The St. Charles City Council on Monday approved a sales tax sharing agreement with auto dealer Gary McGrath, paving the way for him to build a new KIA dealership on a portion of the former Pheasant Run property on East Main Street.
The proposed 40,000 square foot KIA dealership is located east of the St. Charles Honda car dealership under construction. McGrath Honda is currently redeveloping the former Pheasant Run Mega Center.
In September 2020, the St. Charles City Council approved a $5.2 million incentive so McGrath Honda of St. Charles could expand and relocate to the site. That sales tax sharing agreement is in effect for 15 years.
As proposed in the KIA dealership agreement, 75 percent of the sales tax revenues would go to the dealership in the first three years of the agreement. After that, the sales tax revenues would be divided equally between the city and the dealership.
The city is estimated to receive about $8.8 million in sales tax revenue during the 20-year agreement.
The maximum rebate that McGrath could receive would be capped at $5,256,000. Per sales tax projections, McGrath will reach that limit in the beginning of year 17, St. Charles Economic Development Director Derek Conley had told alderpersons.
The city would receive the first $250,000 of the sales tax revenues, he said. The new KIA dealership is expected to generate 60 new employees.
The new KIA car dealership would be located just east of the site. The total project costs are estimated at $21 million. However, only about $14.1 million is eligible for incentives.
As Conley previously told alderpersons, St. Charles has 10 brand name car dealerships. Total sales tax revenues from the dealerships were $4.4 million in 2021.
From 2015-2019, the typical St. Charles car dealership brought in an average of $350,000 in sales tax revenue annually.
“They do bring in a lot of sales tax for the city of St. Charles,” he said.
Sales tax sharing agreements with car dealerships are common, Conley said. In 2016, the Chicago Metropolitan Agency for Planning conducted a study and found that they were 127 sales tax sharing agreements with car dealerships in northeastern Illinois.
“This was 35 percent of all sales tax sharing agreements in the area,” Conley said. “So these are prevalent.”
The new KIA dealership is expected to generate $44.6 million in sales in its first year of operation and $375,965 in sales tax revenue that first year. The total estimated sales tax revenue over 20 years is $14.1 million.
“All of the analysis that we did for this was based off of a low volume model,” Conley said. “Mr. McGrath did give us three models – a high, middle and low. We did vet those numbers and determined that the low volume model was the most realistic and conservative to go with. So everything that you see is based off of that one.”