A proposed retail transaction fee of 5 cents in Kalispell has increased to 9 cents, according to City Manager Jane Howington.

The city doesn’t know exactly how many retail transactions actually occur, so it was relying on a model developed by the Institute of Transportation Engineers to calculate the number of trips made in the city each year.

However, Howington said Friday the city initially had misunderstood estimated trip generation numbers from the institute, and had consequently miscalculated how much the transaction fee should be.

The Washington, D.C.-based institute estimates trips per type of land use. Its numbers actually represent two portions of one trip, so the city would have to divide that number by two to get both the “going” and “coming” segments of a trip to the grocery store, for example.

As a result the city now estimates it would cost 9 cents per transaction to cover $4.5 million in street maintenance and improvements. The city currently assesses only $1.75 million for streets through property taxes, and thus street maintenance and infrastructure are not being funded adequately, Howington said.

If the City Council approves a retail transaction tax to fund the programs, it would reduce the street maintenance portion of residential property taxes substantially, Howington said.

Currently, residential property owners are paying for 46.9 percent of total street maintenance assessments, but only generating 21.7 percent of the trips.

Non-retail commercial properties are paying 17.9 percent of total assessments and creating 16 percent of trips.

However, retail commercial properties are paying only 17.7 percent of street assessments but are creating 62.3 percent of the trips.

“The proposed change in assessments for street maintenance aims to redistribute the cost burden to more equitably have all users of the infrastructure pay their fair share,” Howington said in a presentation last month. “The proposed method is designed to reduce the burden on the property owners.”

The flat 9-cent transaction fee would apply to all purchases from as little as 25 cents to $10,000 or more.

In other words, if a grocery store sold a 50-cent candy bar, it would be charged a 9-cent fee on that transaction. But if the same grocery store sold $200 worth of groceries in one transaction, the charge would be the same 9 cents. Whether a store charged the customer or absorbed the fee as a cost of doing business would be up to each retail establishment to decide on its own.

In exchange for the new revenue generated by the transaction fee, the city would lower property taxes. Under the proposal, residential property owners would pay only $50 for street maintenance in their property taxes.

Non-retail commercial properties would pay $50 for every 1,000 square feet of building area. Retail commercial properties also would pay $50 for every 1,000 square feet, but would also be liable to remit the transaction fees to the city.

To find out how much one pays currently for their street maintenance assessment, go online to flathead.mt.gov/lipublic. It will be listed under “tax bill” and “Kal Spec Maint Dist 1.”

In a presentation to the council in February, Howington said the city’s population swells by thousands from 20,000-plus during weekdays. In the summer, the population skyrockets even more.

It’s impossible for 9,654 property owners to pay for the maintenance and repair of the city street infrastructure that is worn and torn by hundreds of thousands of people, she said.

“Needless to say, the street maintenance program is underfunded and our ability to increase revenues using the current methodology is next to impossible,” Howington said.

Implementing the retail transaction fee would require the creation of a special improvement district in the city for street maintenance. It would fund current maintenance, equipment replacement and rebuilding of infrastructure and also would result in improved snow removal, Howington said. It also could potentially be used to replace transportation impact fees, but that is not in the current proposal.

The process of collecting transaction fees would include self-reporting verified by random audits. If a retail establishment failed to remit their transaction fee and information, the city would put a lien against the business based on trip generation estimates.

Howington said individual companies, not landlords, would be responsible for the transaction fees. The fee would only apply to businesses that are primarily retail. Businesses such as banks that primarily provide a service would not be required to charge the fee for some of their activities, such as selling a money order, for example.

Joe Unterreiner, president of the Kalispell Chamber of Commerce, said the chamber’s Government Affairs Committee is discussing the issue and plans to survey Chamber members to get their take on the proposed transaction fee.

“It’s some good out-of-the-box thinking to try to get some infrastructure here in Kalispell,” he said Thursday. He added that the transaction fee is “kind of conceptual at this point.”

Terry Kramer, chairman of the Government Affairs Committee, hopes to have Chamber members’ feedback tallied by the end of June.

Howington proposes to initiate the transaction fee on Jan. 1, 2012.

She envisions a council work session on the proposed transaction fee on June 27.

Reporter Caleb Soptelean may be reached at 758-4483 or by email at csoptelean@dailyinterlake.com.