Federal rebates are tax free, but Mo. legislators still pushing bill to ensure it

Sunday, March 9, 2008 | 4:17 p.m. CDT; updated 9:07 a.m. CDT, Tuesday, July 22, 2008

JEFFERSON CITY — Missouri politicians are pushing forward with a largely pointless proposal on a popular notion: A prohibition on taxing your federal tax rebate check.

No action is needed to spare you from a tax hit, but that might not stop lawmakers acting anyway.

Beginning in May, the federal government will send checks of up to $600 to individuals and $1,200 to married couples as part of an economic stimulus package. Households with children will get an additional $300 per child.

The Internal Revenue Service says the money will not count as income, so it will not be taxed by the federal government. Because of that, the Missouri Department of Revenue says, the state will not tax the rebate checks either.

That’s good news for taxpayers.

Had the federal tax rebates been taxable themselves, legislative researchers projected Missourians would have had to pay as much as $160 million in additional 2008 state income taxes.

Yet politicians in Jefferson City don’t seem content to simply accept the good news. Instead, they want to proclaim it themselves through a new law.

On Tuesday, the House Tax Reform Committee is expected to endorse legislation declaring that the 2008 federal tax refund checks are not considered income by Missouri, and thus cannot be taxed.

Committee Chairman Joe Smith knows the rebate checks are not going to be taxed anyway.

But “I decided to go through with the bill to make sure that if someone changes their mind we’ve at least passed legislation to make sure the citizens of Missouri aren’t going to be taxed,” said Smith, R-St. Charles.

“This is more of a security blanket for the citizens of Missouri,” he added.

There is no indication that officials at the IRS or state Revenue Department will change their interpretation of the federal economic stimulus act.

Yet Smith’s redundant efforts have the continued backing of Republican Gov. Matt Blunt and Democratic Attorney General Jay Nixon.

The governor and attorney general first called upon lawmakers to exempt the federal rebate checks from Missouri taxes on Jan. 28, before the federal economic aid bill had passed.

At the time, most Missouri politicians assumed the federal rebates would be taxable by the state, just as they were when the federal government sent out similar checks in 2001. In that year, then-Gov. Bob Holden called a special session in which legislators passed a one-time law specifically exempting the federal rebate checks from state income taxes.

This time, Congress worded the stimulus law differently so that the checks would not be taxed. President Bush signed the law Feb. 13.

Missouri Department of Revenue spokesman David Griffith said the agency got notice Feb. 26 that the federal refund checks will not be taxable. That news is slowly filtering through the Capitol but with seemingly little effect.

Blunt spokeswoman Nanci Gonder said Friday that Blunt still wants to sign a law exempting the rebate checks from state taxes.

“The governor believes that it’s important to have that added layer of certainty so Missourians are assured they won’t be taxed for these,” Gonder said.

Likewise, Nixon wants to make doubly sure the federal refund checks don’t get taxed by the state.

The fact that they already are not taxable is “certainly a good thing for Missouri taxpayers,” said Nixon campaign spokesman Oren Shur, “but we shouldn’t leave anything to chance.”

House Speaker Rod Jetton appeared unaware Thursday that the federal rebate checks will not be subject to state income taxes. He, too, expressed support for the legislation.

But “if they would decide it wouldn’t be taxable, then we wouldn’t have to worry about messing with a bill,” said Jetton, R-Marble Hill.

Although logical, that so far seems to be a minority viewpoint at the Capitol.

Griffith described lawmakers as “just being overcautious.” The Revenue Department isn’t trying to deter them from passing a law against taxing the rebate checks.

“We support whatever they want to do,” Griffith said. “If they feel like it’s necessary for them to do that, that’s fine. It’s not going to hurt anything for them to do that.”

One truth about politics: It’s very, very difficult for politicians to pass up the opportunity to attach their names to a popular public policy, especially in an election year.

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