JEFFERSON CITY — Missouri Gov. Jay Nixon vetoed legislation Friday that sought to re-impose local sales taxes on vehicles bought from out-of-state dealers or through person-to-person sales.
Nixon's veto marks the second time in two years he has rejected the legislature's attempt to reverse the effects of a 2012 state Supreme Court ruling that has put Missouri car dealers in border cities at a disadvantage and has zapped tax revenues from some cities and counties.
The governor said he shares the concerns of lawmakers seeking to rectify the financial strain but believes their bill still contains flaws that could result in inequitable taxation or an even greater loss of revenues to local governments.
Sen. Mike Kehoe, who sponsored the legislation, described Nixon's veto as "disheartening" and surprising, because Kehoe said he had met with the governor's staff dozens of times to try to craft a version he would sign. Rather than trying to override Nixon's veto, Kehoe said he would work on a third attempt at the legislation before the session ends May 17.
"The timing is not the best, but I'm going to make this fix and try to move forward," said Kehoe, R-Jefferson City, who formerly owned an automobile dealership.
At issue is a January 2012 Missouri Supreme Court ruling that Greene County could not charge a local sales tax to a man who bought a boat, motor and trailer from a dealer in Maryland. The court drew a distinction between sales taxes, which are collected from in-state retailers, and use taxes, which are levied on products used in Missouri but bought either from an out-of-state retailer or from an individual who does not run a business.
The high court ruled Greene County could not tax the boat because it was not covered by the local sales tax and county voters had not approved a local use tax. The ruling has since been applied statewide, meaning numerous cities and counties without voter-approved use taxes are no longer able to collect taxes on any vehicles bought from any place besides a Missouri retailer.
The bill vetoed Friday by Nixon sought to get around the court ruling by applying sales taxes to the titling of the vehicle based on the residence of the purchaser. Had Nixon signed the bill, the local taxes would have been immediately re-instated, and local voters would have had a chance to repeal them in referendums held between November 2014 and November 2016.
Nixon cited two flaws with the legislation. He said the referendums on repealing the local taxes applied only to vehicles bought out-of-state, not also to in-state sales between two individuals. He also said that a provision allowing a citizen-led initiative to repeal local taxes charged to vehicle titling could have the effect of repealing the tax both for out-of-state and in-state purchases, thus potentially costing local governments more money.
"These flaws would have a big impact on taxpayers and communities across the state, and should be addressed by the General Assembly this session," Nixon said in a written statement.
Richard Sheets, deputy director of the Missouri Municipal League, said Nixon's veto appeared to be "more of a technical nature than a philosophical reason" and can hopefully be addressed by passing a new bill within the next four weeks.
Last year, lawmakers passed a bill attempting to undo the Supreme Court ruling by retroactively reinstating local vehicle taxes. Nixon vetoed that bill, too, citing constitutional concerns about imposing a tax after a purchase has already been made and philosophical preferences for local voters to get a say on the tax.
Thousands of people have a stake in the issue. Nixon said Friday that there were 112,000 vehicles bought from out-of-state dealers and 650,000 vehicles sold in non-retail transactions in 2012.
Some local governments haven't waited for a state solution to their lost tax revenues. In April, voters in about two dozen jurisdictions approved local use taxes while similar measures failed in some other places. More than 50 of Missouri's 114 counties and over 100 of its 950 municipalities now have local use taxes allowing them to collect taxes on all vehicle sales.