Whether Missourians will vote on a proposal to replace the state income tax with sales taxes — and what the ballot will say if they do — must be decided by June 9, attorneys said Friday morning to a Cole County judge.
That is the deadline for courts to order changes to the Aug. 4 primary ballot under Missouri law. Gov. Mike Kehoe last week moved the measure, which would appear as Amendment 5, to the primary ballot.
At the conclusion of the trial in the lawsuit filed by opponents of the proposal, Circuit Judge Christopher Limbaugh said he would issue his ruling on Monday, allowing time for appeals before the ballot deadline.
The lawsuit contends the proposal passed by Republican lawmakers violates the Missouri Constitution’s prohibition on constitutional amendments that include more than one subject. If Limbaugh agrees, the measure would be stricken from the ballot, barring a reversal on appeal.
If it appears on the ballot and is approved by voters, the proposed amendment would give lawmakers authority to expand the sales tax to any goods or services or increase the rate without seeking voter approval. It would exempt the new sales tax from requirements that motor fuel taxes go to highway needs and direct the state auditor to set new rates for constitutionally mandated sales taxes earmarked for the Department of Conservation, state parks, and protecting soil and waterways from contamination by erosion.
It does it all by using the word “notwithstanding” to say it trumps other constitutional provisions, said Chuck Hatfield, attorney for the plaintiffs.
“It’s a really interesting idea to come up with an amendment and say, notwithstanding anything else in the Constitution, here’s what we’re going to do now,” Hatfield said. “Our argument is that when you do that, you’ve got to look and see whether you’re amending other sections of the Constitution with this sort of cheat code using the word notwithstanding.”
The amendment is placed in the taxation section of the Constitution, and all the provisions addressed by the word notwithstanding involve taxes, so there is no violation, said Louis Capozzi, solicitor general in the attorney general’s office.
“There’s a long line of precedent saying as long as you purport to only amend one article, that’s good enough,” Capozzi said.
Passage of Amendment 5 is Kehoe’s top priority for the year.
Three committees — one supporting Amendment 5 and two opposed — are preparing to wage multi-million dollar campaigns for the summer.
Backers are using a political action committee called Missouri Promise, which so far has been entirely funded by a nonprofit established in Delaware called Missouri Promise Inc.
On Wednesday, Missouri Promise Inc. donated $1.9 million to the PAC. Spokesman Aaron Baker did not respond to a text message asking for the identities of the donors who gave to Missouri Promise Inc.
The two opposition committees are drawing from different portions of the political spectrum. The Missouri Association of Realtors is the main funder so far for Missourians for Fair Taxation, which is seeking to organize business opposition.
The Realtors are upset because the proposal would directly overturn two provisions the organization inserted into the Constitution via initiative petition — a ban on taxes that target real estate transactions and a ban on imposing sales tax on any goods or services not already taxed when the provision was written in 2015.
No Everything Tax, which lists its treasurer as Amy Blouin of the liberal Missouri Budget Project, is organizing opposition from the left and has yet to report any donations.
The measure, if passed, would require lawmakers to pass a bill setting revenue triggers for reducing the top income tax rate, currently 4.7%.
To speed up those rate cuts, lawmakers would be given five years to increase the sales tax rate or expand the list of things taxed, or both, in legislation that also cut the income tax by an equal amount.
Missouri currently charges a general revenue sales tax of 3% that generates about $3.2 billion annually out of $13.2 billion in total general revenue. To make sales tax provide the revenue to replace the income tax, the rate would have to increase by about 8.5% or the list of items taxed would have to be expanded to cover about $300 billion of additional economic activity.
Missouri’s total economic output is about $350 billion per year.
If Limbaugh allows a vote, the ballot language approved by lawmakers should be changed, said Hatfield and Marc Ellinger, the attorney who represents Missouri Promise.
The ballot language written by lawmakers is misleading, Hatfield told Limbaugh, because it says it will do something — phase out the income tax — that would require additional legislative action. And it doesn’t tell voters that the sales tax base would be expanded, he said.
“They need this constitutional amendment to impose sales and use taxes that are currently forbidden,” Hatfield said.
As written by lawmakers, the ballot language states:
“Shall the Missouri Constitution be amended to:
- -Phase-out the individual income tax based on revenue growth;
- -Reduce personal property and other local taxes when local revenues increase;
- -Modify the sales and use tax to eliminate income tax and reduce local taxes; and
- -Protect local funding for public schools and other purposes?”
Along with objections to the characterization of the income tax repeal, Hatfield said the provision on local taxes is misleading by focusing on personal property tax. That is one option, but there is no requirement in the proposal that personal property tax rates be cut, he said.
Hatfield asked Limbaugh to revise it to say first that Amendment 5 would allow the legislature to increase the sales tax rate and impose it on any goods and services without a statewide vote. He also said it should state that sales tax could be charged on services and real estate sales.
Ellinger said he would like to see a change to the ballot language that eliminates the idea that the measure is self-enforcing. No cuts in tax rates would occur without legislative action, he said.
But that action is a mandate, not a suggestion.
“It needs to say it requires the elimination of the income tax,” Ellinger said.
In defense of the ballot language, Capozzi said the 50-word limit on the length of the statement makes it hard to include every detail. And, he said, the question is not whether it is possible to write a better ballot summary but whether the one written by lawmakers is fair and sufficient.
“It’s a pretty difficult task to summarize a comprehensive tax overhaul for the state tax code in 50 words in a way that people can understand,” Capozzi said.
And, he said, the question is not whether it is possible to write a better ballot summary but whether the one written by lawmakers is fair and sufficient.
“You can imagine different statements that are fair,” Capozzi said, “but it’s the General Assembly’s prerogative to pick, and unless they exceed the wide range of discretion they have, this court has to respect that judgment.”
Missouri Independent, part of States Newsroom, originally published this story.
