Image credit: Gary Todd / Flickr

One of my favorite elected officials in the country isn’t in Congress, a statehouse, or a governor’s mansion. It’s Missouri State Auditor Nicole Galloway. Her office has put out a series of audits and reports showing how Missouri’s fiscal, financial, tax, and economic development policy sells out communities while benefitting large corporations.

Her latest audit is right in the same vein, showing how a Missouri sales tax giveaway disproportionately benefits large retailers and harms Missouri taxpayers, costing the state tens of millions of dollars that could be put toward better uses than tilting the scales against small, local retailers. Plenty of other states suffer from the same sort of problem.

At issue is something called sales tax “vendor discounts.” In more than two dozen states, businesses receive a “discount” for sending the sales tax they collect from their customers on time to the state, which is supposed to be an incentive to make sure those payments are made on a predictable schedule. I put “discount” in scare quotes, because what’s actually happening is the businesses get to keep a certain percentage of the money their customers pay in sales tax, pocketing it instead of sending it in to their respective state’s revenue department.

Rates vary pretty widely regarding how much sales tax sellers get to keep—from a fraction of a percent to up to 5 percent—but most states with these “discounts” at least put a cap on the dollar amount any one individual seller can keep. For example, North Dakota allows sellers to keep 1.5 percent of the sales tax they collect, but only up to $110 per month.

Missouri, however, does not have a cap on its 2 percent rate, meaning retailers keep 2 percent of literally every dollar in sales tax they collect, which of course will provide the most benefit to those with the most sales volume, which are the largest retailers.

“Missouri’s discount gives the biggest benefits to the wealthiest retailers just for turning over sales tax paid by consumers,” Galloway said. “Ordinary citizens don’t get a discount for paying taxes on time. The lack of a cap on this handout to big business means millions of dollars lost that could be used to fix streets, pay law enforcement, and improve the lives of Missourians.” 

Galloway’s team found that this particular tax giveaway costs Missouri taxpayers $141 million annually, split between state and local governments. They also noted that the state revenue department doesn’t regularly report this loss number to the state legislature, so elected officials don’t even know what they’re giving away.

Finally, the audit found that capping these benefits would not affect most small businesses at all, as the majority of the “discounts” flow to large retailers: They’re likely big box stores like Walmart and Bass Pro Shops, though the report doesn’t name names.

“The current law allowing uncapped timely discounts results in the state and local governments providing a significant subsidy to the largest retailers in the state, and is more generous than any other state,” the audit said.

The case for having these “discounts” at all is pretty thin. They’re supposed to compensate retailers for the inconvenience of collecting and sending in sales tax payments. That task has been made much easier in recent years with modern computing systems—but the tax handout is still in effect.

It’s telling that this “discount” policy only exists in about half of the states, yet somehow retailers manage to successfully collect and remit sales tax in all of them, discount or not.

Programs like this are one of the under-the-radar ways in which states tilt the scales toward large corporations and away from smaller, local retailers. They’re especially problematic at a time when the negative effects large retailers have on the economy—from preventing new business entries to lowering wages and working standards—is becoming increasingly apparent.

States and cities do this all the time, sometimes actively, sometimes by accident, but always with the same result: local retailers find it that much harder to stay in business.

Slapping a cap on Missouri’s handout is a very simple fix—Colorado capped its own sales tax discount program, then the most generous in the country, just two years ago—but scrapping it entirely is the better call. Indeed, even those states with caps now should probably consider sweeping their programs into the dustbin of history.

This is also a good reminder that political leaders matter. Auditor is an office I imagine most folks don’t think about very much—even though auditors are elected in 24 states—but having a good one in Missouri has made a tangible difference in at least getting good information out that folks can act upon. Galloway isn’t running for re-election, so Missouri voters should think long and hard about who will replace her.

Pat Garofalo is the author of The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, the Boondoggle Newsletter, and the director of state and local policy at the American Economic Liberties Project.

This post initially appeared in a slightly different form on the author’s Substack, Boondoggle, on July 14, 2022.