SUIT SEEKS TO BOOST HANCOCK REFUNDS

Missouri's 2.1 million taxpayers would get added tax refunds totaling some $230 million under a class-action lawsuit making its way through Cole County Circuit Court in Jefferson City.

Two major business groups -- the Missouri Chamber of Commerce and the Missouri Merchants and Manufacturers Association -- want the state to recalculate the Hancock Amendment refund formula and return more money to state taxpayers.

On March 7, Judge Thomas Brown certified the lawsuit as a class-action case, assuring that all Missouri taxpayers would receive a refund if the plaintiffs win their court battle. The lawsuit against the state was filed last December.

Missouri Chamber of Commerce officials said Wednesday the class-action ruling is good news for taxpayers. But state Budget Director Mark Ward said the lawsuit could have a negative impact on state government if the business groups win the case. "If it were successful then it would significantly reduce the amount of one-time money available to the state," he said.

Much of that money goes to capital improvements at state colleges and universities, Ward said.

Ray McCarty, tax specialist with the Missouri chamber, said that without the class-action ruling any refunds might have been limited to the named plaintiffs in the lawsuit.

"We did have over 800 people ready to sign on as plaintiffs," McCarty said. But that won't be done now that the case has become a class-action suit.

McCarty said attorneys currently are in the fact-finding phase. A decision by the trial court could come later this year, he said. The case ultimately could be appealed to the Missouri Supreme Court.

The bottom line is the case could put more money in the hands of taxpayers, McCarty said.

Last year the state refunded about $178 million to taxpayers. This year the state is looking at refunding about $98 million.

But McCarty said that isn't enough. Chamber officials argue that the state needs to go back to the 1980-1981 base year of the Hancock tax limitation regulations and use a different formula to calculate tax refunds.

The Missouri Supreme Court ruled last year that Conservation Department sales tax revenue should not be included in calculating total state revenue for purposes of the Hancock tax refund formula.

Chamber President Dan Mehan said the state didn't take the Conservation Department money out of the base-year revenue figure used to calculate refunds for 1995, 1996 and 1997.

Ward said the state is complying with the high court's ruling and isn't required to make additional refunds for those prior years.

Also at issue is the state's use of tax credits as it relates to calculating total state revenue.

McCarty said the state Constitution specifies that certain tax credits are to be counted in total state revenue and others aren't.

Also at issue is whether tax credits should be included in tax liability when calculating the amount of Hancock refund that is due a particular taxpayer.

The two business groups believe individual taxpayers and businesses shouldn't be punished for properly using tax credits. The two business groups question if the state may be wrongly taking advantage of tax credits to reduce the amount of money it has to refund to taxpayers.

But Ward said the state is complying with the constitutional requirements.

McCarty said the plaintiffs are still trying to piece together information on tax credits from various state agencies. "There is no one person or agency that knows every piece of the puzzle," he said following a meeting with officials from different agencies.

The tax credit issues need to be addressed along with the refund formula, McCarty said.

"We want to make sure when we go in and get it fixed that we get it fixed correctly," he said.