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Governor's proposal on sales tax refunds is dying in committee

March 17, 2004
By: Sara Bondioli
State Capital Bureau
Links: HB 796

JEFFERSON CITY - Gov. Bob Holden's plan to send excess sales tax to the state instead of businesses is dying in a committee -- and leaving Missouri businesses with millions of dollars in extra taxes paid by consumers.

Currently, although consumers pay sales taxes, businesses get to keep any refunds they can get from the state for overpayment.

The governor's proposal would require businesses to submit a plan to return refunds to consumers. Otherwise the overpaid sales tax would be kept by the state. Rep. Bob Johnson, R-Jackson County, is sponsoring a bill that would enact the governor's plan.

State Budget Director Linda Luebbering said placing greater requirements on businesses seeking sales tax refunds would likely result in fewer businesses filing for the refunds.

The governor's office projects that there would be a $10 million annual profit for the state from businesses no longer seeking refunds of excess sales tax payments.

However, the chairman of the committee now in control of the bill said he doesn't even plan to hold a hearing on the bill -- let alone allow a vote.

Rep. Shannon Cooper, R-Clinton, the committee's chair, said the issue was settled last year in a measure that revised a number of tax policies. Cooper said changes made last session should be given a chance to work.

Ray McCarty, director of fiscal affairs for the Missouri Chamber of Commerce, said last year's changes prevent abuse of sales tax refunds.

Under the new law, businesses can file and collect sales tax refunds only once for each product upon which they overpaid sales taxes to the state -- such as couches or cigarettes.

"That allows retailers who have made an innocent mistake to go ahead and get that back," McCarty said.

But that measure does not require that the business return any money to those who originally paid the tax -- the consumers.

Missouri is expected to refund $66 million in sales taxes to businesses in the budget year that will begin in July. Nine years ago sales tax refunds amounted to only $15.4 million.

Luebbering said she attributes the large increase to accounting firms that have begun targeting businesses to apply for the refunds.

Jessica Robinson, a spokeswoman for the Revenue Department, said the increase in refunds could be due to tax code changes that present a greater potential for error when figuring sales tax and an increase in the number of businesses in the state.

McCarty said there are cases where businesses ask for sales tax refunds because of innocent changes outside their control. Fraud statutes are already in place for cases where businesses intentionally overcharge customers.

The Missouri Chamber's report, "Closing Loopholes Means Tax Increase," cites a situation where refunds were made for replacement parts for manufacturing equipment. The legislature approved a sales tax exemption for these parts, effective Aug. 28, 1998.

But the Revenue Department refused to allow businesses to claim the tax exemption until the following February. Beginning Aug. 28, businesses collected sales tax on the parts. They filed refund claims with the department in February.

Businesses sometimes charge the wrong sales tax rate if they have locations in more than one area and do not account for rate differences, Robinson said. If businesses are located on the border between a city and county, they may charge the tax rate for one area but be subject to taxes in another area.

McCarty said businesses are responsible for paying three years in back sales tax when they have undercharged customers. As long as businesses are responsible for these taxes, they should be eligible to receive refunds in some circumstances, McCarty said.

Johnson said he won't give up. He said he plans to pass the measure by another route -- offering it as an amendment to a related bill before the full House. But last year the House defeated the measure when he offered it as an amendment.