger Costco outlet on U.S. 93 in north Kalispell. The company had planned to sell the building that houses its current store on U.S. 2.

Toole said he offered to make the amendment with the sole purpose of exempting Costco because the company is widely known to pay relatively well.

"I'm not interested in getting Costco," Toole said. "They're probably the best of these guys."

In addition to providing a new source of revenue from Montana's growing retail sector, the bill is mainly intended to be an incentive for so-called box stores to place a higher priority on employees in a state that has high poverty rates and one of the highest rates in the country for people holding more than one job.

"Really what I'm interested in trying to do is getting these businesses to pay a livable wage," Toole said. "If we can provide some incentive for these businesses to pay better, I think that's great."

Toole said he was "glad to work with Costco" in amending the bill.

"I obviously look at that as a give and take. I obviously hope that this is something that would prevent them from opposing the legislation," Toole said. "But that may not happen."

John McKay, senior vice president and general manager for Costco's Northwest Division, said he appreciates Toole's efforts, but the company will still oppose the bill.

"We still do not support the bill, but we are supportive of what the senator is trying to do, which is to make sure that we don't fit into the sort of bad corporate citizen category that he's trying to tax," McKay said.

The bill would impose a 1 percent tax on gross retail receipts between $10 million and $20 million, a 1.5 percent tax on receipts between $20 million and $30 million and a 2 percent tax on receipts above $30 million.

McKay said Costco executives will testify against the amended bill in an upcoming hearing partly because the legislation could be changed after the hearing in a fashion that would impact the company. But he said the company primarily opposes the bill because it singles out the retail sector that Costco is part of.

Toole said the box-store tax would be the only tax of its kind in the country. And that is a concern to Costco, McKay said.

"I do think it would set a dangerous precedent," he said.

"Our stores operate off of high volume and low margins," McKay said.

With an annual profit margin of less than 3 percent, he said, a tax of 2 percent on gross receipts could "hurt us worse than any other retailer" because of Costco's business model.

The bill would impact other large retailers such as Wal-Mart, Kmart and ShopKo, along with dozens of grocery stores, according to the Montana Retail Association and other groups that oppose the legislation.

A similar measure was defeated in the 2003 session by a 26-24 vote in the Senate. It was projected to raise roughly $60 million annually for the state.

Because of the Senate's current makeup of 27 Democrats and 23 Republicans, Toole's bill could clear the Senate this time around. It would likely face stiffer opposition in the House, which is divided with 50 Democrats and 50 Republicans.

Democratic Gov. Brian Schweitzer has repeatedly said he will not support new or increased taxes.

McKay said plans for building the new store north of Kalispell could quickly resume if the legislation is defeated.

"I think we probably could get it open this year," he said.

The company announced last June that it intends to build a 136,000-square-foot store at the Spring Prairie Center on U.S. 93, where a new Lowe's store recently opened. The new Costco store would be almost twice the size of Costco's 72,000-square-foot store on U.S. 2.

Reporter Jim Mann may be reached at 758-4407 or by e-mail at jmann@dailyinterlake.com