HB 253 - Cutting taxes is focus of veto session’s controversies
Sunday, September 8, 2013
By substantial margins, Missouri lawmakers last May approved a bill making major changes to several parts of Missouri tax law.
Supporters said its major feature is a phased-in income tax reduction — a half-percent cut over a decade — for both individuals and companies.
Supporters said that change is needed to make Missouri more competitive with other states, especially Kansas and Oklahoma, which have reduced income taxes in recent years, and with Tennessee, which doesn’t have a general income tax.
But Gov. Jay Nixon vetoed the bill in early June, calling it “an ill-conceived, fiscally irresponsible experiment” that would cause financial problems for government and its citizens for years to come.
Almost immediately after issuing his veto June 5, Nixon began meeting with people all over the state, explaining his numerous reasons for rejecting the bill and asking Missourians to encourage their lawmakers to uphold his veto when they gather in Jefferson City on Wednesday for the annual veto session.
Supporters have not been quiet.
Since June, they’ve been running newspaper ads, television and radio commercials, and sending cards through the mail, all urging Missourians to tell their lawmakers to override the governor’s veto.
And both sides provide strong arguments for why they think the bill is good, or bad, for Missouri.
But what does the 177-page bill actually say?
Like many proposed laws, House Bill 253 proposes numerous changes to Missouri’s statutes.
Ten pages in the middle of the bill provide the heart of the controversy — the income tax cuts.
Lawmakers added new language to the existing section of law explaining how income taxes are calculated: “For all tax years beginning on or before the later of December 31, 2013, or the first calendar year after” the state’s general revenue collections were at least $100 million more than the amount collected “in any of the three fiscal years prior to such year ...”
After repeating the current tax calculations, with the 6 percent top tax on taxable income that we pay now, lawmakers wrote 11 new “subdivisions” of the income tax law, specifying how to reduce the tax rates over time — at least a decade, and longer if the $100 million “trigger” isn’t reached — eventually ending with a top tax rate of 5.5 percent.
A single paragraph at the end of those subdivisions provides the next dispute between the bill’s supporters and its opponents.
That three-line sentence orders an immediate half-percent income tax reduction “if the federal Marketplace Fairness Act of 2013 or similar legislation providing for a uniform method of collection of sales and use tax on purchases shipped into this state becomes federal law.”
Critics say the current Congress won’t pass that federal law, so it’s a non-issue.
But the Nixon administration said that the provision is triggered whenever Congress — this one or a future one — passes the federal law.
And, they say, since the language lawmakers used changes all tax tables, taxpayers can seek refunds for the current tax year where the change occurs, plus the three previous years — resulting in an estimated $1.2 billion hit to the state budget.
Lawmakers also wrote tax changes for “business income.”
It allows businesses to “subtract” from “the federal adjusted gross income of an individual taxpayer, the following amounts to the extent included in federal adjusted gross income when determining the taxpayer’s Missouri adjusted gross income:” 10 percent of the amount of business income in 2014; 20 percent in 2015; 30 percent in 2016; 40 percent in 2017; and 50 percent in 2018.
With its quicker tax breaks for businesses, supporters say, that’s a benefit needed to attract and keep businesses — especially small businesses — in Missouri instead of moving to Kansas or other states.
The bill also contains a corporate income tax reduction, with the same $100 million “triggers” as written for individual income taxes — eventually cutting the top tax rates from 5.95 percent to 3.25 percent.
The bill removes the sales tax exemption for prescription drugs and other items related to medical care, that haven’t been taxed since 1979.
That change was one of Nixon’s reasons for vetoing the bill.
There’s been a lot of finger-pointing about how that change happened, but almost everyone agrees this was not what lawmakers intended.
The end of the bill includes several pages showing the elimination of 11 existing sections of existing state law — including the sales tax exemption for college textbook sales, which Nixon cited as another reason for his veto.
That item hasn’t been discussed much during the summer-long debate.
And not all of the bill is controversial.
Among its major provisions, the bill authorizes the Revenue director to “enter into the streamlined sales and use tax agreement with one or more states to simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance for all sellers and for all types of commerce.”
The director may make rules and work with other states in buying goods and services to implement the agreement.
And the bill specifies how three people will be named to represent the state on the multi-state agreement.
The Legislature wrote a new section requiring its approval of any executive branch agreement that a person isn’t required to collect sales taxes in the state.
Near the end of the bill, lawmakers created a tax amnesty for “uncollected or unpaid sales or use tax to a seller who registers to pay or to collect and remit applicable sales or use tax on sales made to purchasers in this state” under a multi-state agreement.
And a number of the 177 pages in the bill repeat existing law for various kinds of local sales taxes, that require voter approval before they can be imposed.
Lawmakers then inserted changes to those sections — including defining the Revenue director’s duties in collecting and distributing local sales taxes, and making references to other parts of state law that affect the tax collections.
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