Tax reform in Missouri: General Assembly makes history in 2014

Posted May 22, 2014 at 5:59 pm

There’s no other way to put it. Coming into 2014, Missouri’s tax system was a complete mess. Here are a few examples.

•Taxing everyone like a tycoon: Missouri has a graduated income tax that is intended to reserve the highest tax rates for the wealthiest citizens. Yet the bracket hasn’t been adjusted in generations. As decades passed, inflation slowly pushed nearly all Missourians into the highest tax bracket. Despite this passive tax increase, lawmakers never dropped the rates to compensate. In fact, Missouri’s income tax rate hadn’t been cut in nearly a century.

•Guilty until proven innocent: In Missouri’s tax courts, some business taxpayers are innocent until proven guilty. Others are guilty until proven innocent. Either way, this is an unfair double standard that fails to treat all businesses equally.

•Changing the rules (and not telling anyone): Missouri’s tax collectors at the Department of Revenue write the state’s tax rules. Lately, the department has been changing the rules that relate to sales tax collection. The problem is the department sometimes doesn’t inform impacted businesses about the changes. Then they actually penalize businesses for not following the rules they didn’t tell anyone about.

However, leaders in the Missouri General Assembly made 2014 the year that fairness and rationality were welcomed back into Missouri’s tax system. In a resolute effort—and defying the efforts of an obstructionist governor—Missouri lawmakers made historic progress that will benefit Missourians for decades to come.

•Historic tax cut: Missouri’s first tax cut in nearly 100 years is already law thanks to a successful veto override effort. Senate Bill 509, sponsored by Sen. Will Kraus, a Republican from Lee’s Summit, will gradually reduce our state’s income tax to 5.5 percent from six percent. It also contains a new special tax break to help small businesses. In addition, it will ensure Missouri’s tax brackets grow along with inflation.

•Fairness in tax courts: House Bill 1455, sponsored by Rep. Denny Hoskins, a Republican from Warrensburg, and Senate Bill 829, sponsored by Sen. Will Kraus, ensures all Missouri taxpayers are treated as innocent until proven guilty in the state’s tax courts. If signed by the governor, this double standard that punishes that many employers will finally end.

•Notification of changes: Senate Bill 662, sponsored by Sen. Kraus, will require the Department of Revenue to notify businesses when they make a change in their interpretation of the state’s sales tax laws. No longer will the state be able to change the rules without informing impacted businesses. In addition, the bill would clarify corporate apportionment legislation passed last year to ensure all companies can utilize this new statute whether they manufacture products or sell services or intangibles.

“On behalf of the state’s business community and all Missouri taxpayers, I’d like to congratulate our legislature for their success in tackling tax reform this year,” said Daniel P. Mehan, Missouri Chamber president and CEO. “The bills passed this year represent a significant improvement to our state’s tax system. While there are still plenty of improvements that could be made, our lawmakers deserve much praise for fixing some of the most glaring problems in our tax statutes.”

While tax reform was the most significant achievement during the 2014 legislative session, lawmakers also passed many other notable bills.

Improving Missouri’s business climate

Several critical bills passed by the General Assembly will improve the state’s climate for business growth and expansion.

•Unemployment insurance reforms: The recent economic recession left Missouri’s employers with a massive unemployment debt to repay. Unemployment insurance reforms passed this year will help reduce this debt and ensure future economic downturns are less costly. Senate Bill 510, sponsored by Sen. Kraus, will ensure employees who are fired for willfully breaking workplace rules are not rewarded with unemployment compensation. Senate Bill 673, sponsored by Sen. Mike Kehoe, a Republican from Jefferson City, ties the number of weeks Missourians can receive unemployment benefits to the state unemployment rate.

•Unclaimed property: Currently, Missouri ranks among the states with the worst unclaimed property laws. House Bill 1075, sponsored by Rep. Rocky Miller, a Republican from Tuscumbia, ensures Missouri won’t follow other states in padding state revenues using unclaimed property taken from businesses and individuals.

