Closure of tax loopholes could help state coffers

Gov. Bob Holden challenged the Missouri legislature March 29 to close corporate tax loopholes to help prevent cuts to health care and education. According to a news release from Holden's office, among the loopholes is one that was dubbed the weirdest tax loophole in America by David Brunori, a contributing editor to State Tax Notes.

That loophole gives a deduction to Missouri businesses for filing their taxes on time.

Following a hearing in Springfield regarding the effects that proposed Republican cuts to the budget would have on health care in Greene and surrounding counties, Holden renewed his calls to the legislature to close corporate tax loopholes.

According to the release, closing the loopholes could raise $121 million and prevent all cuts to health care. Closure also could raise $13.8 million for Missouri schools.

Sen. John Russell, R-Lebanon, has agreed to support measures that would close the loopholes.

"Bipartisan recognition of our revenue problem and the need for closing tax loopholes is an important first step to providing the support we need for Missouri school and preventing these devastating cuts to health care," Holden said.

In an article titled "The Politics of State Taxation, " Brunori states that Holden faces the same problem as chief executives in other states, and has proposed closing what must be the weirdest tax loophole in America.

"I have never heard of such a thing," Brunori said in the release. "The state is rewarding companies for doing what they are supposed to be doing. When I get my mortgage statement, the bank does not say, If you pay on time take 10 percent off.' On the contrary, the bank penalizes me for paying late. When I was a kid, my mother did not give me candy when I minded my manners. On the contrary, she gave me a whack when I did not."

The other loopholes Holden wants closed include:

The Geoffrey Loophole. Illinois and 25 other states have closed this loophole which gives multinational corporations advantage over Missouri businesses that pay their fair share. Closure of the Geoffrey Loophole could raise $11.3 million.

The Out-of-state Investment Loophole. Missouri may be the only state that allows companies to avoid paying state taxes on income from investments in out-of-state banks. Closing this loophole could save $23.3 million.

The Finders Keepers Loophole. Currently, businesses that overcharge their customers on sales tax can apply to the state to get that money back. The hitch is that they can then keep the money for themselves instead of returning it to their customers. Closing this loophole would encourage more accurate sales tax charges and save the state $7.5 million.

The I-Get-to-Choose-How-I-am Taxed Loophole. Unlike most states, Missouri gives corporate taxpayers a choice on how to calculate income taxes. They can use the cheapest of a three-factor or a single-factor formula. Most states dictate a specific formula. Closure of this loophole could save $57.9 million.

The Delivery Truck Loophole. The legislature allows a sales tax exemption for trucking companies and others who carry merchandise across state lines. According to the release, a substantial number of companies are forming trucking subsidiaries to carry their own freight and claim this exemption, just in case they may someday need to deliver something across state lines. Closing this loophole could save $7.4 million.

"I don't know that these loopholes ever made sense, but they certainly do not make sense at a time when the legislature is kicking people off health care, teaching jobs are being eliminated, college tuition is increasing by 20 percent and services are being cut back in every department," Holden said.