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.
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