Special interest tax breaks are a hot topic of debate as veto session looms

JEFFERSON CITY -Hundreds of millions of dollars in tax cuts for business along with resulting cuts in education appropriations will be at stake when Missouri lawmakers return for the annual veto session Wednesday, Sept. 10.

Ten tax-break bills are among 33 bills vetoed by Gov. Jay Nixon along with hundreds of budget reductions the governor made earlier this year. One veto already has been overridden.

The governor has argued the ten tax bills are special interest tax breaks that would cost state and local governments $776 million per year. Legislative staff, however, put the loss at $593 million per year in the first year of full implementation.

Much of the difference in the two figures involves a bill that would require the Revenue Department advise merchants before making a change in the rules defining what is covered by the sales tax. The governor's administration put a cost of that item at about $200 million. Legislative staff said they could not make an estimate and, thus, did not give any figure.

Nixon has used the potential tax losses as justification for his budget cuts.

The bills include tax breaks for data processing centers, restaurants, convenience stores, dry cleaners, manufactured homes, cars over 10 years old, and graphing calculators that cost less than $150.

In his veto messages, Nixon repeatedly argued the tax breaks would hurt Missouri's economy.

In each veto letter, Nixon wrote that the bill "would continue a damaging trend by the General Assembly to enact special tax exemptions and credits that pick winners and losers and shift a greater proportion of the tax burden to the majority of Missourians unable to utilize such loopholes."

After Nixon vetoed the bills, multiple senators released a statement firing back at the governor.

"The governor will come up with anything to argue against tax breaks for the middle class," said Sen. Kurt Schaefer, R-Columbia. "He has proven over and over again that he supports a bigger government and higher taxes. The governor's belief that the people's money is the government's money is profoundly wrong."

"We have done our due diligence as legislators to protect Missouri taxpayers and provide the tools necessary to attract jobs to the state," Senate President Pro Tem Tom Dempsey added.

The tax bills Nixon vetoed this summer are:

SB 584: Sales tax exemptions for manufactured homes, motor fuel used at marinas, experimental drugs to treat terminal illnesses that haven't received approval from the FDA, and data processing centers. Estimated cost of the bill: $444.6 million.
SB 612: Extend the sunset clause for allocation of the non-resident entertainers and athletic team tax to agencies such as the Arts Council and Humanities Council. It also includes sales tax breaks for laundries and interstate sales and restrictions on changing sales tax rules. Estimated cost: $15.4 million.
SB 662: Requires the Revenue Department to notify a seller of a change in sales tax coverage caused by a rule change or court decision before a seller is liable for the tax. The final version of the bill also includes various sales tax exemptions and legal protections for businesses in sales tax disputes Estimated cost: $15.4 million.
SB 693: Sales tax exemptions for cars that are 10 years or older at the time of titling, and for purchases of used equipment in the wine and grape industry. Estimated cost: $67 million.
SB 727: Sales tax exemptions for products sold at farmer's markets as well as a new pilot program where food stamp recipients could purchase fresh produce with their food stamps. Also included is a provision removing a ban on food stamps for a drug felon for participation or completion in a drug-abuse treatment program. Estimated cost: $3 million.
SB 829 and HB 1455: Expands to all companies a provision giving the Revenue Department the burden of proof in a tax liability dispute. Estimated cost: $100,000
SB 860: Expands a sales tax break on manufactured homes to include used homes. Estimated cost: $1.7 million
HB 1296: Lets a seller advertise that any sales taxes due on the purchase will be assumed by the seller as part of the purchase price, so long as the sales tax cost is stated on the invoice. It also includes a sales tax break for graphing calculators costing less than $150 purchased during the annual state sales tax holiday. Estimated cost: $16.2 million.
HB 1865: Exempts from the sales tax utility expenses used for the preparation of food that will be sold. The final version adds other business tax breaks including food preparation costs. Estimated cost: $29.5 million.

In May during the regular session, lawmakers overrode his veto of a business and income tax cut bill, SB 509, that legislative staff estimated ultimately would cost the state nearly $1 billion per year when the cuts are fully phased in after a several year period.

In response to the tax cut bills along with lower-than-expected revenue collections, Nixon has vetoed or withheld numerous more than budget items.

Nixon has promised to release about $140 million in budget withholdings from education and higher education if the legislature sustains the remaining tax-cut vetos, the governor said Thursday, Sept. 4.

However, the governor also made his budget withholding decisions contingent on the legislature sustaining a large number of budget line-item vetoes which Nixon said the state could not afford.

"Writing checks you can't cash and attempting to live beyond our means does not reflect our values or the fiscal realities that we face," Nixon said.

With more than 140 separate items reduced or eliminated in the budget, legislative staffers have estimated it would take as much as ten hours in the House alone just to vote on each one.

Unlike the U.S. president, Missouri's Constitution gives the governor what is termed "line-item" veto powers to reduce or eliminate items in a budget bill that he ultimately signs.

Like a non-budget item veto, a line-item veto override requires a two-thirds vote of both the House and Senate.

Even if the legislature overrides a budget line-item veto, however, the governor can come back and simply restrict allocation of the un-vetoed spending item as has been done in the past.

The Missouri Supreme Court has upheld broad powers of the governor to block spending approved by the legislature in a 2013 decision involving a legal challenge filed by the state auditor.

In the days leading up to the veto session, staffers were evaluating whether a number of the individual line-item vetoes could be overridden by a single vote.