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Kraus, McGaugh and Zerr get manufacturing exemption Supreme Court decision fix to Governor

The Missouri House of Representatives Tuesday, with bi-partisan support, included changes in a bill that will supercede a State Supreme Court decision which overturned a quarter century’s worth of judicial precedent of sales tax exemptions for manufacturing equipment.

The state high court decision came on April 5, 2016. The decision overturned previous decisions on what manufacturing equipment is and how it is exempt from state sales tax. Those decisions date back to 1990’s Bridge Data Co. v. Director of Revenue.

The amendment to SB 823 was sponsored by Rep. Joe Don McGaugh. He and supporters of the amendment said the State Supreme Court’s most recent decision amounted to a judicially mandated tax increase.

“Clearly, tax increases should only be initiated in a legislative body,” said McGaugh during House floor debate. “We feel that now is the best time to use this vehicle to correct a wrong in this state.”

McGaugh said the new taxes that could be levied by the Court’s decision, according to the fiscal note provided by the Missouri Department of Revenue, could cost manufacturers up to one billion dollars a year. The amendment also drew support from Democrats who have also expressed frustration over the aggressive stances taken recently by the Missouri Department of Revenue, including Democratic State Representative Mike Colona.

“I haven’t met many tax increases that I don’t like, but at least I get to debate and vote on those,” said Colona.

The manufacturing exemption language was added by a voice vote to Senate Bill 823, sponsored by Sen. Will Kraus. That legislation would ban state sales tax on internet access. The bill also picked up another amendment in the House that mandates bed and breakfasts would be treated as residential property for property tax purposes – some counties currently treat them as commercial property and some residential property.

“The inclusion of the manufacturing exemption language in Senate Bill 823 is a huge victory for manufacturers in the state, blocking this billion dollar tax increase by the Nixon administration and Supreme Court, and we will work with everyone to try to ensure the bill makes it across the finish line in time,” said Associated Industries of Missouri president and CEO Ray McCarty.

With those changes made, the House voted 123-17 to send the bill back to the Senate for final action.

The Senate on Thursday voted to send the legislation to a conference committee to work out the differences between the bill the Senate sent to the House and the bill the Senate got back in return.

UPDATE May 12: Thanks to the hard work of all the lobbyists working on this bill, we received a unanimous 32-0 vote in the Senate and a vote of 131-5 in the House.

The bill now has no fiscal note and, although it is less than we wanted, at least we can stop new assessments until August 28, 2017; assuming the Governor signs the bill.

House Democrat Representative Carpenter also explained the bill in a way that delays implementation of the decision until after next session. And others acknowledged it would be an issue next session.

Great work everyone – it has been a pleasure to work with many businesses and organizations on this project! Special thanks to Senator Will Kraus and House handler Rep. Anne Zerr!

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