New report from Auditor Fitzpatrick finds Missouri has an overburdened system for refunding sales tax overpayments

According to a new report released today by State Auditor Scott Fitzpatrick, a change in Missouri law meant to ensure taxpayers have an increased opportunity to recover sales and use tax overpayments has instead resulted in a significant increase in the number of overpayments being held by the state while also increasing the administrative burden on the Missouri Department of Revenue (DOR). The report gives the DOR a "good" rating for how it oversees the process, but also points out significant flaws with the current system that have resulted in the amount of overpayments held by the state more than doubling in the last five years. 

"If the goal is to return tax dollars to those who overpaid, and clearly that should be the goal, then the system we have now is failing to do that efficiently. The change to the law in 2019 was supposed to give taxpayers additional time to seek a refund. Instead it's created a worst of both worlds situation where taxpayers aren't claiming a significant amount of increased refunds and they lose all rights to their money after 10 years," said Auditor Fitzpatrick. "Members of the General Assembly should review this report and consider making legislative changes that will improve the way our state handles overpayments. At the very least the DOR should remit the overpayments to the State Treasurer's Unclaimed Property program that is specifically designed to return unclaimed assets to Missourians." 

The audit report details how a legislative change made in 2019 increased the period of time to obtain a refund or credit for overpaid sales and use tax from 3 years to 10 years. The change made Missouri's refund period significantly longer than any other state in the nation with the next closest states allowing just 4 years to claim an overpayment. However, as the report documents, instead of the increased window leading to more refunds, it caused the state to see a significant increase in both the number of overpayments held by the state, and the total amount of overpayments. Since the law change took effect in 2019, the number of overpayments held by the DOR has more than doubled, with over 414,000 overpayments held at the end of fiscal year 2019, and approximately 842,000 overpayments held at the end of fiscal year 2024. The dollar value of the overpayments being held has also increased significantly over the same timeframe, with the total overpayments balance increasing from approximately $113.5 million at the end of fiscal year 2019, to approximately $180.5 million at the end of fiscal year 2024 (a 59 percent increase). 

The report notes the increase is due in large part to the fact the almost all overpayment refunds are applied for and made within 5 years of the overpayment. An analysis of overpayment refunds for the year ended June 30, 2023, found only 2.5 percent of refunds were from overpayments that occurred prior to the last 5 years. The report credits the DOR for adequately tracking sales and use tax overpayments, but points out the longer period creates an increased administrative burden on the department, increased litigation liability, and increased risk of inappropriately or erroneously refunding overpayments. The audit also highlights the fact that once a sales and use tax overpayment is over 10 years old and a refund or credit can no longer be requested from the DOR, state law does not specify how the overpayment is to be handled. As the report notes, the DOR does not remit sales and use tax overpayments to Missouri's Unclaimed Property program. 

The second finding in the audit details how the DOR's sales and use tax overpayments data includes a significant number of records that do not identify the overpayment date. As of June 30, 2023, DOR overpayment data included 418,241 overpayments (55 percent of the total number of overpayments) totaling approximately $4 million where the overpayment date is not identified. As a result, these overpayments could not be classified to a specific fiscal year and the age of the overpayment could not be determined based on the date of overpayment. In addition, the number of unidentified overpayments has significantly increased each year from 2019 to 2024. The report notes that maintaining these old and individually immaterial overpayment records in the DOR's computer system results in unnecessary record keeping and an administrative burden for the DOR. 

The complete audit is available online here.