Report No. 2007-15

April 2007

The following issues were noted in an audit conducted by our office of the Department of Revenue, sales and use tax collections.

• According to Department of Revenue (DOR) records, as of June 30, 2006, sales and use tax refund requests of approximately $269 million had been submitted to the department for validation.  Of this amount, approximately $210 million was related to the tax exemption addressed in the Missouri Supreme Court opinion handed down on December 20, 2005, in the case of Southwestern Bell Telephone Company, v. Director of Revenue.  Interest, which could be substantial, continues to accrue on these claims.  In a February 5, 2007, letter to the State Auditor, the Director of Revenue indicated that refund claims filed citing a connection to the abovementioned case had risen to approximately $300 million.  However, the Director would not provide us with any detailed or other supporting documentation to allow us to verify her statement.

Given the potential fiscal impact of these liabilities on state and local funds, it is essential that this issue be addressed, including the development of a plan to validate the use tax refund requests by the DOR and a funding plan by the General Assembly for the payment of amounts (including interest) determined to be valid and due.

• The Department of Revenue still does not track cost information regarding 117 sales and use tax exemptions currently provided by state law and, as a result, cannot determine the effects on state revenue related to each of the exemptions.  This concern was noted in the prior report.

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