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 The statute was originally enacted in 1978 and subsequently amended in 1999.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 [...]