Missouri is doing a poor job of tracking the economic impact of tax breaks, according to an audit released on Wednesday.
Missouri state Auditor Nicole Galloway said state government has no idea if incentives, exemptions, and newer tax laws changes are working as intended. She said the state isn’t accurately measuring how much revenue it’s losing.
“As a result, Missouri risks the same mistakes as other states that jeopardize their budgets with special interest giveaways,” Galloway said. “Too often these cost estimates are formulated with out-of-date information and require much greater economic analysis than is currently performed by the legislature.”
Galloway also said cost estimates for some tax breaks are put together with outdated information and are not followed up on after they go into effect. She cited a 2015 bill that recalculated corporate income between states for tax purposes.
“The bill’s fiscal note estimated that the legislation would reduce state revenues by about $15 million per year,” she said. “However, in the first two years since the law was implemented, corporate income tax collections decreased by about $177 million, five times the amount predicted by the fiscal note.”
Galloway recommends that the Department of Revenue start tracking each tax exemption to see how they are performing. Revenue officials issued the following response:
“Tracking and reporting exemptions is an appropriate goal. Reporting exemptions would substantially increase the burden on businesses. Also, 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.”
Galloway also recommends the legislature pass a bill that requires fiscal notes for tax legislation to include follow-up review on any significant financial costs to the state.
Another finding stated that discounts to businesses that pay their sales and employee withholding taxes on time have cost the state $282 million over the past two years. And Galloway added that Missouri should collect sales taxes from online purchases.
She recommends that the Greitens administration and legislative leaders work together to estimate how much money the state is losing by not levying a tax on online sales.
The governor’s office has not responded to requests for comment.
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