State auditor: Consider repealing costly tax discount for businesses

Wednesday, January 13, 2010 | 8:42 p.m. CST; updated 8:51 p.m. CST, Wednesday, January 13, 2010

JEFFERSON CITY — Missouri businesses are given a 2 percent discount for doing the same thing many state residents do every year — pay their taxes on time.

State Auditor Susan Montee said the legislature should consider repealing the discount, which cost the state $93 million in potential revenue in 2008.

"We are allowing $93 million to be kept by the vendors when now we're looking at vendors like Walmart who are virtually instantaneous (in filing taxes)," Montee said on Wednesday, after releasing her office's audit of the Department of Revenue.

The discount was first instituted more than 50 years ago, Montee said, when taxes were tabulated by hand. That law hasn't changed since 1963.

But retailers argue that technology has not made the process easier.

"If anything, our costs are greater and it's more complex than it was then," said David Overfelt, president of the Missouri Retailers Association.

Repealing the discount would amount to a tax increase, said Tracy King, director of tax policy and fiscal affairs for the Missouri Chamber of Commerce.

It would also disproportionately affect small businesses, King said, whose tax collection costs are greater than 2 percent.

"There are costs to being the tax collector of the state," she said.

Montee's report indicated that three of the states bordering Missouri — Iowa, Kansas and Tennessee — do not issue discounts to businesses for timely tax filing, while four of the five other states impose caps on the overall amount of tax funds that businesses can retain.

The issue is not new, Overfelt said, and has been debated numerous times.

But in difficult economic times, Montee said legislators should be more aware of the costs associated with the discount and with 131 tax exemptions covering a wide variety of purchases, including food sales.

The Department of Revenue tracks the cost of the exemption for food — a 3 percent reduction of sales tax — but doesn't track most of the other exemptions.

"We're cutting all kinds of expenses," Montee said. "We need to be paying more attention to the revenue side."

The department said the cost of updating their software and tracking these exemptions would be expensive, but Montee said the department has been making the same argument for more than ten years.

Montee said the State Auditor's IT department could review the software to determine the feasibility of an upgrade, but that no such review has occurred.

The report also indicated that Missouri businesses are issued millions of dollars in refunds annually for overpayment of sales and use taxes, much of which rightfully belongs to consumers.

Previous legislation to address this refund has been unsuccessful, but Overfelt said retailers are not opposed to new legislation in this arena.

"We believe the money belongs back with the consumer," he said.

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Eric Niewoehner January 14, 2010 | 8:54 a.m.

Removing the discount is about the dumbest thing I ever heard. And, of course, she brings up the "Walmart argument", as if the other 90% of retailers are supersized billion dollar operations.

The discount is a brilliant concept, rewarding small businesses for handling state tax revenues efficiently. Ms Montee needs to remember that a vast majority of the handlers of state revenue are not accountants and MBA's, but ordinary people trying to make a living.

(Report Comment)
Mike Martin January 14, 2010 | 10:28 a.m.

What Susan Montee fails to consider is that businesses NOT paying their taxes on time cost the state much more than the discount. Giving them an incentive to do so is similar to what vendors give each other -- a small percentage break for paying a bill before or by the due date.

Nonetheless, this bizarre notion that tax breaks "cost" government needs to change. I've seen nothing but unbridled stupidity and corruption in virtually all sectors of government, particularly over the past 10 years.

This corruption has spilled over into the rhetoric that guides policy. Reducing taxes "costs" the state. Mistakes were made. I voted for the bill right before I voted against it. The health care debate will be so transparent it will broadcast on C-SPAN. That sort of thing.

Shame on Montee for trying to take away an important incentive, and a much-needed break for small businesses at the most inopportune time imaginable.

(Report Comment)

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