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Auditor Fitzpatrick releases report on Department of Revenue sales and use tax

Audit identifies how Missouri's timely sales and use tax discount is the most generous in the nation and recommends a cap on the discount

08/29/2023 - Jefferson City, MO

State Auditor Scott Fitzpatrick today released the annual review of the Missouri Department of Revenue (DOR) sales and use tax. As found in previous audits, the report notes Missouri has the most generous timely sales and use tax discount in the nation, and recommends a cap on the amount of discount retained by businesses each month.

"I believe the discount serves a meaningful purpose as it allows businesses to recover some of the costs associated with collecting and remitting these taxes. However, as someone who believes in a low tax burden and allowing Missourians to keep more of their hard-earned dollars, I support a reasonable cap on the discount that would generate revenue the legislature could then use to provide a tax cut for every Missourian," said Auditor Fitzpatrick.

Under Missouri law, businesses remitting sales and use taxes are allowed to retain 2 percent of sales taxes payable to the DOR if the business remits payments in a timely manner. The state originally established the discount so businesses could recover a portion of their costs for compliance with state sales tax laws and to encourage timely remittance of sales and use taxes. For fiscal year 2022, this resulted in businesses retaining $158 million of sales and use tax collections.

In designating Missouri's discount as the most generous in the nation, the report notes that while some other states may have a higher percentage discount, they put a cap on the amount of the discount that can be retained by businesses. According to the Federation of Tax Administrators, 27 other states have similar vendor discounts with nine having a lower discount rate than Missouri and 18 having a ceiling to limit the amount of discount businesses can retain.

The report uses the example of the state of Arkansas, which has a similar 2 percent timely discount rate but also has a cap of $1,000 per month. If Missouri had a similar cap in place it would have resulted in an additional $93.2 million in state and local tax revenue during fiscal year 2022.

The audit recommends that the General Assembly evaluate the timely sales tax discount and consider the implementation of a monthly cap on the amount of discount retained. The report also notes the DOR is not required to report and does not routinely report the amount of timely discounts retained by businesses to the General Assembly, and recommends changes to state law to require the department to report annually.

The complete audit of the DOR sales and use tax can be found here.