Gilbert's business community is watching the Gilbert Town Council warily as it strongly considers raising the sales tax to help close a $12 million-plus shortfall.
Leaders of the town's two largest business associations are opposing the idea of a quarter-cent increase to Gilbert's 1.5 percent sales tax rate for public safety programs. The hike is intended to free up money to avoid a plan that would cut many recreational and library programs. The money would also be used to stave off town employee layoffs and furloughs.
But Kevin Murphy, general manager of Earnhardt Dodge on Arizona Avenue near Baseline Road, said such a move is more likely to reduce revenue for the town and retailers by driving consumers to communities with lower tax rates. In Murphy's case, Chandler is across the street from his lot.
"The last thing Gilbert needs is to raise taxes and motivate people to go shop elsewhere," he said. "The 1.5 percent is a reason people get on the freeways and come to Gilbert."
The town's local sales tax rate currently matches Chandler's, and the two share the title of having the lowest city sales tax among the Valley's major cities. The quarter-cent increase Councilwoman Linda Abbott proposed would put Gilbert even with Mesa's 1.75 percent sales tax rate.
The council will hold more budget talks during an 8 a.m. special meeting Saturday in the council chambers at Gilbert Municipal Center, 50 E. Civic Center Drive. Along with tackling budget questions for the year starting July 1, members will also set up acommunity working group to look at ways to close the $15 million gap that is projected to continue for the following four years.
The Earnhardt dealership in the northwestern tip of town has been generating sales tax for more than 20 years. In many cases, it has been able to beat a competitor's price on a vehicle thanks to the lower sales tax rate, Murphy said. The dealership took in $813,275 in city sales tax during 2008, he said.
Murphy said the average price of a vehicle sold by the dealership is roughly $25,000. A 1.5 percent municipal sales tax equates to $375. A hike to 1.75 percent would add $62 to that. State and Maricopa County sales taxes add another $1575 to the cost of that vehicle.
Murphy is convinced a higher sales tax will lower income there and at other retailers in town, probably to the point where Gilbert will be taking in less tax than it does at the current rate.
"If there's any doubt that the sales tax affects sales, don't make it a quarter-point, make it three and a half points," he said. "You can't go to zero, obviously, but you shouldn't be the most expensive city."
Abbott said the quarter-cent increase she put forward would still put Gilbert on the lower end of the local scale when it comes to sales tax. She doesn't think it would have much impact, even on purchases of cars and other big-ticket items.
"On a $40,000 car, you're talking $100," she said. "Dealers don't find people based on sales tax. People shop their brand loyalties. Gilbert doesn't have a Toyota dealership, so brand loyalty means you go somewhere else," she said.
Gilbert Chamber of Commerce president Kathy Langdon said the chamber's board hasn't taken an official stance on the sales tax hike, but she has e-mailed Town Council members with concerns.
Some chamber members are seeing their businesses turn around and don't want to deal with anything that could stall that progress. "They're seeing an increase, just a little bit, it's not on a downward slide," Langdon said. "But it's very fragile."
The Gilbert Small Business Alliance has already taken an official stance against any tax increase and is working on a more in-depth survey about the issue, said Dow Rigler, the group's free enterprise chairman.
But this sentiment in the business community isn't unanimous.
Mary Ellen Fresquez owned an art gallery in Gilbert for nine years and is getting ready to open another one. She said Thursday that raising taxes should be a last resort but doesn't think a quarter-cent hike will harm Gilbert commerce.
"I've had some people say they thought Gilbert's sales tax was high. I guess they were coming in from somewhere where it was really low, but I don't recall it ever being an issue," she said.
Abbott said the town needs to find ways to run more efficiently. She has said she couldn't accept the cuts in Town Manager George Pettit's budget proposal, which include furloughing all employees one day a month. The furloughs raised concerns about public safety response times.
Also in jeopardy are nearly all recreational programs and funding for special events. The possible elimination of special-needs recreation programs, in particular, prompted emotional testimony at a May council meeting.
Abbott said the town's quality of life would take a major hit with the reductions.
"I haven't heard anyone say that the town manager's budget reflects the philosophy of the town of Gilbert," Abbott said.