Senators reject proposed increase in sales tax

JEFFERSON CITY, Mo. -- Missouri senators narrowly defeated a proposal Wednesday that would have asked voters to raise the state sales tax temporarily as a way to soften cuts to state government.

Instead, the Senate passed legislation that raises revenue through a variety of more unconventional ways, including elimination of some business tax breaks that Democratic Gov. Bob Holden has labeled "loopholes."

The state budget office said the legislation would generate about $164 million, including nearly $120 million that had had not been assumed when the state budget was crafted for the fiscal year that starts July 1.

State Sen. Charlie Shields, who is handling the legislation, called that "a significant amount of revenue" -- although it is still short of the Senate's goal.

Last week, the Senate passed a proposed budget that allows the expenditure of $18.8 billion or $19 billion -- depending on whether legislators can come up with $200 million in additional revenue.

Negotiations between the House and Senate on a final version of the budget have been delayed as lawmakers consider ways to raise money.

Holden has advocated a variety of tax proposals that could be put before voters. Republicans, who control the House and Senate, have generally opposed any proposals that would refer a tax increase to voters.

Amendment offered

But it was a Republican -- Sen. Doyle Childers of Reeds Spring -- who offered the sales tax proposal, saying voters deserved to make the decision between higher taxes and deeper government cuts.

Childers' amendment called for imposing a special half-cent sales tax in the coming fiscal year, then phasing it out over three years. If collected for a full year, a half-cent sales tax would raise about $310 million for the state, according to the Department of Revenue.

"I know that we need to make very large cuts in the budgets of our different departments," Childers said. "However, the last $300 million of those cuts will be most severe, most difficult and impact the citizens of this state extraordinarily."

"It is in the best interest of this state to allow the citizens to make that decision as to whether we reduce those services as drastically as would be required," Childers said.

The Senate rejected the amendment on a 17-16 vote, with Childers getting support from all Democrats present but just two other Republicans -- Shields, of St. Joseph, and Sen. Bill Foster, of Poplar Bluff.

Majority Floor Leader Michael Gibbons encouraged Republicans to defeat the tax proposal. He said voters indicated their dislike for tax increases last year by rejecting proposals to raise taxes on tobacco, sales and motor fuel.

"It is necessary for us to take care of our own financial house," said Gibbons, R-Kirkwood. "Going out to the general public on a general tax increase, in my opinion, is doomed to failure."

Senators ultimately approved a bill that raises most of its money from one-time sources.

For example, the bill would raise an estimated $66 million by prohibiting businesses from claiming on their 2003 state income tax returns the accelerated depreciation write-offs that they are allowed to claim on their federal income taxes.

Because Missouri's tax code is linked to the federal code, changes in federal tax laws automatically carry over to Missouri. Lawmakers also dissociated the state from that particular federal tax break on the state's 2002 income taxes.

This year's Senate legislation would go a step further by permanently separating the entire state income tax code from the federal one. The change would mean the income tax breaks currently proposed by President Bush, if approved, would not carry over to state income taxes.

The bill also would repeal some of what Holden calls tax loopholes, which currently allow:

People buying big boats to avoid paying state sales tax by registering their boats for use by the Coast Guard in an emergency and instead paying a smaller, flat tax.

Some businesses based outside of Missouri to avoid paying some state income taxes by transferring money generated by Missouri stores to their out-of-state parent companies as royalties.

Businesses to keep overcollected sales tax money, if the customers who paid it cannot be identified.

------

Revenue bill is HB600.

On the Net

Missouri Legislature: www.moga.state.mo.us