JEFFERSON CITY — As the federal government begins sending out tax rebate checks, a dispute has emerged as to whether Missourians will be taxed by their own state on the rebates.
The state’s Revenue Department says rebates are tax-free. But legislative staff estimate the state will collect about $160 million on the rebates unless the legislature does something. And some legislators say they don’t trust the department.
“You’re being double-taxed on something that was a gift to you in the first place,” said Sen. Maida Coleman, D-St. Louis, the sponsor of one of several bills filed to specifically exempt the rebates from the state income tax.
She said she got the idea from a conversation with her staff about a previous tax return.
“In the past, under President Clinton’s refund back in the ’90s, the state did tax us on those income tax returns,” she said.
In 2001, a special session of the Missouri legislature passed a bill that exempted from state taxation a federal tax credit that Congress had approved — but that federal tax credit was structured differently than the 2008 rebates.
But a different position is being voiced by the agency that actually collects state taxes.
“This rebate will not qualify as income and therefore will not be taxed by the state of Missouri,” said David Griffith, public information officer for the Revenue Department.
Coleman said she wants to make sure that taxpayers are secure.
“They’re right. The federal government will not tax us, but the state of Missouri taxes us on any income that we get, and that $600 or that $300 is considered income,” she said. “It’s income that we didn’t have; therefore, it will be taxed.”
Missouri’s income tax rate is 6 percent for all but the lowest incomes — meaning, if Coleman and legislative staff are correct, an income tax of $18 to $36.
Coleman said she was not swayed by the Revenue Department’s statements.
“It’s easy to say it’s not going to be taxed, but I’ve seen no pledge,” she said. “They’ve not written anything down saying they do not intend to tax Missourians.”
Jim Brentlinger, the administrator for taxation of the Revenue Department, said there would always be concern that someone would tax it, but “from what’s in law today, it wouldn’t be taxed.”
Coleman said she thinks this legislation is necessary despite the Revenue Department’s claim that the rebates won’t be taxed.
“I just know that if you don’t tell the Department of Revenue that they have to do something, they’re not going to do it,” she said.
Brentlinger said the bills in the legislature “would be telling us to do something we’re already doing.”
In the House, a similar measure has been sponsored by the top Republican leadership of the chamber, including the House speaker and House GOP leader.
Rep. Joe Smith, R-St. Charles and chair of the House Tax Committee, said he too wants to make sure that the federal tax rebate goes to Missouri citizens.
“My goal is to make sure that the citizens of Missouri’s tax rebates are not taxed as income from the state,” Smith said.
Despite the Revenue Department’s claim that it will refrain from taxing the rebate, he said there is debate about whether that will occur.
“We want to pass it just to make sure,” he said. “Better safe than sorry.”
Democrats in the House have joined in the call for exempting the rebate from taxation.
“The purpose of the federal stimulus act was to give taxpayers money that they can save or spend, and if Missouri’s going to tax that money and take away part of that, then they’re not going to be able to save or spend it,” said House minority leader Paul LeVota, D-Jackson County. “We need to stimulate the economy. Our unemployment rate is higher than surrounding states; our job growth isn’t as good as other states. This is not for state government to get more money in our pockets.”
The more than $152 billion economic stimulus package was signed by President Bush on Feb. 13. Rebates are expected to begin arriving in taxpayers’ mailboxes in May.
On Tuesday, the House Tax Committee held a brief hearing for three of the bills addressing the issue.
Rep. Sally Faith, R-St. Charles and a member of the committee, said she doesn’t think the bill is necessary because she doesn’t think it will be taxed, but she says she will vote for the legislation anyway.
The Senate Ways and Means Committee was scheduled to hear testimony on a measure sponsored by the Senate’s Democratic leader to exempt the $300 to $600 federal per-person rebate from state taxation, but the testimony was pushed to a later date.