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Modesto business tax fix might require a vote

Modesto voters in 2008 could see a measure that would clear the way for the city to annex businesses on McHenry Avenue north of the city limit.

That vote could help Modesto untangle conflicting tax agreements that have a number of businesses paying different fees for city services.

Talk of annexation stems from an 18-month-long debate that erupted when car dealership owner Tony Mistlin complained that he was paying a revenue-based mill tax that nearby competitors didn't owe.

Since then, Modesto has collected Mistlin's tax payments and held them in a protest account.

It isn't clear whether Mistlin will receive any of that money, though Councilwoman Kristin Olsen at a Tuesday meeting suggested the city might find a way to free some of the cash until it settles the differing tax agreements.

Annexing the land would level the playing field for the companies, making them all subject to city taxes. But it could take years to complete because of studies the city would have to undertake to determine whether it could provide basic services to the area.

Councilman Garrad Marsh said the city should try to get a Measure M vote on a ballot next year because doing so would set the stage for annexation -- by getting voter approval for Modesto to extend sewers to the area. Measure M advisory votes are required for all annexations.

In the meantime, the council wants 12 businesses to start paying the mill tax. They are companies that should have been charged the fees when they opened but were overlooked for an unknown reason.

Nine other companies, including most of Mistlin's competitors, will not have to pay the mill tax because their businesses were built on a parcel that was exempted from a 1998 agreement between the city and county.

That agreement requires Modesto to collect the mill tax and give 49.96 percent of the revenue to Stanislaus County. Regardless of whether the city collects the taxes, it must pay the county that money.

Accordingly, Modesto would have to pay the county $41,835 a year if it waives the mill tax agreements with companies in Mistlin's area.

Car dealerships tend to pay high mill taxes because of the value of the products they sell. Mistlin, for example, paid $38,000 in 2005.

Olsen encouraged the city to consider waiving its share of the mill taxes but continue to collect for the county until all the businesses are subject to the same fees.

Council members appeared eager to settle the differing agreements, pointing out that they voted to pursue an annexation of the area a year ago.

Public Works Director Nick Pinhey said the city's progress was delayed by a financial investigation into how much the companies would owe. He said the city has conducted meetings with business owners in the area to talk about the changes, though the last big session with car dealerships took place a year ago.

Bee staff writer Adam Ashton can be reached at aashton@modbee.com or 578-2366.

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