A representative of New Balance Athletic Shoe Inc. told the Sunset Hills Board of Aldermen last week that paying taxes to the city on a gross-receipts basis “is not sustainable for our business.”

When New Balance began operating last year at 3636 S. Geyer Road, the company paid the city taxes based on its gross receipts.

But New Balance representatives requested a meeting in June with Mayor Mark Furrer and City Attorney Robert E. Jones to discuss changing their business license to one in which the company pays city taxes based on square footage, not gross receipts.

After the meeting, Jones sent an email June 20 to Caitlin Campbell and Matt LeBretton, both of New Balance, and Furrer, that stated, “Caitlin, based upon the information that you provided to the city, we have determined that the New Balance operation may not be a ‘merchant’ within the definition contained in the city code. This is not completely clear, but you have certainly presented a compelling argument. Please contact Lori Stone at (314) 849-3400 and obtain a new business license application. New Balance should apply for an office use with no gross receipts …”

Based on 40,000 square feet, New Balance’s annual business license fee would be $8,000, which can be prorated for 2014, Jones wrote. After that, New Balance began paying taxes to the city based on square footage and not gross receipts.

Some aldermen and a former member of the Finance Committee are questioning Jones’ decision, which will cost the city tens of thousands of dollars in tax revenue.

Mike Hogan, who served on the Finance Committee from June 2012 until he resigned this spring, contends that under the definition of “merchant” in the city’s code of ordinances, New Balance should pay taxes based on its gross receipts.

In an Aug. 26 letter to Jones, Hogan requested the city attorney provide the rationale and specifics about his decision.

During a period for public comment at the Sept. 9 Board of Aldermen meeting, Hogan noted he had attempted to obtain specifics from Jones, but “he (Jones) cited an inability to do legal research or provide a legal opinion for a resident — neither of which I asked for, by the way, without being directed by this board to do so. So I’ve come here tonight to ask you to ask him to reply …”

He also said the reclassification of New Balance’s business license reduced the company’s tax bill from $65,000 to $8,000 annually. Since the change, Hogan said he was unaware of any budget amendment being considered by aldermen to offset the loss of revenue, since the city’s 2014 budget included anticipated revenue from New Balance on a gross-receipts basis.

“You are the only people empowered to approve budgets and amendments thereto,” he said, adding that “$57,000 is just under 1 percent of our city’s budget. I participated in Finance Committee recommendations to you for many smaller deviations than that, each and every time one was presented during my time on the committee.”

Hogan posed six questions to Jones:

• “On what basis, anchored in our voter-approved tax code, is this accommodation justified?”

• “Why was the city collector not consulted?”

• “Why were established procedures — submission to the Finance Committee for review and to this Board of Aldermen for approval — not followed?”

• “Why would you as a board allow two individuals to ignore those procedures without your consent or your knowledge, where they bypassed the oversight responsibilities which voters have given to you and the voter have a right to expect from you?”

• “Have additional revenue sources been identified to offset this loss of revenue — or are citizens just going to take it on the chin through a reduction in planned city services or use of the prudent surplus that was built by previous administrations?”

• “And finally — because we’re fortunate enough to live in a city with a weak mayor form of government, will you, the Board of Aldermen, who have the power to not pass a budget amendment in support of this, presumably the power to reverse this ill-advised decision and — I believe – even the power to discipline or otherwise hold the individuals responsible for all of this accountable — will you do that to protect citizen taxpayers?”

In his remarks, Hogan also cited a June 20 email exchange between Jones and the city’s business license clerk, Stone, in which she asked the city attorney, “Will this now apply to any other business who does internet sales in the city? We also require any home-based internet businesses who make sales to file on gross receipts because they have to file with the state of Missouri.”

Jones replied, “No, this is a unique situation. Because of the size of their office, we felt like an accommodation was necessary to continue supporting a business that employs 180 people.”

In 1994, city voters approved an increase in the city’s merchant license fee to $1.25 per $1,000 of gross receipts from $1.

“… You’ll recall that the 1994 ballot initiative did not provide for accommodations based on merchant size, based on employment or any other basis,” Hogan said.

Two New Balance representatives — Campbell and Bill Jacoby — addressed the board last week. Campbell noted that New Balance has more than 50 facilities, including corporate and manufacturing, throughout the United States, and presented a list of those facilities to the board.

“… That spreadsheet outlines what we pay to operate as businesses in each of those jurisdictions. The combined amount, excluding Missouri, was close to $40,000 last year,” she said. “Year to date as of June 1, we have paid $42,000 just in Sunset Hills. That is not sustainable for our business. We want to be here and we want to stay there, but this is not something that we are able to — we are not able to incorporate back into our operating costs …”

Noting Jones discussed the reclassification of New Balance’s business license on Aug 12, Gau said, “In conversations with my fellow board members, I’m still not very clear on how this reclassification was determined. This is not about New Balance. We love the fact that New Balance chose Sunset Hills. We all want New Balance to remain in Sunset Hills …”

But Gau said he believes additional clarification is needed to the city’s code of ordinances regarding business licenses. He made a motion that aldermen request the city attorney research the issue, address the questions that have been raised, provide a legal framework about the reclassification of New Balance’s business license and offer recommendations on how the existing ordinances could be clarified.

Aldermen voted unanimously to approve Gau’s motion. A joint work session of the Finance Committee and Board of Aldermen to discuss Jones’ research and recommendations is set for 7 p.m. Tuesday, Sept. 23, City Hall, 3939 S. Lindbergh Blvd.