Fitzpatrick suspicious about timing of income tax refunds

  

SHELL KNOB, Mo. – When Gov. Nixon announced Monday the Missouri Department of Revenue had paid all of its pending individual income tax refunds and that all corporate returns would be paid by the end of the day, it sounded like a good thing.

But not to Rep. Scott Fitzpatrick. The Republican lawmaker and presumed incoming House budget chair from Shell Knob, Mo., saw something perhaps a bit more nefarious in the news.

That’s because Fitzpatrick, current vice chair of the House Budget Committee, believes the Missouri Department of Revenue, which answers to Democratic Gov. Jay Nixon, has been intentionally issuing refunds at a rapid pace ahead of Thursday’s fiscal-year deadline in order to keep the state’s general revenue growth below the required threshold for the income tax cut.

Fitzpatrick initially took to Twitter: “Interesting. GR up only 1.58% for yr. Huge drop this month. Now below growth req’d for income tax cut. June refunds up 87% over last year.”

He followed that up with this: “If we have a huge July then it will seem as if the admin accelerated refunds to depress revenue in this last month of FY to avoid tax cut.”

When Fitzpatrick was reached by the Missouri Times, he didn’t shy away from his suggestion that Nixon’s administration was trying to stop the tax cut from happening this year.

Fitzpatrick
Fitzpatrick

“I can’t prove that’s what they’re doing,” Fitzpatrick said. “It’s not illegal if they are. But it does look like they’re taking extraordinary steps for what I think is an attempt to sidestep the tax cut.”

His argument is compelling. Missouri refunds are up 88 percent over the month of June last year. Last June, refunds on this day stood at $113 million, according to Fitzpatrick. As of Monday, they were at $212 million this year, almost $100 million more than were refunded last year by this time.

“It kind of looks to me like there was a plan there,” Fitzpatrick said.

Nixon spokesman Scott Holste did not immediately return phone calls from the Missouri Times late Monday afternoon.

Nixon, however, was not a fan of the tax cut in the first place. The legislature overrode Nixon’s veto last year in May 2015 to give Missourians their first state income tax cut in nearly 100 years.

In five annual steps beginning in 2017, the bill will lower the state’s top personal income tax rate to 5.5 percent from 6 percent and provide a new 25 percent deduction for business income reported on individual returns. But those cuts will only be implemented if state general revenue grows by at least $150 million a year compared with the high-water mark of the previous three years.

So Fitzpatrick’s point is, why the rush to get those refund checks cut this week if it’s not to keep the revenue growth — which the refunds are subtracted from — under $150 million mark for the fiscal year, which ends Thursday, June 30?

As of a week ago, the state’s general revenue was at 3.2 percent, close to $265 million over the previous fiscal year and well above the $150 million needed to implement the tax cut, Fitzpatrick said.

In the last week and a half, Fitzpatrick said, the year-over-year revenue growth has been plummeting — basically because of the refunds that have been issued. As it stands now, the state has a growth of 1.58 percent, which is $135 million over last year and $15 million below the tax-cut threshold.

“The administration has a pretty powerful tool to impact what the actual daily revenue looks like by how quickly or slowly they issue these refunds,” Fitzpatrick said.

So unless the state’s general revenue growth can be recovered by Thursday by at least $15 million to reach the $150 million mark, then Fitzpatrick said the tax cut is not going into effect.

Fitzpatrick said he’s not even sure what the legislature could do other than mandate that the refunds are deducted from the budget on the day the return is calculated and owed rather than the day a check is cut.

“If we were calculating revenue that way, it wouldn’t have mattered when we paid out the refunds this year,” he said. “It would have been apples to apples. As it stands now, that’s a pretty powerful tool the executive branch has at their disposal that can distort where the state is financially. They’ll never admit they did it to skip a tax cut, but what else is significant about that date? Why issue all those refunds now, so fast?”

It’s frustrating, Fitzpatrick said.

“You’d like to think that they would not play games with the revenue numbers and would let people have their tax cut,” he said. “But there’s always next year, I guess.”