Missouri DOR Burden of Proof and Notice Requirements Remain Uncertain After Veto

Posted In Missouri, Procedure

The Missouri General Assembly passed several tax-related bills at the end of the legislative session in mid-May that would have altered the Department of Revenue’s (Department) burden of proof and changed its notice requirements.  While none of these bills ultimately passed due to vetoes by Governor Jay Nixon, the General Assembly is scheduled to review the vetoed legislation during their September 10 veto session. Given the near-unanimous support for each of these bills in the legislature, there is a legitimate possibility that one or more of these vetoes will be overridden.

Burden of Proof

Three of these bills, H.B. 1455, S.B. 829 and S.B. 584, would have vastly expanded the number of tax disputes where the Director of Revenue (Director) is statutorily assigned the burden of proof.  The amendments would have removed a net worth limitation for any partnership, corporation or trust challenging their state tax liability and this would have vastly expanded the number of businesses eligible for the favorable burden.  In addition, the legislation removed a clause that prohibited the burden of proof from falling on the Director with respect to the applicability of tax exemptions.  All in all, the burden of proof legislation would have significantly expanded both the number of taxpayers and the number of types of disputes for which the burden of proof fell on the Director.  As discussed further below, the Governor vetoed these bills.  The Legislature will review the vetoes in September.

The statute that was being amended (Mo. Rev. Stat. § 136.300) strictly construes tax laws and liability determinations against the taxing authority in favor of taxpayers.  The statute was originally enacted in 1978 and subsequently amended in 1999.  The statute assigns the Director the burden of proof with respect to any factual issue relevant to a taxpayer’s liability if three elements are met.  The first two elements are that the taxpayer must (1) have produced evidence that there is a reasonable dispute with respect to the issue and (2) provide the department of revenue with access to adequate records of its transactions.  These elements are unchanged in each of the amending bills being considered.

The bills passed last month would remove the third and final element: the burden of proof does not rest with the Director if the taxpayer is a business taxpayer with either a net worth in excess of $7 million or more than 500 employees, regardless of the other two elements.  This limitation incentivizes the Department to impose artificially high tax assessments on excluded taxpayers. These taxpayers are at a disadvantage because they would bear the burden of proof regarding factual questions, regardless of the detail of the Department’s audit.  The vetoed legislation would have removed this limit and discouraged the Department from making artificially high assessments that would have been difficult to prove.

In addition to the subtraction of an element, the three bills passed in mid-May would have expanded the scope of the section to apply to disputes over exemption applicability, which are currently excluded along with tax credit applicability challenges.


Two other bills (S.B. 662 and S.B. 612) were also passed that would have required the Department to notify businesses when it makes a change in its interpretation of the state’s sales tax laws.  More specifically, the legislation requires the Department to notify all affected sellers when an item of tangible personal property or service is deemed taxable by a decision of the director or revenue, administrative hearing commission, or court of competent jurisdiction.  Importantly for taxpayers, failure of the Department to notify a seller would relieve the seller of the modified tax burden until the seller is notified.  These bills were also vetoed by the Governor.


As stated above, all five bills were vetoed.  The bills will be reviewed by the General Assembly in September.  In vetoing the bills, the Governor stated that the bills were not accounted for in the budget and would reduce sales tax revenues dedicated to education and infrastructure improvements.  His press release can be found here.

Given the nearly unanimous support—which transcended party lines—in the initial passage of each of the five bills described above, there is a real possibility that the Governor’s vetoes will be overridden.  At a minimum, the General Assembly will continue to push back from what it considers to be unfair Department practices in the state.  For example, the Missouri Senate recently announced the establishment of a committee to investigate the Department’s processes and policies—further evidencing the General Assembly’s distrust and dissatisfaction with the Department.  The committee chair was recently quoted as saying that Department is “reinterpreting and misinterpreting laws” in a “hidden attempt to collect more taxes.” See 2014 STT 106-3.  The committee plans to release a report by the end of the year.

Practice Note: While the outcome of the political battle over this legislation ultimately will not be settled until September, its popularity across party lines and potential for success in subsequent legislative sessions remains promising.  Missouri taxpayers should keep a watchful eye for revenue-related changes as tension between the General Assembly and executive branch, including the Governor and Department, has peaked over the past few months.

McDermott Will & Emery

Eric D. Carstens
Eric D. Carstens focuses his practice on state and local tax matters, assisting clients with state tax controversy, compliance and multistate planning across all states for a variety of tax types and unclaimed property. Eric engages in all forms of taxpayer advocacy, including litigation, legislative monitoring and audit defense. He works closely with several of the Firm's taxpayer coalitions focused on specific state tax policy issues such as the taxation of digital goods and services and unclaimed property. Read Eric D. Carstens' full bio.




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