Gov. Nixon calls special session to pay for Ferguson damage as questions linger about failure to defend businesses

Governor Jay Nixon announced today he plans to call a special legislative session to ask for “critical funding for the ongoing operations of the Missouri National Guard and the Missouri State Highway Patrol in Ferguson and the St. Louis region.” Click here for the press release.  Details regarding dates of the special session will follow, according to the release, “in the coming days.”

But questions from Ferguson Mayor James Knowles, as reported in this article that appeared in the St. Louis Post Dispatch, and carried widely in the national media, still have not been answered: why was the National Guard deployed only in defense of the police station and the central command center areas of Ferguson on the night the violence was the worst? 

That question was echoed by Dellwood Mayor Reggie Jones in this article by St. Louis Public Radio, noting that nearly 10% of Dellwood’s business district had been gutted by the violence.

Although more than 700 National Guard soldiers were reportedly on duty in the area, none were visible defending businesses as mainstream media carried live images of lawbreakers looting and burning businesses in Ferguson and surrounding areas.  Mayor Knowles says he was told the National Guard would be deployed to help defend businesses, but the help was never deployed except in defense of the police station and law enforcement command center.  Mayor Jones echoed that sentiment.

“As an advocate for Missouri businesses, Associated Industries of Missouri(AIM) was deeply saddened by the violence directed at business owners in the community of Ferguson and surrounding areas and the apparent lack of law enforcement to help defend against the looting and arson we witnessed,” said Ray McCarty, president of AIM. “Our thoughts and prayers are with the business owners and employees of those businesses as they try to rebuild their livelihood and the community.”

Associated Industries of Missouri pleased Missouri Legislature able to override Nixon’s veto of important taxpayer protection legislation

Associated Industries of Missouri (AIM) is pleased the Missouri General Assembly was able to override Governor Jay Nixon’s veto of a bill that will shift the burden of proof to the Missouri Department of Revenue in tax cases.

The House and Senate voted to enact SB 829 over the objections of Governor Nixon by bipartisan votes in both chambers. The vote was 26-6 in the Senate and 113-48 in the House. The bill shifts the burden of proof to the Missouri Department of Revenue (DOR) when the tax agency claims additional taxes are due. It also requires the DOR to prove their case if they disagree a taxpayer is entitled to an exemption, provided the taxpayer has provided initial proof of eligibility for the exemption. The provision is similar to the burden of proof placed on the Internal Revenue Service when dealing with federal tax liabilities.

But the Senate took action on several other important bills that did not receive enough support in the House, and the House restored some job training money that was not acted upon in the Senate.

AIM was also disappointed that Governor Nixon’s veto of taxpayer protections in SB 584 – a bill that would have provided clarification of many tax issues – was allowed to stand.

“The vetoes of the many bills sent a message that the government tax collectors are happy to continue to use the current tax law to treat taxpayers unfairly,” said McCarty. “The goal of these bills was to make the law clearer for the tax collectors and fairer for taxpayers and it is unfortunate the governor did not allow them to become law.”

AIM plans to support legislation in the next session that would establish a legislative board to oversee activities at the Missouri Department of Revenue, a bipartisan idea originally proposed more than a decade ago.

“The types of examples of inconsistencies in taxpayer treatment that have recently come to light and the constant turnover of leadership in the Department of Revenue, combined with term limits in the legislature make discussion of some long term oversight board that can provide long term direction and taxpayer protection very timely,” said McCarty.

AIM happy to see tax cut discussions, but advocates broad based tax relief for ALL Missouri employers

AIM president Ray McCarty said today he was glad to see Governor Jay Nixon is participating in conversations to reduce the tax burden on Missouri taxpayers, but notes there is need for greater understanding of the types of taxpayers that would benefit from AIM’s tax cut proposals.

“Last week’s announcement by Governor Nixon is a good first step toward our goal of reducing the tax burden for all Missouri taxpayers, including Missouri employers, and increasing our ability to compete for jobs in a global economy,” said Ray McCarty, president of Associated Industries of Missouri.

Governor Nixon recently issued a statement in which he says, “I have never been opposed to making responsible changes to our tax code.”  The governor requests cuts in tax credit programs and full funding of the foundation formula for K-12 education.  He cites legislation that will be sponsored by Senator Will Kraus that will include these components and a requirement that state revenues grow by more than $200 million before tax cuts take effect.

But the governor also said he was opposed to providing any tax reductions on “…what’s called ‘pass-through’ business income.”  He continues, “…these tax cuts primarily benefit well-heeled corporate partnerships like law firms, and there is no evidence, anywhere, that these schemes do anything to create jobs.”

