Kendrick mostly right about reduced corporate tax collection

Many Missouri lawmakers are worried about the estimated $456 million budget gap for fiscal year 2018. By law, the government cannot approve an unbalanced budget.

Although the state has made some cuts, more work still needs to be done. That has lawmakers looking for answers as to why state revenues have dropped.

Rep. Kip Kendrick, D-Columbia, was interviewed by KMIZ's Joey Parker on "This Week," on Jan. 20. Kendrick stated why he believes the budget gap is so large.

"If you look at the budget right now, income tax collection is right where it was projected, the same with sales tax collection," he said. "What is down significantly is corporate income tax collection. Corporate entities are paying a lot less taxes this year than they have in the past.

"Part of that is from a loophole in a bill that was passed in 2015, but it is also some special interest tax cuts that we keep giving out over and over, and it has made it all but impossible to fund our state’s priorities."

We wanted to check out Kendrick’s claim that corporate entities are paying a lot less in taxes — and if they are, why?

Budgeted vs. actual revenues

The first half of Kendrick’s statement is easy to verify. Overall, the state of Missouri collected less corporate income taxes and about the same amount of individual income tax and sales tax when comparing the collected year-to-date revenue from Fiscal Year 2016 to 2017.

According to the latest monthly general revenue report released Feb. 2 from the Office of Administration Division of Budget and Planning, individual income tax and sales tax both grew around 3 percent.

However, corporate tax income collections are significantly down compared to last year. In FY 2016, the state collected about $272 million. In FY 2017, it collected only $193 million, which is a 29 percent decrease or about $78 million less.

Source: Missouri Office of Administration/Division of Budget & Planning

Note that these are collections year-to-date, comparing the collections as of Jan. 31 for FY 2016 to FY 2017. The fiscal year for 2017 runs until June 30, so we won’t know the full accounting until then. Corporate tax income from the tax deadline on April 18 could make up the difference.

However, even Gov. Greitens’ proposed FY 2018 budget, which still has to be approved by the Missouri legislature, projected a $97 million decrease in corporate tax income for FY 2017.

So what we do know supports Kendrick’s point: "Income tax collection is right where is was projected, the same with sales tax collection. What is down significantly is corporate income tax collection."

Missouri business climate

The second half of his claim is trickier to pin down: "Corporate entities are paying a lot less taxes this year than they have in the past. Part of that is from a loophole in a bill that was passed in 2015, but it is also some special interest tax cuts that we keep giving out over and over, and it has made it all but impossible to fund our state’s priorities."

First, is there another explanation as to why the corporate tax collections are low? There could be fewer businesses in the state, or these businesses could have generated less income.

The Missouri Department of Economic Development tracks the number of businesses in the state. Because the 2016 data are only available through the third quarter, the department provided data in an email for the third quarters in 2014, 2015 and 2016 to compare.

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According to the department, the numbers are counts of establishments, or individual locations, which is the same measure on the Bureau of Labor Statistics website. This means that instead of counting Wal-mart once, the data reports individual Wal-mart establishment.

In 2014 there were 185,634 establishments; in 2015, there were 192,108 establishments; and in 2016, there were 193,695 establishments. So the number of businesses increased, if only slightly.

So are businesses in Missouri not doing well? Do they have less taxable income?

Both Chuck Pierce, the government relations consultant for the Missouri Society of Certified Public Accountants, and Tracy King, the vice president of governmental affairs at the Missouri Chamber of Commerce, said that corporate income can vary from year to year due to the cyclical nature of the economy. Profits can be reduced by a recession.

However, Tom Kruckemeyer, the chief economist for the liberal think tank Missouri Budget Project, said the state economy is doing "reasonably well."

"Broadly speaking, the economic indicators for the state of Missouri are actually pretty good," Kruckemeyer said.

One economic indicator is the unemployment rate. According to the numbers release Jan. 24 from U.S. Department of Labor Statistics, Missouri’s seasonally adjusted unemployment rate is 4.4 percent, compared to the national rate of 4.7 percent. And over the past few years, the Missouri and national unemployment rates have dropped.

The 2016 Missouri Economic Report produced by the Missouri Department of Economic Development found that 50,000 jobs were added in Missouri between December 2014 and December 2015. This is the largest year-over-year growth in 10 years. The report also stated that Missouri’s personal income increased 2 percent in 2015 and has averaged an increase of 1.8 percent from 2010 through 2015.

Overall, these numbers show that Missouri’s economy is doing fine, so corporate entities must be paying less taxes due to tax cuts as Kendrick claims.

Taxing corporations

In the KMIZ interview, Kendrick said there was a loophole in a bill passed in 2015 that caused corporations to pay less taxes. Kendrick, in an interview with PolitiFact, said the bill he was referring to was Senate Bill 19, which changed the way corporate income tax was allocated for multi-state corporations. The bill expanded House Bill 128, passed in 2013.

Before SB 19 was passed, King, of the Missouri Chamber of Commerce, said Missouri taxed 50 percent of any goods produced in the state and sold in another state, so these businesses were double taxed. She said that businesses were moving out of the state and taking jobs because of this tax. Thanks to SB 19, Missouri no longer taxes the production of goods sold out of state.

In the fiscal notes for SB 19, the estimated cost of the law was $15.2 million per year. However, Kendrick said the new estimate of the bill’s effect on the state’s revenue is a drop of $200 million, which other legislators confirmed.

Rep. T.J. Berry, R-Kansas City, said he also heard the bill reduced tax collections by $200 million. And in a Jan. 24 House debate, Rep. Jay Barnes, R-Jefferson City, said a "corporate allocable tax bill" passed two years ago cost the state $200 million.

The Department of Revenue has not responded to PolitiFact’s inquiries for how much SB 19 affected the revenue collections.

A few tax authorities have said this bill has played a part in the decrease of corporate income tax revenues. Kruckemeyer said the combination of HB 128 and SB 19 were the primary causes of the low corporate income tax collections because they were "explicit changes in tax law."

However, Ray McCarty, president of Associated Industries of Missouri, said SB 19 did lower collections but cautioned that corporate income tax revenue is only a few million dollars out of multi-billion dollar revenue collection. He stressed that there may be other factors at play, including above average tax refunds and other legislation.

Our Ruling

Kendrick said, "Corporate entities are paying less taxes this year. Part of that is from a loophole in a bill that was passed in 2015."

There hasn’t been a decrease in businesses, and the Missouri economy is doing well as indicated by various economic data. So corporations must be paying less taxes — though experts can argue about which tax cuts and other factors are behind Missouri’s lower corporate income tax collections.

However, we don’t have the complete numbers of corporate tax collections because the fiscal year doesn’t end until June 30. With that caveat, we rate this claim as Mostly True.

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Mostly True

"Corporate entities are paying a lot less taxes this year then they have in the past. Part of that is from a loophole in a bill that was passed in 2015."

Kip Kendrick

State representative

In an interview

Friday, January 20, 2017

01/20/2017

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