•Stopping patent troll scams: Missouri businesses are vulnerable to scammers who attempt to extort funds by fraudulently claiming patent infringement. Senate Bill 706, sponsored by Sen. Mike Cunningham, a Republican from Marshfield, allows businesses to successfully sue alleged patent trolls.

•Preserving the Shared-Work Program: Missouri’s Shared-Work Program allows companies to reduce the hours their permanent employees work during temporary periods of slow business. To help make up for lost wages, the employees collect partial unemployment payments. This is a vital program for the approximately 350 employers and 30,000 workers who use it each year. Senate Bill 844, sponsored by Sen. Bob Dixon, a Republican from Springfield, keeps the Missouri’s Shared-Work Program in operation.

•Stopping the economic border war: For many years, economic development officials in Missouri and Kansas have been incenting businesses to move from one side of the border to the other, with no overall economic benefit for the region. Senate Bill 635, sponsored by Sen. Ryan Silvey, a Republican from Kansas City, will help reserve our development incentives true growth projects.

“Each year, it seems like new challenges emerge that threaten our state’s businesses and their ability to grow and create jobs. If it’s not a national recession or the threat of Obamacare, it’s the many issues we saw this year: fraudulent unemployment claims, massive unemployment insurance debts and patent troll scams,” said Mehan. “We thank the leaders in our General Assembly for staying current and continuing to address these problems as they arise.”

Investing in tomorrow’s economy

With an increasingly competitive global economy, Missouri lawmakers also had their sights set on positioning the state for future success.

•Investing in transportation: Missouri’s transportation system is facing a massive funding shortfall, which could lead to crumbling infrastructure. House Joint Resolution 68, sponsored by Rep. Dave Hinson, a Republican from St. Clair, will ask voters to approve a three-quarter-cent sales tax providing critical resources to preserve and modernize our transportation system.

•Attracting data centers: Technology is the future. One way Missouri can capitalize on this is by becoming a great state for data center development. Legislation amended to Sen. Dixon’s Senate Bill 584 would create a state and local sales tax exemption for resources or equipment used or consumed in the production or facilitation of a data center, including utilities and electricity.

•Energy future: The EPA is poised to release new emissions rules for existing power plants. Missouri’s reliable, affordable coal plants will likely be targeted. House Bill 1631, sponsored by Rep. Todd Richardson, a Republican from Poplar Bluff, would give Missouri greater authority in this discussion. It enables the state to make regulatory decisions that are in the best interest of our citizens and business community.

•Common core: The Common Core is an important education initiative to ensure Missouri’s student performance measures up with competing states and nations. Missouri lawmakers wisely looked beyond early concerns with this effort and allowed implementation to continue.

“The economic landscape is always shifting. If Missouri chooses to stand still, we will be left behind,” said Mehan. “The states that will grow are those that are able to look ahead and make changes to put their state on a path to success. With tremendous cooperation between leadership in the House and Senate, our lawmakers did that this year. Their foresight is commendable.”

Work left undone

While there are many reasons to celebrate the successes of the 2014 legislative session, some significant work was left undone.

•Medicaid reform: The state continues to leave $2 billion annually on the table. This is funding that Missourians are contributing to the federal program that is now being diverted to other states. The Missouri Chamber of Commerce and Industry will continue to pursue passage of this important legislation.

• Right to Work and Paycheck Protection: Missouri’s workers should have a right to decide if they want to join a union or if they want their pay to go toward political campaigns. With many other states enacting similar laws, Missouri is being left behind.

•Restoring malpractice caps: The Missouri Supreme Court’s decision to remove Missouri’s malpractice lawsuit caps in 2012 has endangered the state’s physician community. The multimillion dollar judgments that were driving doctors from the state prior to the 2005 reforms are back. The 2014 session left this problem unfixed.

The Missouri Chamber of Commerce and Industry (www.mochamber.com) was founded in 1923 and is the largest business organization in Missouri, representing almost 3,000 employers, providing more than 425,000 jobs for Missourians.