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From Governing’s
Given a system like that, it’s no surprise that private-sector groups bring tax cases to court on a regular basis. There’s relatively little to lose and a lot to gain. One of the top priorities of the state Revenue Department has been to keep the litigation down by hacking away at the mare’s nest of confusing regulations, such as the ones governing the sales tax. “If the gray issues are made clearer and moved more toward the black or the white,” says Revenue Director Carol Fischer, “that will encourage voluntary compliance.”
Actually, the simplification campaign is making progress. Of 350 sales tax regulations, managers have already rescinded nearly 150, replacing them with about 40 newer and clearer ones. At the same time, Missouri is attempting to bring similar clarity to the individual and corporate income tax. And whether it’s a matter of cause and effect or not, there’s been a clear decrease in the number of administrative hearings. In 1999, there were 1,849 such hearings; in 2001, there were 954. Meanwhile, the Revenue Department has been trying to improve communications with taxpayers through its Web site. The same training manual used to brief the department’s new auditors is available to the general public online, with regulations renumbered to correspond to the topics in the manual. They’re all written in the same format and include examples and citations to significant cases on the topics. The department has worked to make its own practices more efficient. Like many jurisdictions, Missouri used to employ an “assembly line” tax review process, with individual employees each handling a particular issue or line item. Now, a single employee does a complete return. In four years under this system, the average processing time for income tax forms has been reduced from 17 days to three, and the error rate has fallen from 16 percent in fiscal year 1999 to 9 percent in 2002. In the end, though, managers can do only so much. Despite the simplification effort, the tax code as a whole needs revision, and decades have gone by since the last legislative attempt to deal comprehensively with its problems. The tax base is narrow and full of holes created by exemptions for both income and sales taxes. Fairness problems are inevitable when credits and exemptions expand without much review. Missouri struggles with adequacy problems as well. A $1 billion shortfall is currently being projected for the next fiscal year — that’s roughly double the amount of the one-time revenues used to balance the current budget. Last April, despite the improvements in processing income tax returns, taxpayers were told that they had to wait to receive their refunds. The state just didn’t have the cash. Meanwhile, Missouri’s Hancock Amendment, a constitutional limit on revenue growth passed in 1980, stifles the ability to raise money. The formula is somewhat complicated, but the basic idea is that when revenues exceed a pre-set limit, the surplus is automatically returned to taxpayers. The amendment didn’t define the critical word “revenues” very clearly, leading to a parade of court cases, many of which have broadened the definition. Between 1995 and 1999, the amendment forced the state to make refunds totaling $973 million. It’s not that the Hancock Amendment, in and of itself, is a flawed idea. In other states, annual refund mechanisms act to discourage legislators from enacting imprudent permanent tax cuts. But Missouri’s legislators have opted for big permanent tax cuts in addition to the Hancock refunds. In recent years, they have increased individual income tax exemptions, created a tax break for private pensions, removed some of the sales tax on groceries, cut the sales and franchise taxes and added new tax credits for business and individuals. These actions decreased the state’s revenues by close to $1 billion annually — about 13 percent of the 2003 budget. “It wouldn’t take a genius to see that you’re going to get whacked sometime soon,” says Phares. What’s more, the state dictates stringent restrictions on local property tax collection. “The biggest obstacle we have here in Missouri is the tax statutes have not kept up with the modern economy,” Fischer notes. “Part of the problem is due to the fact that the legislative process has contributed to the narrowing of tax bases, whether it be at the sales tax level or the corporate income tax level or individual income tax level. It is the wrong direction to go in.” Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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ou don’t usually picture funeral directors with a happy expression. But Missouri’s morticians were given a great deal to smile about last September. An administrative court judge ruled that the state had no right to make them charge sales tax on caskets, burial vaults and grave liners. “Maybe when you’re dead everything becomes spiritual or something,” speculated Donald Phares, professor of economics and public policy at the University of Missouri-St. Louis. But there was more to the windfall than that. Under Missouri law, there is no obligation to refund sales tax to individual taxpayers when a tax is found to have been incorrectly applied. The funeral directors got to keep the cash.