Emails show origin of medicine tax

Legislative bill drafters and an official in Gov. Jay Nixon’s administration each had a role in crafting an apparent inadvertent tax increase on prescription medications that may provide Nixon a reason to veto Missouri’s first income tax cut in more than 90 years, according to emails provided Friday to The Associated Press.

Nixon revealed Thursday that his staff had discovered a provision in an income-tax-cut bill passed by the Republican-led Legislature that could cost consumers more than $200 million annually by repealing an existing sales tax exemption on prescription drugs. The Democratic governor, who already had indicated he may veto the legislation, called the prescription provision a “troubling” tax increase that “Missourians cannot afford and don’t deserve.”

Republican lawmakers countered by suggesting that Nixon could sign the income tax cut into law and let the Legislature later fix the prescription tax before it is scheduled to take effect in 2015.

Both parties blamed the other for the problem. Emails released Friday to the AP show both may bear some responsibility.

The Department of Revenue provided the AP with a copy of a Jan. 24 email from one of its staff members to an employee in the House research office. Attached to the email was a draft for a bill that would revise the wording of Missouri’s sales tax laws to comply with the requirements of a multi-state compact known as the Streamlined Sales and Use Tax Agreement. States that adopt the standardized tax definitions can receive taxes voluntarily paid by retailers for online sales.

That draft legislation provided by the Revenue Department would have kept intact the current sales tax exemption for prescription drugs. But there apparently were other problems with the draft.

State Rep. Andrew Koenig, who was sponsoring the streamlined sales tax legislation, provided the AP with a copy of an email exchange dated Jan. 25 and Jan. 28 between the Revenue Department official and a staff member of a legislative bill drafting office. Those emails show that legislative bill drafters found various other things that needed to be corrected in the wording supplied by the Revenue Department.

The revised draft of the legislation sent back to the Revenue Department included the wording that inadvertently repeals the tax exemption for prescription drugs.

But no one appears to have noticed the problem.

The Revenue Department official responded with an email approving of the wording.

Although Koenig’s bill did not pass, Koenig said Friday that its wording was used as a model for other bills that contained the streamlined sales tax initiative, including the final version of the income-tax-cut bill that is now pending before Nixon.

“I would think it was just a mistake,” said Koenig, R-St. Louis County, who is chairman of the House Ways and Means Committee. “I think the governor should go ahead and sign broad-based tax relief for Missourians and then we’ll come back and fix this mistake” during the 2014 session.

But Nixon said in an emailed statement Thursday to the AP that he considers the prescription tax hike “a cause for immediate concern.”

“For Missouri seniors and others who rely on prescription drugs to stay healthy, this is a very serious matter,” Nixon said. “Unfortunately, this is only one of many red flags that the ongoing assessment of this legislation has raised.”

If it were to become law, the legislation would phase-in a 50 percent deduction over five years for business income reported on individual income tax returns. It also would gradually cut Missouri’s corporate income tax rate nearly in half over and lower the top tax rate for individuals from 6 percent to 5.5 percent over the next decade. The rate reductions for corporate and individual taxes would take effect only if annual state revenues continue to grow by at least $100 million over their highest point in the preceding three years.

Legislative researchers had estimated that the measure would reduce Missouri’s potential revenues by about $700 million annually when fully implemented, but that analysis did not include the potential pharmaceutical tax increase. The governor had said previously that the lost revenues could jeopardize funding for essential state services such as public education and mental health care. He had indicated May 10 that he was likely to veto the legislation.

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