Auditor Fitzpatrick releases report on Department of Revenue Sales, Use, and Marijuana Taxes

In his annual review of the Missouri Department of Revenue sales, use, and marijuana taxes, State Auditor Scott Fitzpatrick has once again found Missouri has the most generous timely sales and use tax discount in the nation. The report issued by Fitzpatrick's office gives the Department of Revenue (DOR) a "good" rating and recommends the General Assembly consider a cap on the amount of discount retained by businesses each month.

"The timely discount does serve a meaningful purpose for the businesses that have to collect and remit these taxes, but a reasonable cap would better align the benefit to businesses of filing and remitting timely with the cost of doing so, and direct more of the sales tax revenue being paid by consumers to funding state services as the legislature faces the prospect of tough budget years where every tax dollar must be spent judiciously. As the members of the General Assembly work to craft a fiscally responsible budget and also consider replacing the income tax as the state's primary revenue source with an expanded sales tax, they should read our audit report and consider our recommendation," said Auditor Fitzpatrick.

Under Missouri law, businesses remitting sales and use taxes are allowed to retain 2 percent of sales taxes payable to the DOR if the business remits payments in a timely manner. The state originally established the discount so businesses could recover a portion of their costs for compliance with state sales tax laws and to encourage timely remittance of sales and use taxes. For fiscal year 2024, the discount resulted in businesses retaining $184 million of sales and use tax collections.

In designating Missouri's discount as the most generous in the nation, the report notes that while some other states may have a higher percentage discount, they put a cap on the amount of the discount that can be retained by businesses. The report notes 27 other states have similar vendor discounts with nine having a lower discount rate than Missouri or only applying the highest discount rate to a limited dollar amount of sales tax collected. The remaining 18 have a ceiling to limit the amount of the discount businesses can retain.

The report uses the example of the state of Arkansas, which has a similar 2 percent timely discount rate but also has a cap of $1,000 per month. If Missouri had a similar cap in place it would have resulted in approximately $112 million in additional state and local tax revenue during fiscal year 2024.

The audit recommends that the General Assembly evaluate the timely sales tax discount and consider the implementation of a monthly cap on the amount of discount retained. The report also notes the DOR is not required to report and does not routinely report the amount of timely discounts retained by businesses to the General Assembly, and recommends changes to state law to require the department to report this information annually.

The complete audit of the DOR sales, use, and marijuana taxes can be found here.