In fact, many businesses are organized as “pass-through” entities and would benefit from AIM’s business income deduction, such as that contained in HB 1253, sponsored by Rep. T.J. Berry, and SB 496, sponsored by Senator Eric Schmitt.  This includes sole proprietorships in which one owner owns the business; partnerships where husbands and wives or multiple individuals own the business; subchapter S corporations; and other types of business organizations.

According to 2010 tax year data published by the Internal Revenue Service, only 16% of S corporations were “professional, scientific and technical” firms such as law, lobbying and accounting firms.  Such firms also accounted for only 16% of the net business income of all S corporations.  The remaining 84% of S corporation income was reported by manufacturers (16%), wholesale trade businesses (13%), healthcare professionals and hospitals (11%), construction businesses (8%), retail trade (7%), finance and insurance companies (7%) and the rest was reported by various other industries.

IRS data also confirm 94% of all businesses would benefit from the business income deduction supported by AIM for “pass-through” entities.  AIM supports broad-based tax relief that would help ALL businesses in Missouri, including regular corporations that are responsible for nearly one-fourth of all net income reported on tax returns.

“Associated Industries of Missouri will continue to work toward a balanced and measured approach in providing tax relief that will help Missouri job creators be more competitive in the global marketplace, and we look forward to continuing the conversation with the governor and all legislative leaders in the coming weeks,” said McCarty.

Missouri/Kansas Border War – “Truce” bill may be unconstitutional

January 3, 2014 – Much has been written about the so-called “border war” between Missouri and Kansas, and whether or not tax incentives should be used to attract businesses from one state to the other.  The conversation often involves incentives in the Kansas City metropolitan area, where only State Line Road divides the two states.

Political leaders and economic development officials on the Missouri side of the border have called for an end to such incentives.  Kansas Governor Brownback has recently indicated he may be willing to engage in discussions calling a truce in the border war.  Missouri Governor Nixon in a recent speech decried incentives that are used to simply move jobs across the state line and pledged to support legislation to end the use of incentives, if Kansas will do the same.

A little over a year ago, Governor Brownback made it clear in an interview with KMBC-TV that his successful effort to reform income taxes in Kansas were not on the table for discussion in any truce, but he left the door open to discuss special incentives.

Last session, Associated Industries of Missouri worked hard to pass a broad-based tax cut bill that would have helped every Missouri taxpayer, including all employer taxpayers in Missouri.  That bill, HB 253 sponsored by Rep. T.J. Berry (R-38, Kearney), was vetoed by Governor Nixon and the Missouri House of Representatives failed to override his veto.  As a result, Missouri does not have a tax structure that is able to compete with the reformed Kansas tax system, especially when it comes to high growth, highly profitable small and mid-sized employers who pay no Kansas income taxes.

Senator Ryan Silvey (R-Kansas City) filed SB 635 to be considered in the 2014 Missouri legislative session that starts Wednesday.  The bill seeks to codify the truce in Missouri law, contingent on passage of a similar law in Kansas.   The bill would deny tax incentives to employers that move jobs from four border counties in Kansas to any of four border counties in Missouri.  Employers moving the same types of jobs from another county in Kansas or anywhere else to Missouri would still be eligible for benefits, but those moving from the Kansas counties of Douglas, Johnson, Miami or Wyandotte would be barred from receiving incentives for those jobs.

The effect of the law will be to deny a tax benefit to employers moving from these counties to Missouri, while allowing similarly situated employers moving from other locations to enjoy the benefit.

Many question the goal of such legislation.  Is it a good idea to lay down your arms when you are losing a battle?  Assuming this is a good idea, is it constitutional?  Can a law be enacted that denies a tax benefit to some out-of-state employers while giving tax breaks to competitors moving from other areas?  Wouldn’t such a law be discriminatory?

To find the answers, I turned to the AIM Tax Committee.  The AIM Tax Committee is comprised of more than 100 of the finest tax practitioners, tax lawyers, and accountants in Missouri.  It turns out many believe such a law would have constitutional problems and could be voided by the courts.

Members of the AIM Tax Committee that responded to the inquiry overwhelmingly agreed such a law would raise serious constitutional questions, especially with regard to the Commerce Clause or constitutional provisions guaranteeing equal protection.  The Equal Protection Clause is part of the Fourteenth Amendment to the United States Constitution. The clause, which took effect in 1868, provides that no state shall deny to any person within its jurisdiction the equal protection of the laws. The Commerce Clause, found in  Article I, Section 8, Clause 3 of the United States Constitution states,”[The Congress shall have Power] To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes.”

