Missouri tax credits

By Steve Hodges

Tax credits play an important role in Missouri's tax policy. Generally, a tax credit is a reduction for taxes owed. Government awards a tax credit to a private entity in exchange for some promised benefit.

The Department of Economic Development describes three types of credits: economic benefits, quality of life (or social) benefits, or a hybrid credit that produces economic and social benefits. Missouri initiated its first tax credit, the Senior Citizen Property Tax Credit, in 1973. Currently, the state offers between 50 and 60 tax-credit programs.

Tax credits work in different ways. Some have carry-back provisions that allow the recipient to recoup taxes already paid for previous years. Others have carry-forward provisions that apply to the payment of future taxes. Still others are refundable, which means if the credit exceeds one's tax liability, they get cash back from the state treasury to cover the difference.

One type of tax credit I disagree with is the transferable credit. With this type of credit, the person or business receiving it can sell it to someone else, usually at between 75 and 80 cents on the dollar.

For example, someone who receives a $10,000 tax credit can sell it for up to $8,000. The purchaser, in turn, cashes the full amount in with the state for a net profit, minus the purchase price, of $2,000.

This is an injustice to Missouri taxpayers. Tax credits are intended to promote certain worthwhile goals, not give tax breaks to those not involved with achieving those goals.

Tax credits can be entitlements or discretionary. Entitlement credits must be awarded if the applicant meets the program's requirements. For discretionary credits, the taxpayer must meet the requirements to comply with eligibility rules and also be selected at the discretion of the program's administrator.

Recapturing is another feature of some tax-credit programs that allows the state to get its money back if the recipient doesn't fulfill the obligations required in exchange for the credit.

A final item: Tax credits often have caps. The cap may limit the money available for a particular year, for a particular amount or for the life of the program.

When used properly, tax credits can create jobs and otherwise benefit Missourians. However, I will not recommend that the credits provide tax breaks to special interests without providing a legitimate benefit to the taxpayers footing the bill.

Steve Hodges of East Prairie, Mo., represents the 161st District in the Missouri House of Representatives in Jefferson City, Mo.