The Missouri Department of Revenue did not follow the law when it changed income withholding tax tables in January, according to an agency audit released by State Auditor Nicole Galloway Tuesday.
The audit comes on the heels of questions about changes to the state withholding tables made in March and October of last year to reflect federal tax policy. Those changes have resulted in an “April surprise,” meaning more Missourians have found themselves receiving smaller refunds or owing the state money after filing their taxes.
The changes have caused inconsistency in state revenue collections, making it harder for lawmakers to plan for next year’s budget.
The change in January, unlike those made last year, was not for the Department of Revenue to unilaterally make, according to Galloway. State law requires the change to the withholding formula be approved through the legislature’s Joint Committee on Administrative Rules, which would have allowed for a public comment and notice period.
While the previous changes resulted in “underwithholding” of taxes from paychecks, the January change will mean “overwithholding” for those that make less than $125,000, Galloway told reporters Tuesday. Based on 2017 returns, the change would affect 53 percent of Missourians.
“If the goal is to have people evenly pay -- to have income tax tables correct so they are paying the amount they should over a period of time every paycheck, then these tables would not be correct because they are purposely ‘overwithholding,’” Galloway said.
Galloway said the audit didn’t analyze whether the “overwithholding” would result in larger or unexpected refunds in 2020, just uncertainty for those who structure their taxes hoping to neither pay, nor receive money from the government.
“This going to cause quite a mess and confusion for people filing taxes next year,” Galloway said.
Galloway said the same week a draft of the audit was released to DOR, the agency’s director resigned.
The agency’s response to the audit’s finding about the January withholding tables was two sentences, that Galloway said acknowledged her findings.
“The DOR will continue to monitor the impact of the withholding table changes and will take steps to communicate with taxpayers,” the agency response stated. “The DOR will begin work to update the state regulation.”
Galloway, a Democrat, castigated Gov. Mike Parson and Department of Revenue for their lack of “honesty.”
The audit found that DOR didn’t do enough to notify individual taxpayers last year.
“The governor and his administration need to stop misleading taxpayers and take responsibility for the confusion they have caused citizens,” Galloway said. “...over and over again, the administration has not acted transparently.”
In a statement, Parson called Galloway “someone who prioritizes partisan politics and scare tactics.”
“While we are aware that bureaucratic challenges exist, we are committed to working with new leadership within the Department of Revenue to ensure Missourians receive the full benefits of the historic federal and state income tax cuts that were signed into law last year,” Parson said in a statement.
The issue has led to several oversight hearings in the Missouri House. Just last week, lawmakers on both sides of the aisle said they haven’t been satisfied by the answers provided by DOR.
Request for comment from oversight committee’s chairman, state Rep. Robert Ross, R-Yukon, was not immediately returned.
In a statement, House Minority Leader Crystal Quade said, ”each new revelation of how the Parson administration has failed taxpayers further shakes Missourians’ confidence in the governor.”
“Such a flagrant disregard for Missouri taxpayers and the hardships they face when the state plays games with their paychecks cannot be defended,” Quade, D-Springfield, said in the statement. “Governor Parson must be held accountable for his administration’s repeated lies and cover-ups and take all necessary steps to comply with the law and protect taxpayers.”
Other findings in the audit included better timeliness in tax refunds in 2018 compared to 2016 and 2017.
It also found that in 2018, the state borrowed the maximum under state law -- $500 million -- to help with cash flow despite an improving economy. Galloway said that had only happened twice before: once in 2010 during the height of the recession, and again in 2017.
This story has been updated to include comments from Gov. Mike Parson.