Senator Bob Onder handles AIM’s clarification of utility sales tax exemption
Senator Onder explained the similarity between electricity production and the production of telephone signals and that the Missouri Supreme Court had held transmission and distribution equipment used by telephone companies to be exempt from sales and use taxes in the Southwestern Bell Telephone Co. v. Director of Revenue case. He also explained that since that decision, the definition of “manufacturing” was greatly expanded by the passage of SB 30 in 2007 and that collecting the tax was, “another example of the overreach of the Department of Revenue,” a theme that has been addressed by the Senate Ways and Means Committee this year.
Ray McCarty, president of Associated Industries of Missouri and executive director of the Taxpayers Research Institute of Missouri, testified that the exemption is merely clarification language for an exemption that should have been allowed previously by the Missouri Department of Revenue under the Southwestern Bell decision. That case took nearly a decade to resolve and resulted in the State paying out refunds and expenses of both parties. Since that time, section 144.054 has been enacted that broadens the manufacturing exemption to include “processing” which strengthens application of the existing exemption to transmission and distribution of electricity.
Last year, the electric utilities and coops met with the Missouri Department of Revenue to discuss how to handle the issue. The options were to file refund claims, litigate the issue on audit, or seek clarification language from the legislature. While the language was passed by the legislature last year, Governor Nixon vetoed the language.
“We have clarified this exemption is state tax only,” said McCarty. “The bill will result in a savings of approximately $30 million in refund claims that will not be filed if the bill is passed and will protect local sales taxes on these items. There should be no fiscal note since utilities are already entitled to the exemption. In addition, the municipal utilities already are exempt on these items.”
McCarty also pointed out any cost savings to the utilities are cost savings to the utilities’ customers. Utilities are required to be prudent in their expenditures and they must determine whether or not these items are subject to tax as a matter of due diligence.
McCarty said the fiscal note is grossly inaccurate and he furnished the committee members an analysis that shows the impact of the legislation, if indeed there is any, is less than $10 million per year. He encouraged the sponsor to challenge the fiscal note which is based on very broad information calculated by the Office of Administration.