Missouri Auditor: State Has Most Generous Sales Tax Discount for Businesses

Jefferson City, Mo. (KFMO) - Missouri State Auditor Scott Fitzpatrick says Missouri continues to offer the most generous timely sales and use tax discount in the country, according to his office’s latest annual review.

The audit examined how the Missouri Department of Revenue handles the collection of sales, use, and marijuana taxes. The department received an overall “good” rating, but the report recommends the Missouri General Assembly consider placing a cap on the amount of tax discount businesses can retain each month.

Under current Missouri law, businesses that collect sales and use taxes are allowed to retain two percent of the taxes they owe to the state if they submit their payments on time. The discount was originally created to help businesses offset the costs associated with collecting and reporting sales taxes and to encourage timely payment.

However, the audit found that in Fiscal Year 2024, the policy resulted in businesses retaining approximately $184 million in sales and use tax collections.

Fitzpatrick said the discount still serves a legitimate purpose but believes limits should be considered.

“The timely discount does serve a meaningful purpose for businesses that collect and remit these taxes, but a reasonable cap would better align the benefit to businesses with the cost of doing so and direct more of the sales tax revenue paid by consumers toward funding state services,” Fitzpatrick said.

The report notes Missouri’s discount is considered the most generous in the nation because it has no cap on the amount businesses can retain. While some states offer a similar or higher percentage discount, most place limits on how much businesses can keep.

According to the audit, 27 other states offer vendor discounts for collecting sales taxes. Of those states, 18 place a ceiling on the amount businesses can retain, while others apply the highest discount rate only to limited amounts of tax collections.

The report points to Arkansas as an example. Arkansas offers a similar two percent discount, but caps the amount at $1,000 per month. If Missouri had a similar limit in place during fiscal year 2024, the audit estimates it could have generated about $112 million in additional state and local tax revenue.

The audit recommends the Missouri General Assembly evaluate the discount policy and consider implementing a monthly cap. It also suggests lawmakers require the Department of Revenue to report annually on the total amount of timely discounts retained by businesses, something the department is currently not required to provide.