When it was revising withholding tables as income tax receipts fell unexpectedly last year, the Missouri Department of Revenue prepared a news release that, in bold type at the top, advised “Taxpayers Encouraged to Increase Withholdings for the Remainder of 2018.”
The draft was never issued.
In its place came a release with the headline “Missouri Department of Revenue Updating the State’s Tax Tables” that stated “adjustments are being made to ensure increased predictability for taxpayers.”
That release received little notice when it was sent Sept. 21 to Missouri news outlets.
It wasn’t until a revenue estimate for the upcoming budget year was issued in late December that the scale of the issue, with refunds expected to fall by $231.5 million and additional payments expected to increase by $134.4 million, became apparent and lawmakers started complaining that the department should have done more to prepare people.
The draft press release was included in the records delivered to the Tribune last week in response to a Sunshine Law request. The records also included emails from legislative appropriations staff questioning whether the department had accurately identified the source of the problem and an analysis of state tax receipts that criticized how the department was communicating with employers and accounting firms about the revised withholding tables.
After seeing the unreleased draft, state Rep. Robert Ross, R-Yukon and chairman of the House Special Committee on Government Oversight, renewed that criticism.
“Their claimed outreach to the public through the press releases or social media has been nothing less than a farce,” Ross said.
State Rep. Kip Kendrick, D-Columbia and a member of Ross’ committee, said he sees the unreleased draft as another example of the department attempting to hide what was happening.
“There seems to be a deliberate attempt to withhold information from the public as well as lawmakers about the surprise tax bills,” Kendrick said. “I am shocked that there was a September press release ready to go to alert people about this problem and the press release was hidden from the public and shelved.”
Missouri revised withholding tables in February 2018 to take federal tax cuts and a small state tax cut into account in the money taken out of paychecks. When state revenues fell unexpectedly, the tables became the focus of study to determine why tax receipts were not meeting expectations.
New tax tables were issued in October, but implementation was spotty. For example, they were never used to determine how much to withhold from the paychecks of state employees.
The issues in the withholding tables didn’t change anyone’s overall tax liability but it means many people must make unexpected tax payments when they anticipated a refund. Ross’ committee held a hearing Wednesday on a bill sponsored by Rep. Dean Dohrman, R-La Monte, to waive penalties and interest on late income tax payments for filers who have an unexpectedly large amount due on April 15.
The news release actually issued was “not exactly a worried call to action for employers by DOR, nor a roadmap for employers regarding what they need to do to correct prior errors,” the analysis prepared by lobbyist Jim Moody, a former state budget director, stated.
The draft release was not issued, department Director Joel Walters said Wednesday in written responses to questions from the Tribune, because it was only a draft.
“The original draft was reworked after it was decided, in the interest of clarity, to narrow our focus to be more concise,” Walters said.
In his responses, Walters defended the efforts of the department to get employers to use the October tax tables.
“We called the top nine withholding tax return preparers,” he said. “We sent flyers by mail to 217,118 taxpayers registered with the department for employer withholding. Additionally, we sent 26,377 emails to taxpayers for which we had a valid email address on file. We also sent flyers to the National Association of Certified Tax Practitioners to be posted on their list serve.”
Gov. Mike Parson and lawmakers are using the revenue estimate, that tax receipts will grow 1.7 percent in the current year, as the basis for the budget now awaiting action in the Missouri House. But with 1.4 million returns processed, tax receipts are down 5.5 percent for the year through Friday.
In the committee’s last hearing, Walters admitted that the reason the department gave for the withholding issue was wrong. The draft release included the erroneous information, first stated publicly by Walters in a January interview with the Tribune, that there was some long-standing error in the way state withholding tables account for federal tax liability.
“I have conceded that referring to the changes made in October as ‘correcting an error’ was not the right terminology, rather that the change was an adjustment in the tables that the department believes were appropriate to do to make them more accurate,” Walters said in the responses sent Wednesday to the Tribune.
About six weeks before Walters publicly called the problem the long-standing error in an interview with the Tribune, Glenn Fitzgerald, a budget analyst for the Missouri House, sent an email to Walters and others in the administration questioning that explanation.
After looking over the revised tax tables issued in October, Fitzgerald said the original tables were accurate.
“In short, it’s not clear to me that there was ever a mistake in our February withholding tables, or at least the mistake that was fixed in the October revision,” he wrote on Nov. 21.