Missouri vehicle sale taxes would be reinstated under legislation already vetoed twice

05/05/2013 1:30 PM

05/20/2014 10:43 AM

Denied twice by gubernatorial vetoes, Missouri lawmakers are hoping for success on their third attempt to reinstate local taxes on cars, trucks and boats bought from out-of-state dealers or through person-to-person sales.

Yet even if lawmakers finally get Gov. Jay Nixon's signature on the legislation, constitutional questions may remain about whether the state Legislature can impose a local tax and then require cities and counties to hold after-the-fact elections on whether that tax should remain.

The answer to those multi-million-dollar questions could eventually rest with the courts – a perhaps fitting result for a measure prompted by a Missouri Supreme Court decision issued Jan. 31, 2012.

At issue is whether local governments can charge a tax on vehicle purchases. They have for years. But the Supreme Court ruled last year that some of those taxes were being collected illegally.

The court drew a distinction between sales taxes charged on retail purchases from Missouri automobile and boat dealers and use taxes charged to consumers who bought vehicles elsewhere – either from out-of-state dealers or from individuals who post for-sale notices on the Internet, in newspapers or in the windows of their vehicles. The bottom line is that cities and counties cannot tax vehicles bought from anywhere other than a Missouri retailer unless they have a voter-approved use tax. And many local governments do not.

A majority of lawmakers want to reinstate those local vehicle taxes, citing the lost revenues to cities and counties and the lost business for Missouri auto dealers whose customers are instead shopping in neighboring states because of the tax savings. Local governments across Missouri could be losing about $200,000 of taxes daily as a result of the Supreme Court ruling, said Sen. Mike Kehoe, a former auto dealership owner who is spearheading the effort to reinstate the local taxes.

Democratic Gov. Jay Nixon vetoed a bill last year because it would have re-imposed local vehicle taxes without a vote of the people and would have done so retroactively. He vetoed a second bill last month, citing what essentially amounted to technical problems in provisions that would have allowed voters to undo the re-imposition of local taxes on vehicles bought from non-Missouri retailers.

A third bill now pending in the Legislature would redefine vehicle sales taxes by applying them to the titling of vehicles in Missouri – thus seeking to sidestep issues about the location or manner by which vehicles are bought. The newly defined tax would kick in immediately upon Nixon's signature. Within the next two years, local governments then would have to give voters the chance to repeal the redefined tax for vehicles bought out of state or from individuals.

Kehoe is confident the latest version can succeed.

“Multiple people have looked at this to make sure it's constitutionally correct and accurate,” said Kehoe, R-Jefferson City.

But not everyone shares that conclusion.

“Challenges could certainly be brought to the bill that they're proposing, if it were passed,” said Craig Street, a Springfield attorney whose case led to last year's Supreme Court ruling. “I think any taxpayer would have that same standing” to sue.

There are two potential constitutional concerns.

Article 10, Section 10a of the Missouri Constitution says the Legislature shall not impose taxes for local purposes.

Article 10, Section 22, known as the Hancock Amendment, says local governments cannot levy taxes without the approval of a majority of voters.

Cole County Presiding Commissioner Marc Ellinger, an attorney who has handled Hancock Amendment lawsuits, said he was so concerned the courts will strike down the imposition of the redefined tax that he persuaded lawmakers to include wording making the bill an all or nothing deal. His goal is to avoid any unintended consequences from a potential court decision invalidating part of it.

“The bill does a statewide passage of a tax, with that tax revenue to go to local governments, which creates (a) problem” under Article 10, Section 10a, Ellinger said. Then “for up to two years, local voters have to pay taxes without getting to vote on them. That creates some concern to me” under the Hancock Amendment.

In what may be a crucial matter of semantics, proponents of the legislation contend it does not impose a new tax but merely redefines existing sales taxes that previously received local approval.

Jefferson City attorney Lowell Pearson, a former deputy director of the state Revenue Department, said both arguments have merit and are likely to be aired in court.

“If you end up calling it one thing, it looks constitutional. And if you end up calling it another thing, it doesn't,” Pearson said. “The idea that it is a legitimate and lawful redefinition seems a little more correct to me, a little more likely to prevail.”

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