This article first appeared in the St. Louis Beacon: Gov. Jay Nixon has upped the ante in his criticism of a broad-based tax cut bill awaiting his decision, saying Thursday that it removes a sales tax exemption for prescription drugs that will raise taxes for millions of Missourians.
One sponsor of the bill says there’s plenty of time for the legislature to correct what he deemed a drafting error. The legislator was among several business groups who called for Nixon to sign the measure into law anyway, with the aim of correcting the problem next year.
Earlier this month, the General Assembly sent Nixon legislation that makes significant cuts in personal income, business and corporate taxes. Estimates of the annual cost of the measure differ widely, with Nixon's administration saying it would cost the state over $800 million a year.
Backers say the cost would be much less, and also point to provisions that delay implementation if state revenue growth falls below $100 million a year.
At least three times in the past month, Nixon expressed concerns about the bill – mainly that it would sap revenue for much needed-state services.
On Thursday, Nixon’s office put out a press release that referred to wording in the bill that ends the state's current exemption on prescription drugs from the state’s sales tax.
“The out-of-pocket cost of prescription drugs, especially for those suffering from cancer, heart disease or other life-threatening conditions, already puts a strain on many Missouri families,” Nixon said in a statement. “That is why it is so troubling that House Bill 253 would repeal Missouri’s long-standing sales tax exemption on prescription drugs."
Nixon's statement estimated that the language in the bill would amount to a roughly $200 million sales tax increase.
“This is a tax increase that Missourians cannot afford and don’t deserve,” he added.
Missouri Budget Director Linda Luebbering told the Beacon that the $200 million figure came from the Tax Expenditure Report, which she said has been updated by the University of Missouri-Columbia. The report – which gauged the cost of the state’s tax exemptions – estimated that the sales-tax exemption on prescription drugs costs the state around $200 million a year.
In an interview, one of the bill’s sponsors – state Sen. Will Kraus, R-Lee’s Summit – said that the Department of Revenue vetted the language. He added that the department wanted language to conform to the “streamlined sales tax,” a multi-state compact giving retailers the ability to collect online sales taxes.
"There was no intent for us to take out the exemption for prescription drugs," Kraus said.
Michelle Gleba, a spokeswoman for the Missouri Department of Revenue, said in an e-mail to the Beacon that “the language provided to Legislative Research by the Missouri Department of Revenue protected the sales tax exemption for prescription drugs.”
On Friday, Rep. Chris Kelly, D-Columbia, said it was “ridiculous” for Kraus and others to blame the Department of Revenue for the situation.
“What this displays in stark term is that he didn’t know what was in his own bill," Kelly said. "It was a $700 million tax bill and he didn’t know the content of it. That’s pretty serious. And then he tries to blame the governor. It’s effectively like saying ‘Nixon’s dog ate my homework.'"
Backers call for fixing problem next year
Kraus said that the bill doesn’t go into effect until 2015, which provides more than enough time for legislators to fix the language in question.
“So it can be very easily corrected next year during the legislative process,” Kraus said. “It was an oversight. The way we’re understanding it is that’s the way we thought it had to be done for the streamlining compact."
In separate statements, representatives of the Missouri Chamber of Commerce and the Associated Industries of Missouri urged the governor to sign the bill and have the legislature fix the error next year.
“One of the strongest economic development tools we can provide is broad-based tax relief, which is contained in this bill,” said Tracy King, the chamber’s vice president of governmental affairs. “It allows existing businesses to keep more of their earnings to reinvest in workers and expansion. At the same time, it gives prospective employers a strong reason to move to our state.”
Preventing veto override?
Nixon’s statement may have another purpose besides pointing out problems with the bill.
Based on the legislation’s vote total, the General Assembly could override a potential veto in September. But that's only if at least six Republicans in the Missouri House who didn’t vote earlier this month choose to override Nixon’s objection. It’s possible that Nixon's statement may provide some pause to lawmakers unsure about an override.
Nixon's done such a move before. Before last year’s veto session, Nixon noted that an override of vehicle tax legislation would have resulted in tax bills for over 120,000 people who purchased a vehicle out of state or through a person-to-person transaction. That prompted some lawmakers – like Sen. Rob Schaaf, R-St. Joseph – to change their minds about the bill. And House and Senate leaders opted not to go through with an override attempt.
Kelly called Nixon's statement the "death knell" to any override on the bill.
“There’s no question that they will not be able to override it," Kelly said. "Because to vote to override it would be voting knowingly to impose the tax.”
Kraus said Nixon’s comments are "the governor’s way of trying to change the message on tax policy.”
“He does not want to be known for vetoing a broad-based tax cut bill for Missourians – and to make Missouri businesses competitive,” Kraus said. “To take it away from the fact that this is a tax cut, he’s going to try and say this is a tax increase on Missouri’s senior citizens.”
“Here’s the thing that I think is very important,” he added. “It will be fixed in the 2014 legislative session. If he signs this bill, there is no intent of the General Assembly Republicans to raise a sales tax on senior citizens. Zero. None.”
In response to Kraus' comments, Nixon’s office released a statement later on Thursday that said while the “Senate handler may not consider” the tax increase on prescription drugs “a cause for immediate concern, I do.”
“For Missouri seniors and others who rely on prescription drugs to stay healthy, this is a very serious matter,” Nixon said. “Unfortunately, this is only one of many red flags that the ongoing assessment of this legislation has raised. I will continue to review this bill carefully and identify any other problems as expeditiously as possible.”