A Missouri bill introduced for consideration in the upcoming 2018 session would sunset 47 state taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. credits, part of a continuing nationwide trend toward greater accountability on tax preferences. The bill’s sponsor, Rep. Dan Stacy (R), credits the June report of the state’s Committee on Simple, Fair, and Low Taxes, for inspiring the legislation.
The committee, established by Gov. Eric Greitens (R) and chaired by Department of Revenue Director Joel Walters, proposed several criteria for evaluating tax credits, and urged greater scrutiny to ensure that tax credits were achieving their intended goals. Rep. Stacy’s bill attempts to facilitate this scrutiny by placing 47 credits on rolling sunsets, requiring legislators to actively vote to extend them rather than allowing them to remain in code indefinitely with little or no contemplation of their efficacy.
House Bill 1238 divides the credits into three categories: benevolent credits, economic credits, and all others. Benevolent credits, those which serve a social welfare function, would be considered every four years; economic credits, intended to boost economic activity, would be on a three-year schedule; and miscellaneous other credits would come up every two years. The list of credits to be sunset is as follows.
Benevolent Credits (four-year cycle)
- Affordable Housing Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.
- Contributions to Domestic Violence Victims Shelter Tax Credit
- Disabled Access Tax Credit
- Development Disability Care Provider Tax Credit
- Family Development Account Tax Credit
- Missouri Health Care Access Fund Donation Tax Credit
- Residential Treatment Agency Tax Credit
- Senior Citizens Property TaxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. Relief Tax Credit
- Shared Care Tax Credit
- Special Needs Adoption Tax Credit
- Youth Opportunities and Violence Prevention Tax Credit
Economic Credits (three-year cycle)
- Brownfield Redevelopment Tax Credit
- Business Use Incentives for Large-Scale Development (BUILD) Tax Credit
- Certified Capital Company Tax Credit
- Community Development Corporations Tax Credit
- Distressed Communities Tax Credit
- Distressed Land Assemblage Tax Credit
- Enhanced Enterprise Zone Tax Credit
- Enhanced Enterprise Zone Megaproject Tax Credit
- Enterprise Zone Employee Training Tax Credit
- Historic Preservation Tax Credit
- Infrastructure Development and Reserve Fund Contribution Tax Credit
- Innovation Center Tax Credit
- Low-Income Housing Tax Credit
- Missouri Quality Jobs Tax Credit
- Neighborhood Preservation Tax Credit
- New or Expanded Business Facility Tax Credit
- New or Expanded Business Facility in an Enterprise Zone Tax Credit
- Retained Business Facility Tax Credit
- Reserve Bond Guarantee Tax Credit
- Seed Capital Tax Credit
- Small Business Guarantee Fees Tax Credit
- Small Business Incubator Tax Credit
- Transportation Development in a Distressed Community Tax Credit
- Wine and Grape Production Tax Credit
Other Credits (two-year cycle)
- Agricultural Product Utilization Contributor Tax Credit
- Bank Tax Credit for S Corporations Tax Credit
- Bank Franchise Tax Credit
- Corporate Franchise Income Tax Credit
- Family Farm Breeding Livestock Loan Tax Credit
- Health Insurance Pool Tax Credit
- Life and Health Insurance Guaranty Tax Credit
- New Generation Cooperative Incentive Tax Credit
- Property and Casualty Guaranty Tax Credit
- S CorporationAn S corporation is a business entity which elects to pass business income and losses through to its shareholders. The shareholders are then responsible for paying individual income taxes on this income. Unlike subchapter C corporations, an S corporation (S corp) is not subject to the corporate income tax (CIT). Shareholders Association Tax Credit
- S Corporation Shareholders of Credit Institutions Tax Credit
- Self-Employed Health Insurance Tax Credit
Many—probably most—of these credits would be extended after each sunset, but that doesn’t make the process any less valuable. Ideally, sunsets would be paired with tax expenditureTax expenditures are a departure from the “normal” tax code that lower the tax burden of individuals or businesses, through an exemption, deduction, credit, or preferential rate. Expenditures can result in significant revenue losses to the government and include provisions such as the earned income tax credit (EITC), child tax credit (CTC), deduction for employer health-care contributions, and tax-advantaged savings plans. studies which attempt to quantify the costs and benefits of each credit, providing legislators with meaningful information on which to base their decisions.
This is valuable even when a credit enjoys widespread support. Some of these credits, particularly those classified as “benevolent,” are closely aligned with state policy goals and are incredibly unlikely to be allowed to expire. That does not make their regular reconsideration unnecessary, though; on the contrary, it provides an opportunity to gauge whether the credits are meeting their intended purpose, and to modify them if they are not.
Sunsets are gaining popularity as states take tax incentive evaluation increasingly seriously. Ideally, Missouri would take a further step, building on the work of former Gov. Jay Nixon (D)’s Tax Credit Review Commission and Gov. Greitens’ Committee on Simple, Fair, and Low Taxes to establish a rolling cost-benefit analysis of the state’s tax credit. The sunsets in H.B. 1238, though, could be a good place to start.
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