JEFFERSON CITY – Democratic Gov. Jay Nixon vetoed a package of special sales tax breaks Wednesday for Missouri power companies, restaurants, computer data centers and others, setting up another showdown with a Republican-led Legislature that already has triumphed over him on a historic income tax cut.
Nixon denounced the tax break measures as a "grab bag of generous giveaways" providing "secret sweetheart deals" and "special interest favors" that could bust a $425 million hole in the state budget while also jeopardizing hundreds of millions of dollars of local tax revenues.
While vetoing 10 bills, Nixon also said he would make "dramatic spending reductions" in the coming weeks to guard against the potential for lawmakers to enact the tax breaks by overriding his objections during their September session.
"My vetoes today are the first step toward restoring fiscal sanity to a budget process that has gone off the rails," Nixon said at a Capitol news conference.
Some Republican lawmakers and business groups immediately vowed to pursue veto overrides. They disputed Nixon's cost projections and defended the bills as a mixture of important business incentives and mere clarifications of existing tax policies that they contend have been misinterpreted by the courts and Nixon's administration.
"By vetoing these bills, he has re-emphasized the fact that the focus of his tax and spend administration is on growing the size of government rather than growing our economy," said House Speaker Tim Jones, R-Eureka.
Republicans hold a two-thirds majority required for veto overrides in the Senate and are one seat short of that threshold in the House. But the GOP is likely to gain seats when special elections are held in August for four vacant House districts.
Senate Ways and Means Committee Chairman Sen. Will Kraus, R-Lee’s Summit, says he will work with colleagues to review what he called the governor’s “flawed vetoes.”
“The governor and his bureaucrats at the Department of Revenue are putting a heavy foot on the necks of Missouri’s small businesses and risking their future,” Kraus said in a prepared statement. “Once again, the governor supports his Department of Revenue bureaucrats and their flawed policies rather than our job creators and hard-working families. It’s a shame.”
In May, Republicans got the support of a lone House Democrat to override Nixon's veto of legislation cutting the state's income tax rate for the first time in nearly a century.
Last year, the Legislature overrode 10 Nixon vetoes – the greatest single-year total in Missouri since 1833, when a different constitution only required a simple majority vote.
The newly vetoed bills include several passed in May during the Legislature's final day of its regular session that would exempt various categories of businesses from paying sales taxes on the equipment or electricity they use.
One bill would grant those tax breaks to computer data centers, which store or process electronic information. Business groups have pursued incentives for data centers for years while arguing that Missouri is missing out on some high-tech businesses. But the bill that passed was more far-reaching than one that Nixon had previously supported during a 2011 special session. Nixon's budget office estimates it could waive $152 million annually in state sales tax revenues and an equal amount in local revenues.
Business groups contend the actual cost is likely a small fraction of that.
"What we are seeing is a roadblock mentality" from Nixon, said chamber President and CEO Dan Mehan.
Other vetoed provisions would grant similar sales tax breaks for the electrical lines, poles and transformers purchased by power companies; the electricity used to produce food sold by restaurants, bakeries and grocery stores; and the soap and chemicals used by commercial laundries. Another vetoed provision would extend sales tax breaks for dues to fitness centers and memberships that give people first-crack at tickets for events held at facilities such as the Sprint Center in Kansas City.
Sales taxes also would be waived for people buying old vehicles, food from farmers' markets, experimental drugs that could treat terminal illnesses and graphing calculators that are increasingly required for school mathematics courses.
Nixon focused much of his criticism on the way the tax breaks were passed – on the last day of the session, without being accounted for in the state budget and in some cases without a public hearing on the final version of the wording.
House Majority Leader John Diehl rejected Nixon's assertion that the tax breaks amount to special-interest favors. He said many provisions are mere corrections and clarifications.
"What some of these bills did was close loopholes where his Department of Revenue put hidden tax increases on businesses, often not informing those businesses that they were changing tax policy on their own," said Diehl, R-Town and Country.
One of the provisions Nixon vetoed would require the Revenue Department to notify businesses of sales tax policy changes before businesses are required to pay the tax. Legislative researchers estimated only a minimal cost related to postage. Nixon's administration estimated it could result in the loss of $100 million annually of state revenues and an equal amount in local revenues, because businesses would gain greater leeway to challenge taxes.