McCaskill - Audit says state has no way to track tax exemptions

JEFFERSON CITY, Mo. -- Missouri has about 115 ways to avoid paying sales tax, and for almost all of them, the state doesn't know how much tax revenue it's missing, according to an audit released Thursday by State Auditor Claire McCaskill.

Missouri's sales tax is 4.25 percent, a figure that does not include sales taxes levied by local governments. But a wide array of purchases are exempt from some taxes, ranging from food and insulin to animals used for breeding or feeding purposes.

The state collected $2.8 billion in sales taxes last year. But about $110 billion worth of items exempted from state sales tax were sold in Missouri last year.

The audit recommended the Division of Taxation find out exactly how much tax revenue could be collected and from what sources.

Responding to the audit, the Taxation Division claimed little could be gained by trying to determine how much revenue would be collected if not for the exemptions.

If it tried to do so, tax forms would have to be changed so that taxpayers would somehow indicate the exemptions they use. Doing so would be "costly and unwieldy for taxpayers and the department," the Taxation Division wrote in its response.

The one exemption whose effects are clearly known is the partial sales tax exemption on groceries. Last year, the state lost $204 million in sales tax revenue it could have collected on food.

The Taxation Division said it agreed "greater transparency in sales tax exemptions is a laudable goal." But it could not come up with a cost-effective way to do so when state tax law is so complex.

'Burden on business'

"It's really a huge burden on business to require all the reporting in detail," said Stan Farmer, director of the Division of Taxation. "It's a lot of work for the state and for business."

The audit also found the Taxation Division has an extra $9.5 million from businesses that overpaid their taxes. The department held onto that money as credit toward the companies' future tax payments.

But the $9.5 million has been left to the department for more than three years and by businesses that have closed their sales tax accounts, so they won't be paying taxes again.

The Taxation Division said it has a team working to solve the problem.