Prominent tax attorney and former Missouri Director of Revenue Janette Lohman with the law firm of Thompson Coburn LLP responded the law “…might be facially void under the Commerce Clause.”  She continues, “Accordingly, it might even be a violation of the Missouri Constitution, Article X, Section 3, because they would not be treating similarly situated taxpayers in the same manner.  That is, a company that relocated here from Illinois could qualify but a company that relocated here from one of the four counties in Kansas could not?”

Jeffrey Dardick, State and Local Tax Partner at PricewaterhouseCoopers agreed with Lohman.  In a detailed response, Dardick analyzed recent court cases involving state laws that allegedly violated the Commerce Clause of the United States Constitution.    The “negative” or “dormant” Commerce Clause implicitly limits a state’s right to tax interstate commerce, according to a ruling issued by the U.S. Court of Appeals for the Sixth Circuit in Cuno v. DaimlerChrysler, Inc.  In that case, the Court ruled “discrimination” means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.  You may read Dardick’s full analysis and summaries of several interesting cases by clicking here.

Kevin Boyer, Partner at Ernst and Young, questions whether the law would be found to be in violation of the Commerce Clause.  “In this situation, the state’s taxing methodology is not changing based on where a company is located, just the amount of incentives available are changing, and I’m not sure that can be challenged under the Commerce Clause,” said Boyer.

Ray McCarty, president of Associated Industries of Missouri said, “At Associated Industries of Missouri, we believe we should use all tools at our disposal to attract and retain quality Missouri employers and the jobs they create.  We believe the best solution is a taxpayer-friendly tax structure that benefits all existing employers as well as the new ones we want to attract.”  One AIM Tax Committee member put it this way: “Business relocation is based on a variety of issues. Immediate tax incentives are just part of that. The long term tax structure is also a large part of that decision.”

As to whether the concept of a truce is worth pursuing, another member said, “I think Missouri would welcome a western Illinois business relocating to St. Louis.  I can’t imagine why the western side of the state would be offended by a relocation from eastern Kansas.”  And one member from a prominent accounting firm in the Kansas City area said, “As someone who is in the trenches of this situation, I find this bill silly as well.  I think Missouri is pushing for this because they continue to lose out to Kansas and have for years.”

Any tax professional employed by any AIM member company may be a part of AIM’s Tax Committee.  The goal of the group is to share ideas, stay informed on all issues affecting employer tax liability, and to weigh in on new issues.  We conduct regular meetings with state tax officials to resolve problems quickly and before they become major problems.  To join AIM’s tax committee, contact Ray McCarty at 573-634-2246 or send an email to indicating your interest in joining the tax committee.

Nixon Appoints New Director of Revenue: Brian Long

Governor Nixon has named a former budget director under the Holden Administration the new Director of Revenue.  Brian Long replaces Alana Barragan-Scott will now be an Administrative Law Judge.

Business Priorities Still Alive – Two Weeks Remain in 2012 Legislative Session

With two weeks remaining in the 2012 Legislative Session, important business priorities remain unresolved.

Two bills that would address issues with worker’s compensation (preventing employees from suing each other in workplace accident situations, and continuing to provide coverage for occupational diseases within the worker’s compensation system) are pending in the Missouri Senate.  HB 1403 addresses both of these issues while HB 1540 would only fix the co-employee lawsuit issue.  HB 1403 was approved by the Senate Committee on Ways and Means and Fiscal Oversight, but the Chairman, Senator Chuck Purgason, did not immediately report the bill to the full Senate (as is usually the case).  Purgason, and other senators, have wanted to have a thorough revision of the tax credit structure in Missouri for several years.  While Governor Jay Nixon has sent a letter stating he wants to work with employers to address these issues, his proposal for addressing occupational diseases from exposure to toxic substances is extremely unreasonable and would be harmful to employers.  The Governor’s proposal that he would be willing to sign: more than $162,813 paid annually to the employee for life, guaranteed for at least 300 weeks (a total of at least $939,306) plus continuing benefits for an employee’s spouse or children, and the payments would not be suspended if the employee is able to work (as is the case with other permanent total disability claims).  That position is not unexpected when you realize that trial attorneys, a group that strongly supports Governor Nixon, are making lots of money suing employers and would continue to make a lot of money under Governor Nixon’s proposal.  You may recall Governor Nixon vetoed legislation earlier this session that would have addressed both worker’s compensation issues because the amount that would be paid for occupational diseases was not enough, in his opinion.  The bill that only prohibits lawsuits against fellow employees in work comp accidents has been scheduled for hearing in the Senate on Tuesday.

