Tax audit reveals state legislature lacks accurate tax exemption tracking
JEFFERSON CITY - An inspection of Missouri's revenue shows there is no tax exemptions tracking system, a problem which - according to Missouri State Auditor Nicole Galloway - helped the state's half-billion budget shortage.
During a news conference on Wednesday, Galloway released a report on the cost of tax incentives and exemptions. This report comes as part of Galloway's Budget Integrity Series. The series, which began in March, highlights “weaknesses in policymaking, and finds the root causes of budget shortfall.”
The tax incentive and exemptions report shows sometimes state funds are formulated with dated information. It also found the process of fund formulation lacks the economic analysis required, and no follow-up is conducted to evaluate the accuracy of the funds and the actual impact.
"Unless the legislature does a better job assessing the costs and benefits of their policy decisions, the state will continue to jeopardize its fiscal health and threaten critical services for Missourians," Galloway said.
For example, the report shows a law passed in 2015 created a new way to allocate corporate income. The legislature estimated a cost of $15.2 million each year, but in the two years following the law's creation, corporate income tax collection decreased five times the initial estimated amount.
The report also shows that Missouri retailers' sales tax discount is the second highest in the nation. Retailers received a two percent tax discount for paying sales taxes on time. Missouri is also the only state that offers similar tax discounts to businesses.
"While Missourians absorb dramatic restrictions on higher education funding and cuts to prescription drugs and in-home nursing care, the state is giving away millions to corporations for simply doing what the law requires," Galloway said.
Rep. Gina Mitten, D-St. Louis, agrees with the report and that Missourians should know where their money is going to.
"Those are our dollars, those are our tax dollars," Mitten said. "Most voters in Missouri don't realize that they pay their sales taxes to Walmart, Walmart gets to take two percent of the top just for submitting that to the state in a timely fashion."
The report also found the state does not monitor all the tax exemptions it gives. The Department of Revenue only tracks three specific individual exemptions out of the more than 200.
"Based on prior attempts to track limited exemptions, the data collected is likely to be highly inaccurate due to businesses errors in reporting. In addition, to track and report exemptions, the DOR would require a substantial increase in full-time employees, which the current budget does not support," according to a DOR statement in the report.
Galloway's budget series, released in March, has six key audits, including:
- The annual review of state use of federal dollars, known as the Statewide Single Audit
- The annual review of state revenue, known as the Hancock Amendment Report
- Missouri’s economic rankings compared to other states
- An audit of tax credit programs
- An audit of sales, corporate and income tax exemptions and impacts
- An audit of the state's timeliness of issuing tax returns