BUSINESS GROUPS PLAN HANCOCK SUIT

Two major business groups in Missouri want the state to recalculate the Hancock Amendment tax refund formula and refund more money to taxpayers.

The Missouri Chamber of Commerce and the Missouri Merchants and Manufacturers Association plan to file a lawsuit next week in Cole County Circuit Court in Jefferson City seeking to force state government to change the way it calculates the tax refunds.

Among other things, the business groups question the state's use of tax credits. They argue the state wrongly is taking advantage of tax credits to reduce the amount of money it has to refund to taxpayers.

"This is an issue of fairness," said Sheelah Yawitz, president of the Missouri Merchants and Manufacturers Association. The group, based in St. Louis, has more than 700 members.

Yawitz said it appears the state has miscalculated the money owed Missouri taxpayers.

State Budget Director Mark Ward couldn't be reached for comment Friday afternoon.

James Owen, a partner in the Chesterfield law firm that is representing the two groups, said the lawsuit likely will be filed Thursday.

The two business groups will ask the judge to allow the case to proceed as a class-action lawsuit so it can apply to all taxpayers in Missouri.

Dan Mehan, president of the Missouri Chamber of Commerce, urged individual and corporate taxpayers to join the lawsuit. "In order to secure success of this lawsuit, we are asking as many income taxpayers as possible individual and corporate to join in the lawsuit," Mehan said in a letter last week to its 3,000 members.

Mehan said there is good reason for taxpayers to join the suit. If the judge doesn't accept the lawsuit as a class-action case, then only the plaintiffs will receive increased Hancock tax refunds, he said.

Mehan and Owen said the state needs to go back to the base year of 1980-1981 and use a different formula to calculate tax refunds.

The Missouri Supreme Court ruled this year that Conservation Department sales tax revenues should not be included in calculating total state revenue for purposes of the Hancock tax refund formula.

Mehan said the state didn't take the Conservation money out of the base-year revenue figure used to calculate refunds for 1995, 1996 and 1997. "Instead, the state only took these monies out to calculate the taxpayers' 1998 refunds. We contend that the formula for refunds must be recalculated and additional monies refunded to income taxpayers," Mehan said.

According to the chamber, the state owes taxpayers $132 million in added refunds for fiscal years 1995 through 1998. Refunds should include another $95 million a year for 1999 and 2000, Mehan said.

Those estimates don't take into account the tax-credit issue raised in the lawsuit.

Since 1980 when the Hancock Amendment to the state constitution was passed, there has been an increase in tax credits that could keep money from going into the formula used to pay refunds, Mehan said.

The lawsuit will ask the court to declare which of the many tax credits are properly classified as related to actual tax liabilities. Those that aren't shouldn't be used in Hancock calculations, the plaintiffs say.

There's also the issue of whether tax credits should be included in "tax liability" when calculating the amount of Hancock refund that is due a particular taxpayer.

"The Department of Revenue has calculated the refunds based on the amount of tax paid after credits," said Mehan. "We believe that taxpayers should not be punished for properly using tax credits and that their entire tax liability should be used to compute their refund."

Owen said the state's Economic Development Department authorized the issuance of $80 million in tax credits in 1996. Two years later the figure climbed to $261 million in tax credits.

In all, $48 million in Economic Development tax credits were used in 1996 and $73 million in 1998, he said.

"They can kind of hide government spending by giving a credit," said Owen.

He said the state is artificially reducing the state revenue figure on which tax refunds are based.