HB 2099, legislation that would require employees claiming “whistle blower” protection to have alerted authorities to an act of the employer that is truly illegal, in violation of a regulation or in violation of public policy, has been scheduled for hearing on Tuesday also.  Governor Nixon previously vetoed these provisions when presented in a larger bill that aligned Missouri’s discrimination laws with federal laws in effect today.  The Governor, and many media reports, have inaccurately portrayed that legislation as “rolling back” discrimination laws to the 1960’s, but in fact, that legislation would have simply aligned Missouri’s human rights law with today’s federal human rights laws – the standard used in most states.  The whistle blower bill does NOT contain these changes to the discrimination laws, but the Governor has not yet indicated whether he will sign or veto the whistle blower bill.

The Missouri House this week passed HB 1639, sponsored by Rep. Jerry Nolte, that would reduce the tax liability of EVERY Missouri business by 50% over five years, if income tax revenues continue to grow.  It is our sincere belief (and that of former presidents John F. Kennedy and Ronald Reagan) that reducing the income tax burden on all businesses will cause an increase in income tax revenues as those former tax payments are used by job creators to hire and promote employees.  The bill also contains amnesty provisions, enhanced procedures for collection of taxes and refunds to taxpayers, and clarifications of the 2007 law that exempted manufacturing inputs from sales taxes.  The Missouri Senate briefly debated similar legislation but that legislation has been tabled in the Senate, at least temporarily.

Members of Associated Industries of Missouri are invited to attend our weekly legislative update webinar on Monday mornings at 10:00 a.m.  These webinars, over the next two weeks will provide you with up-to-date information on the status of these and other bills of interest to employers.  If you are a member and would like to register for the legislative webinar, please contact the AIM office at 573-634-2246.  If you are a Missouri employer that is not yet a member of AIM, we believe you would benefit from membership in the state’s oldest general business association – please contact us today.

Busy Week in Missouri’s Capitol With 3 Weeks Left

April 27 – The legislature has just three weeks to resolve differences and pass several important issues.  And while the clock continues to “tick”, progress was made on several fronts this week.

The Missouri Senate passed their version of the 2013 state budget, following lengthy filibusters and unusual recesses that allowed senators to rewrite certain parts of the budget (click here for more details).  The budget has been reported to the Missouri House.  The House could simply pass the Senate versions of the bills, although I don’t believe this has happened in recent memory.  More likely, the House and Senate will appoint “conference committees” to work out the differences between the House and Senate versions of the budget bills.  Some items that were funded exactly the same in both budgets are normally excluded from future changes, although these items may be changed by special motions made in both chambers.  The budget must be approved by May 11.

The Missouri House this week passed HB 1403, a bill that would address two issues in worker’s compensation and reform the Second Injury Fund.  The bill may be used as a vehicle for compromise legislation we are developing now on all three issues.  Associated Industries of Missouri is joining other business advocacy groups in a united effort to negotiate a compromise with trial attorneys, organized labor and Governor Jay Nixon’s office.  “Employees and employers benefit from the no-fault worker’s compensation system,” said Ray McCarty, president of Associated Industries of Missouri.  “Beginning in 1919, Associated Industries engaged labor and trial attorneys in negotiations that led to passage of Missouri’s first worker’s compensation law in 1925.  Recently, the worker’s compensation system in Missouri has been turned on its ear by lawsuits,” McCarty continued.

Occupational diseases have always been covered by worker’s compensation insurance – that is until trial attorneys got involved.  These trial attorneys victimized employers with multimillion dollar lawsuits in civil court by claiming the 2005 revision of the worker’s compensation law was not meant to cover occupational diseases.  Trial attorneys have also been filing lawsuits against fellow employees on behalf of employees injured in workplace accidents.  At the same time, the trial attorneys have expanded coverage of lifestyle conditions and non-work related injuries that cause more to be paid from the state’s bankrupt Second Injury Fund.  The Missouri legislature passed bills earlier this session that would have corrected two of these issues (co-employee liability and occupational diseases) and Governor Nixon promptly vetoed the legislation.

The bill was also heard and approved by the Senate Committee on Small Business and Insurance, after removing the Second Injury Fund provisions.  The bill is on the Senate calendar, awaiting full Senate debate.

Governor Nixon also vetoed employer supported legislation that would have updated Missouri’s law to comply with federal standards currently in place for workplace discrimination claims.  The House this week passed a bill that addresses one part of this legislation: a law that would provide protection for whistleblowers that are notifying authorities of actual wrongdoing by their employer.  Associated Industries of Missouri continues to work hard to pass this legislation and hope Governor Nixon will sign the bill if we are successful in getting it to his desk.  Amendments added in the House would apply the new whistleblower protections to all employers except state and local government.

Both the House and Senate will soon begin wo work on bills that originated in the other chamber.  The 2012 regular legislative session ends at 6:00 p.m. on May 18.