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What you should know about tax credits in Missouri

Thursday, October 27, 2011 | 9:48 p.m. CDT
Tax credits are used to encourage charitable donations, development in the community and acts such as adoption. The tax credit payments for corporate income tax, individual income tax, low-income/senior citizen housing credit and the historic preservation tax credit during fiscal years 2002, 2008 and 2011 are shown below.

JEFFERSON CITY — Disagreement in the Missouri legislature about how to handle state tax credits waylaid agreement on a larger package of business tax breaks proposed by the governor for economic development.

The governor proposed and the Senate adopted termination dates on tax credits, requiring periodic reauthorization by the legislature to continue a tax credit benefit. The House, however, rejected the reauthorizations, which are called sunsets.

Here are some answers to general questions about tax credits.

What is a tax credit?

A tax credit is like a government IOU. It is an authorization from the state for the holder of the credit to pay less in state taxes at some time in the future. Tax credits exist for a range of purposes, including adoption expenses, donations to nonprofit organizations, job creation, low-income housing development and renovation of historic buildings. Some tax credits are transferable, meaning they can be acquired by one person or business and then sold to another.

Why do we have tax credits?

Tax credits are meant to encourage donations to charitable organizations, spark development in communities or encourage various activities, such as adoption. They also help individuals who are dealing with extra expenses, such as caring for family members, by crediting the money spent to their income tax.

How did the House and Senate differ on tax credits?

Key members of the Senate, including its top leaders, have argued that — with the state facing cuts in state funding for education — Missouri needs to scale back how much it loses in tax revenue for tax credits. The Senate adopted a sunset that would terminate a tax credit program unless reauthorized by the legislature.

The House voted to reject sunsets on two of the state's largest tax credit programs, though. The House speaker and other House members argued that if a tax credit program required the legislature's approval in order to continue, any one member of the Senate could filibuster and kill the program without the Senate taking an actual vote.

How much does Missouri spend on tax credits?

Missouri's government has been increasing the number of tax credits available to encourage economic development during the recession. Tax credits represent approximately 7.6 percent of Missouri's general revenue collections. In 2011, $545.1 million of tax credits was redeemed, compared to $102.7 million in 1998.

How does Missouri financially benefit from tax credits?

The exact economic benefit of tax credits is difficult to calculate. By offering tax credits, the state gives individuals more spendable money, and, in theory, more business and development is brought to Missouri.

What are some downsides to tax credits?

Many tax credits issued are not redeemed until several years later, so it's difficult for the state to determine its actual tax-revenue loss from tax credits in any one year. Also, people and businesses can take advantage of tax credits by using them just to increase profits rather than to benefit the intended projects.

What are some tax credits offered in Missouri?

Some of the most well-known tax credits in Missouri are the Historic Preservation Tax Credit, Special Needs Adoption Tax Credit and Low-Income Housing Tax Credit. There are also several for specific industries, such as family farms, wine and grape or qualified beef producers. There are also tax exemptions from portions of property, utilities and income taxes.

Where can I find out if I am eligible for any tax credits?

Go to the Missouri Department of Revenue or the Missouri Department of Economic Development websites.


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Comments

Jimmy Bearfield October 28, 2011 | 11:47 a.m.

What are some local organizations that have received tax credits?

OATS, Ronald McDonald House, the Food Bank and the Youzeum (!), according to http://missouridevelopment.org/pdfs/nap_....

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