Taxes used to be so simple.

All right, maybe the IRS code has never been a thing of simplicity, but this much about taxes was: You pay your taxes, and they go to the government.

But a new type of tax that may soon be coming to Lawrence muddies that concept.

Soon, a tax you pay may be used directly by a private company to construct a building, or to pay a janitor, or even to advertise its product.

“The list covers just about everything,” City Manager David Corliss said of what state law allows businesses to use the new tax for.

So, how should you go about spotting this new tax? Good luck. It will look like any ordinary sales tax.

From public to private

Here’s how this new tax idea works: State legislators in 2009 established a new type of taxing district called a Community Improvement District. The state law allows developers — with the blessing of the City Commission — to impose up to an additional 2 percent sales tax on any goods sold within the district.

Revenue from that additional sales tax is funneled back to the developers to use for a variety of private purposes.

Those purposes can include construction and maintenance of new retail, office and other commercial buildings. Also on the list are costs associated with landscaping, paintings, murals, marquees, awnings and several other structures. Plus, the taxes can be used to pay for several ongoing expenses, including fees for security firms, costs to provide child care services, contracts for cleaning crews, and funding for advertisements to promote tourism, recreational or cultural activities or special events.

Developers can ask for the special tax to be imposed for up to 22 years. There is no requirement that businesses that charge the special tax do anything to alert consumers that the special tax is in effect.

City commissioners must adopt a formal policy on the new taxing districts before developers can start applying for them in Lawrence. Thus far, city staff members are encouraging commissioners to open the door to the new districts.

“The public risk on this, as we have it crafted, we believe is nil or modest,” Corliss said. “There’s no city debt on the line. They’re not getting any incremental tax revenue that we would otherwise receive. They’re basically just agreeing to tax themselves.”

Lawrence already has a taste of a similar type of taxing district. The city does allow special Transportation Development Districts. Those districts — the development on the northeast corner of Sixth Street and Wakarusa Drive and The Oread hotel at 12th and Indiana streets are the two currently operating in Lawrence — can impose up to a 1 percent special tax. But all the new tax money from a TDD must be used on public improvements, such as sidewalks, parking, roads, streetlights, storm sewers or other types of infrastructure. The new Community Improvement Districts allow for all those type of uses, plus the private uses.

The city’s Public Incentives Review Committee — which provides the city advice on economic development issues — has recommended the city begin allowing the new districts. City commissioners likely will discuss the issue in the next few weeks. Corliss said he thinks there is potential for the districts to spur new development.

“As a community, I think we’re going to have to continue to think about how we can encourage in-fill development,” Corliss said. “This may be one way to do it.”

Words of caution

Being selective in when to allow the special taxing districts likely will be the key to producing positive results for the community, said Kirk McClure, a Kansas University professor of urban planning who has been a critic of the city’s economic development incentives.

“The difficulty will be getting city commissioners to say no because every savvy developer knows every tool at their disposal,” McClure said. “I suspect we’ll see a lot of ordinary projects request these districts.”

He said the districts could be an important new tool to spur unique downtown development that would attract shoppers from outside the region and, thus, boost the city’s overall economy.

But the city’s proposed policy would allow the districts to be used on a broader scale. As proposed, any redevelopment of an existing site within the city would be eligible to apply. New “greenfield” sites would need to be “unique” and “enhance the economic climate of the city and diversify the economic base.” Projects that promote the cultural, historical or artistic elements of the region also would receive special consideration.

The proposed city policy, though, does add some new language aimed at reducing financial risks for the city. Although the state law allows private projects to be paid for entirely by the special taxes, the city policy would require at least a portion of private costs to be picked up by the developers. The city policy also would not allow developers to use general obligation bonds of the city to finance any of the improvements.

“It could be a good tool for the city,” McClure said. “Basically they need to make sure the projects are truly meritorious. But it may be difficult for them to say no. Politicians who are here for a short time like to cut ribbons and turn dirt.”