YELLOW SHEET Office of the State Auditor of Missouri |
April 18, 2001
Report No. 2001-34
The
following areas of concern were discovered as a result of a review conducted by
our office of the Pharmaceutical Tax Credit for Senior Citizens.
The Department of Revenue may have allowed ineligible
taxpayers to receive the Pharmaceutical Tax Credit.� The department adjusted 1999 Missouri individual income tax
returns for approximately 105,000 individuals who met income and age
requirements provided by law, but failed to claim the Pharmaceutical Tax
Credit.� According to the department,
the tax credits allowed in connection with these 105,000 adjustments totaled
approximately $18.6 million.
When
applying this tax credit to returns, the Department of Revenue did not
determine whether the individual had received full reimbursement of the cost of
pharmaceuticals from Medicaid or Medicare or whether the taxpayer actually
incurred any pharmaceutical expenses.
In
another tax relief measure available to senior citizens, the Senior Property
Tax Relief Bill, the law includes a provision requiring the Department of
Revenue to notify taxpayers of potential eligibility if it appears that the
taxpayer could be eligible, but did not claim the credit.� However, the department does not adjust
taxpayers� returns unless the taxpayer subsequently files a claim for the
credit.� If such a statutory provision
or practice had been in place for the Pharmaceutical Tax Credit, the costs to
the state for this tax credit could have been reduced.
The
Department of Revenue�s tax policy group has determined that the Pharmaceutical
Tax Credit will not be applied for tax year 2000 when taxpayers do not apply
the credit to their individual income tax returns.�
The
fiscal note prepared by the Office of Administration and the Committee on
Legislative Research significantly underestimated the financial impact of the
Pharmaceutical Tax Credit on the state�s General Revenue Fund. The Committee�s
final estimate of the fiscal impact of the Pharmaceutical Tax Credit on the
state�s General Revenue Fund was approximately $20 million; however, according
to the Department of Revenue, the actual fiscal impact of this credit was
approximately $83 million.
The
section of the fiscal note completed by the Office of Administration estimated
that approximately 261,000 Missouri residents could utilize the Pharmaceutical
Tax Credit.� According to Office of
Administration personnel, this estimate was based upon household income
information obtained from the United States Census Bureau, rather than an
individual�s adjusted gross income, as provided by state law.� Using this information, the
Office
of Administration estimated the fiscal impact of the tax credit would be $39.7
million.� According to the Department of
Revenue, there were approximately 458,000 individuals that utilized the
Pharmaceutical Tax Credit for tax year 1999.�
The Committee on Legislative Research used the same
flawed data as the Office of Administration; however, the Committee further
assumed that only fifty percent (approximately 130,000) of the Office of
Administration�s estimated eligible taxpayers would actually utilize the
credit.� Committee personnel indicated
the fifty percent utilization rate was based on the utilization rate of other
tax credits having similar eligibility requirements; however, there was no
documentation to support this assumption.�
The Department of Revenue was not specifically asked by the Office of Administration or the Committee on Legislative Research to provide statistical data regarding utilization of the tax credits or age and income data for taxpayers.� Had the Office of Administration or the Committee sought and used available statistical data, the estimate of the fiscal impact of the Pharmaceutical Tax Credit would have been more accurate.