Legislative Column for the Week of Feb. 23, 2015

Reining in the Department of Revenue

Legislative News

On Tuesday (2-24), the Missouri Supreme Court unanimously concurred that the state Department of Revenue (DOR) went too far in taxing the Joplin-based fitness club, Powerhouse Gym. The high court’s ruling comes on the heels of a wave of recent criticism DOR has faced from businesses and legislators alike, regarding their tax collection efforts that many feel exceed the department’s authority, as well as their practice of retroactively collecting taxes that were not previously required.

The Facts

Powerhouse gym members paid a fee to join. In return for the fee, Powerhouse offered members various services, such as the use of fitness classes, weights and exercise machines. It did not directly offer personal training services. Rather, Custom Built, a personal training company, paid Powerhouse $6,000 per month to rent office space and use the facilities to conduct personal training sessions for Powerhouse members. Custom Built employed the personal trainers, who were never allowed to use Powerhouse’s facilities for personal use.

Powerhouse reported and paid income tax on the rental fees it received from Custom Built. DOR subsequently assessed $12,207 in unpaid sales tax on the rental fees against Powerhouse, citing the rental fees were subject to sales tax because the governing statute applies to all fees paid to a place of recreation. The court contended that since Powerhouse neither sold tangible personal property or rendered taxable service at retail to Custom Built, rather they were a passive party regarding the interactions between Custom Built and its members, they were not liable for the amount assessed by DOR.

The Senate is currently considering a measure that is very relevant to the Powerhouse case. Senate Bill 57 creates a state and local sales and use tax exemption for payments on classes or memberships at fitness facilities, gyms and dance studios. The bill is an effort on the part of legislators to clarify that exercise should not be taxed, that it was never meant to be taxed. Unfortunately, the Missouri Supreme Court has ruled in recent years that fitness clubs are considered to be places of recreation. By law, places of recreation are required to collect sales taxes on the fees they receive. This has led to some fitness facilities being told they must repay years’ worth of back taxes that they never knew to collect in the first place. Senate Bill 57 is a response to this ongoing problem.

I discussed two tax bills in last week’s column that address some of the overreaching and questionable collection practices that businesses and individual taxpayers face: Senate Bill 19, which specifies a process for determining what portion of a corporation’s income is taxable in Missouri for sales of real property or rentals of tangible personal property, rentals of licenses of intangible property, and sales of intangible property; and Senate Bill 115, which allows Missourians to seek a refund after the statute of limitations has passed if they amend their federal return.

Shown above, members of the Jasper County 4-H Group with Sen. Ron Richard in the Senate Chamber on Feb. 25.

Senate Bill 19 and SB 115 are especially timely considering the court’s Tuesday ruling, which may add momentum to legislative efforts to rein in some of DOR’s practices. The goals of SB 19 are to create greater clarity and consistency within our state’s tax code, while SB 115 creates parity for Missourians by providing them with the same right as the government enjoys in not being restricted by a statute of limitations when it comes to collecting on an amount owed due to overpayment.

Finally, I was happy to meet with members of the Jasper County 4-H Group, who were visiting the Capitol for the University of Missouri Extension Day.

Helpful Consumer Financial Information

This week, the Missouri Credit Union Association MCUA offers information to help consumers protect themselves from tax scams. Tax season is taxing enough without the worry of being the target of scams. The following is information on some of the most prevalent tax scams to help protect you and those you care about from being a victim of tax fraud.

To help prevent falling victim to tax fraud scams, look for the following:

  • Telephone Scams – The IRS reports the number of aggressive and threatening phone calls from scammers is surging across the country. A criminal will call, claiming to be from the IRS, and demand immediate payment for money owed or claim you are entitled to a huge refund. 

Protect Yourself: The IRS will never call to demand immediate payment, ask for credit or debit card numbers over the phone, threaten you with local law enforcement, or demand payment without the option of appeal. Call the IRS directly at 1-800-829-1040. If you know you don’t owe taxes, call 1-800-366-4484 or visit www.tigta.gov to report the scamming attempt.

  • Phishing – Using an unsolicited email or fake website, criminals lure you in and ask for personal and financial information.

Protect Yourself: The IRS will not send you an email about a bill or refund out of the blue.  Don’t click on anything claiming to be from the IRS, as the IRS does not initiate contact with taxpayers by email, text or social media. If you receive a questionable email, report it to phishing@irs.gov.

  • Tax Identity Theft – Tax season is prime time for identity theft. Someone files a fake return using your Social Security Number (SSN) and/or other personal information.

Protect Yourself: Don’t carry your Social Security card or documents with your SSN on it. Keep those documents in a secure location. Don’t provide your SSN just because a business asks. Only use it if there is a legitimate reason. Also, check your credit report and your Social Security Administration earnings statement annually. If you believe you are a victim of tax identity theft, visit the IRS Identity Protection site.

  • Inflated Refund Claims – Be alert for unscrupulous return preparers, especially anyone who promises large tax refunds.

Protect Yourself: If it sounds too good to be true, it probably is. Be wary of anyone who asks you to sign a blank return, promises a big return before looking at your records, or charges fees based on a percentage of your return. Choose your tax preparer carefully and make sure they have an IRS Preparer Tax Identification Number (PTIN). For tips on selecting a tax preparer, visit: www.irs.gov/chooseataxpro.

Source: IRS