Missouri quietly kept overpaid sales taxes for five years

JEFFERSON CITY, Mo. -- For about five years, Missouri quietly held on to millions of dollars in overpaid taxes from consumers who shopped and dined in the state.

Now, the state has quietly paid part of that money back to businesses. But because of state law, most consumers never will see even a penny of those sales-tax refunds.

The retention and return of overpaid sales taxes came to light as part of an Associated Press inquiry into an unusually large spike in Missouri's annual sales-tax refunds during the recently concluded 2007 fiscal year.

The state paid out $88.4 million in refunds for sales and use taxes last year -- an amount nearly triple the $31.6 million refunded in 2006 and 75 percent higher than the average annual sales tax refunds during the past five years.

Part of the reason for the increased refunds is that the state returned about $19 million to telephone companies under a 2002 Missouri Supreme Court ruling that is just starting to kick in, said Department of Revenue spokeswoman Maura Browning. That court case was public, though the department had not previously publicized the refund payments.

But after the AP's inquiry, the Revenue Department also acknowledged that it had stopped notifying businesses in 2002 that they had overpaid state sales and use taxes.

"Those funds were simply kept by the state, and a taxpayer may not have known that he or she had overpaid," Browning said.

Missouri was strapped for money at the time. To try to balance the budget, then-Gov. Bob Holden withheld money from colleges and most state agencies and urged departments to save money.

Many of the top spots at the Revenue Department turned over when Gov. Matt Blunt took office in 2005, and the state's finances have since improved to where it now has a surplus. Late last year, an attorney from outside the department brought the previous policy change to the attention of the state's current tax administrators, Browning said.

"The director felt that it was inappropriate and it was not fair for the department to know that it had received excess payment but not to notify the taxpayer," Browning said.

The Revenue Department mailed out letters in December offering businesses refunds or credits against future sales taxes for their overpayments during the past three years, the maximum time period allowed under state law. That backlog amounted to about $13 million in refunds during the ensuing months, Browning said.

Carol Fischer, who directed the Department of Revenue when that policy change occurred, said Wednesday, "I don't recall that decision being made."

"But the state certainly was experiencing some very difficult fiscal times," Fischer added. "So sure, it's a possibility."

Former longtime Sen. Wayne Goode, a state financial expert who then was the ranking minority member on the Senate Appropriations Committee, said Wednesday that he also was unaware that the state had stopped notifying business of overpaid sales taxes.

But "with the downturn in revenue, and how desperately the Holden administration was trying to hold things together, I can see how that could have happened and probably did," said Goode, who now is on the board of directors for the Consumers Council of Missouri.

Most distressing for Goode and other consumer advocates is that very little, if any, of the sales tax refunds are likely to make it into the wallets and purses of Missouri shoppers.

Missouri law does not require businesses, which collect sales taxes from their customers, to return sales tax refunds to the people who paid them. The reasoning is that it would be timely and costly, if not impossible, for a retailer to determine how much was due to each of its hundreds, thousands or millions of customers.

But Goode contends that notion is becoming invalid.

"In this day and age, with credit cards and debit cards, the vast majority of the time the retailer would know who that is and could return it," Goode said.

Goode was among several lawmakers who tried repeatedly but unsuccessfully to change Missouri's law on sales tax refunds. The closest they came was in 2001, when a bill that would have required retailers to return sales tax refunds to buyers died on the session's final day. If the customers could not be found, then the overpaid sales taxes would have been deposited in the state's abandoned property fund, from which the original customers could have made claims.