JEFFERSON CITY, Mo. -- The sponsors of economic development legislation have dropped a controversial provision to eliminate an existing sales tax exemption for Missouri's two largest newspapers.

In presenting the bill to a Senate committee on Wednesday, state Rep. Tom Dempsey, R-St. Charles, offered a substitute version that omitted House-approved language to end the tax exemption for the St. Louis Post-Dispatch and The Kansas City Star. Dempsey said the section jeopardized passage of the underlying bill, which would provide tax breaks to encourage businesses to locate in financially distressed areas and repeal certain tax credits, among other things.

"The problem I saw on the floor of the House was that provision is detracting from other, I believe more important, provisions of the bill," Dempsey said.

State Rep. Richard Byrd, R-Kirkwood, added the provision as an amendment during House debate on the bill that took place days after the Post-Dispatch ran a stinging, full-page editorial headlined "House of Hypocrites." The Star reprinted the editorial, which was accompanied by the pictures of 66 House Republicans who voted to scale back state medical benefits for the poor while receiving taxpayer-subsidized health insurance as part-time state employees.

Byrd said he is content to let the matter drop if it improves the chances of the overall bill winning final passage. Byrd, who was not among those named in the editorial, said he drafted the amendment before the article ran.

"This was never intended for retaliation," Byrd said. "This was intended to close a corporate tax loophole."

However, Byrd said the debate forced the newspapers, which have called on Republicans to end certain tax breaks for corporations, to acknowledge their own tax benefits.

"Perhaps the amendment, even if it doesn't stay on the bill, did mean that the newspapers finally disclosed to their readers that they are the recipients of the very same type of loopholes that they are saying we should be closing," Byrd said.

All paid circulation newspapers in the state, including the Southeast Missourian, receive the exemption, which applies to equipment and raw materials used in producing newspapers.

The specific exemption Byrd's amendment would have repealed for the Post-Dispatch and Star was enacted in 1998. Two years earlier, the Missouri Supreme Court ruled newspapers are entitled to the exemption under another section of the statute that applies to all manufacturers. The Southeast Missourian brought that case after the Missouri Department of Revenue claimed the paper owed sales tax on computer equipment it purchased for publishing purposes.

Doug Crews, executive director of the Missouri Press Association, said raising taxes on newspapers that run afoul of government leaders would have a chilling effect on freedom of the press.

The bill is HB 1409.

mpowers@semissourian.com

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