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Picture this—you’re busy at work, when you get a letter from the Missouri Department of Revenue saying that you have to pay more than $90,000 in back taxes you never knew you owed.
This is the scenario that state legislators are putting a stop to with a bill recently signed by Governor Nixon.
The new legislation, which the Chamber lobbied for as part of its legislative agenda, was sponsored by Senator Will Kraus of Lee's Summit and would require the Department of Revenue to provide adequate notice to businesses when they reinterpret sales tax rules.
“We want to keep Missouri on a path of sustained economic growth and encourage investment and job creation. Clear, consistent tax laws are an essential building block in this effort,” Senator Bob Dixon said. “An antique, ramshackle tax code undermines the overall financial health of our state and local governments, our schools and our future. We need a blueprint in hand if we want to map a clear path forward.”
Dixon along with Rep. Eric Burlison and Rep. Scott Fitzpatrick introduced similar legislation after several fitness centers and gymnastics studios across the state were audited and subsequently charged thousands of dollars in back taxes because the Department of Revenue changed the interpretation of the state tax code and reclassified these businesses as places of “amusement, entertainment or recreation.”
“None of us were notified of the sales tax change,” Shauna Smith Yates, owner of The Body Smith said. “Our accountants didn’t even know about it.”
While Yates wasn’t one of the studios who were audited, others in Springfield were, including Noah Aldredge, owner of Big Time Results. After being audited, Aldredge was told that he owed $90,000 in back taxes, and after two years fighting the decision in court, Aldredge got the amount reduced to $5,000.
“I would have just shut down,” Yates said. “There would have been nothing we could have done at that point.”
Separate legislation to address the issue was also introduced in 2014, but was later vetoed by the Governor and did not earn the votes for an override last August. This year legislators took a different approach, and through a bipartisan effort passed the legislation that the Governor signed last week.
“This common-sense bill will ensure affected businesses are given adequate notice when tax laws change,” Gov. Nixon said in a statement. “This is a fiscally-responsible, business-friendly measure that protects taxpayers, and I’m pleased to sign it into law today.”