Missouri tax breaks: Expansion? Or clarification?

Written by Muleskinner Staff

(JEFFERSON CITY, Mo., AP) — What do pizza parlors and power companies, clothes cleaners and computer data centers have in common?

They all could reap tax breaks under legislation passed in Missouri.
So could people who buy old cars or fresh food from farmers’ markets. People trying to get in shape. And people merely trying to stay alive through the use of experimental drugs.
Missouri legislators approved about two dozen tax breaks tailored for particular industries, organizations and consumers during their annual session that ended this month. Added together, they could cost the state anywhere from $200 million to nearly a half-billion dollars. (If you purchase a graphing calculator to help figure that out, there’s a special tax break for that, too.)
Gov. Jay Nixon contends the “cavalcade of special interest tax breaks” could bust the state budget and has warned that he may respond with a bunch of spending cuts and vetoes.
“This is a very wrong path, and I’m going to correct it,” Nixon said after lawmakers concluded their session.
Yet to some business leaders, it is Nixon’s administration and the courts who have taken the wrong path by narrowly interpreting the tax exemptions in existing state law. They describe many of this year’s provisions as mere clarifications of how tax policies ought to have been implemented.
“From the taxpayers’ point of view, we’ve kind of been nickeled and dimed to death with what’s happened,” said Ray McCarty, president of Associated Industries of Missouri. “It’s unfortunate that we had to take one session and just straighten all of those things back up.”
The special tax breaks are round three of a bout between the Democratic governor and Republican-led Legislature. Nixon prevailed last year when legislators failed to override his veto of a broad income tax cut. But lawmakers won earlier this month when they overrode his veto of a different income-tax-cut measure benefiting individuals and businesses.
Legislators then passed a series of specially tailored tax breaks, many of which won final approval on their final day of session.
The most notable is a sales tax exemption for electricity and equipment used by computer data centers, which store or process electronic information. Business groups have pursued the tax break for years. At one point, they backed a version targeted only for new or expanding facilities that create a certain number of jobs. But the measure that ultimately passed is much broader, applying to all data centers regardless of whether they are expanding their payroll or facilities.
Nixon’s budget office estimates the tax break could zap up to $220 million of state revenues.
McCarty laughed at the projection.
“That’s crazy,” he said. “I don’t see any way in the world it could possibly be that much money.”
Unlike with many bills, no financial projection had been prepared when lawmakers voted on the data center provision.
Business groups contend the sales tax break would ensure data centers are treated similarly to manufacturers, which already pay no tax on the energy and equipment used in processing their products. The same logic was employed by lawmakers this year when approving a sales tax exemption for the poles, wires and transformers used by power companies and for the electricity used by restaurants, bakeries and grocery stores to process food.
The food-related provision would overturn a March decision by the Missouri Supreme Court denying a “processing” tax break for the in-store preparation of foods cooked at 40 Schnucks grocery stores. A separate measure would overturn a March high court decision denying a “processing” tax break for the soap and chemicals used by commercial laundries.
Yet another provision would overturn state court and Revenue Department decisions charging sales tax on the use of fitness centers, under an interpretation that they are places of recreation.
Nixon’s administration says the bill redefining recreation-related taxes could cost the state $42 million, the food-processing exemptions $85 million and the power company tax breaks an additional $30 million.
Business groups dispute those projections.
But education groups, which depend on state tax dollars, are concerned about the potential costs.
“Perhaps there is merit to many of these on an individual basis,” said Brent Ghan, a spokesman for the Missouri School Boards’ Association. “But at some point, we’ve got to stand back and take a cumulative effect that these might have on state revenues and the ability of our state to continue to fund education and other services.”