The House Budget Committee has taken the first step in what could be a longer, broader process of tax credit reform.
The committee must annually clear state agencies to authorize tax credits. When it met this year, it recommended that issuance of the wine & grape producers tax credit not be continued.
Vice-chairman Justin Alferman (R-Hermann) described the decision as a “test run,” because some believe that when the legislature chooses to end a tax credit, it will likely be sued by someone who wants to get the involved credits.
“What does happen? We’re going to eliminate this. If a year goes by and we say, ‘Look, we eliminated this one and everyone respected the legislature and their choice here,’ then maybe we can start going after some of these bigger ones like low-income housing, like historic tax credits; some of the ones that are causing the biggest strain on our budget,” said Alferman.
The wine & grape producers tax credit offers a break on income taxes equal to part of the purchase price for equipment used in making wine or growing grapes. In each of the past two years between $14,000 and $17,000 worth of the credits have been issued, and more than $14,700 was waiting to be redeemed at the end of Fiscal Year 2016. More than $575-million was redeemed across all tax credits in Fiscal Year 2016.
Alferman, whose district includes numerous wineries, said it is an important credit to eliminate.
“It is a great example of a tax credit that has worked but has long outlived its usefulness in our state,” said Alferman. “I believe all tax credits should have a sunset … regardless of if it’s doing good things for our state or if they are simply pork barrel spending, which I believe a lot of them are nothing more than pork barrel spending.”
Alferman said the credit was created to help build the state’s wine industry, and that’s been done. He said now there are people using the credit but creating subpar wines that hurt the industry as a whole, or using imported juice or grapes that would not grow here yet labeling the products as Missouri wines.
He hopes after this the legislature can proceed with more reform of tax credits, which he said have “run rampant.”
“Representative [Don] Rone did a great job of going through and analyzing along with our budget staff. We have over $1.5-billion – with a ‘B’ – of tax credits that have been issued but have not been redeemed. Well what would happen if those all got redeemed in one year? We get just under $10-billion of general revenue taxes in the State of Missouri every year. If those all, for whatever reason, got redeemed in one year, that’s 10-percent of all of our state revenue for GR. That would devastate the state,” said Alferman.
Meanwhile, Governor Eric Greitens (R) created a committee to look at the state’s tax system, including tax credits, and recommend changes. Alferman is hopeful the legislature will be able to work toward tax credit reform along with that committee.