Small business owner says surprise audit could put him out of business, lawmakers take action

For more than 20 years, hundreds of young people have visited Xtreme Gymnastics in Lee’s Summit Missouri to learn and improve their skills. But one visit by a tax auditor from the Missouri Department of Revenue could close the small business’ doors. Following an audit in 2012, Xtreme Gymnastics owner, T.J. Rehak, was told he owed four years of back sales taxes on services he never knew were taxable. Rehak recounted his experience during a press conference at the State Capitol on April 9, 2014.

“No one that I knew of was charging sales tax in our line of business,” Rehak said. “I talked to my attorney and my accountant and no one knew these services were taxable.”

Even the auditor’s supervisor admitted to Rehak that his situation was “a gray area.”

“But here I am stuck with a tax bill for four years. The amount of money is too much to pay. It could ruin my business,” Rehak said.

The press conference was called by Senate and House lawmakers, both Democrat and Republican, who are concerned with current audit practices of the Missouri Department of Revenue. Among the list: Sen. Will Kraus, R-Lee’s Summit; Sen. Bob Dixon, R-Springfield; Sen. Jason Holsman, D-Kansas City; Rep. Denny Hoskins, R-Warrensburg; Rep. Eric Burlison, R-Springfield; and Rep. Scott Fitzpatrick, R-Shell Knob. These lawmakers have sponsored or are handling tax reform bills this legislative session.

“I believe we need to stop the Missouri Department of Revenue from what I call ‘notification by audit,’ ” said Sen. Will Kraus. “That’s how they are notifying businesses that they owe these taxes.”

Sen. Kraus is sponsoring a bill that would require the DOR to notify affected sellers when there is a change in their burden to collect taxes. A similar bill is being reviewed in the Missouri House, sponsored by Rep. Scott Fitzpatrick.

“Sometimes the Department of Revenue will just send you a letter with the estimated tax due based on filing of other businesses in your industry, suddenly you owe hundreds of thousands of dollars,” Fitzpatrick said. Most small business owners in the state are like me, we go day by day, we need to make our payroll, and hope things continue to go well, and then you get a letter like that – you lose a lot of sleep at night.”

The Missouri Chamber of Commerce and Industry Vice President of Governmental Affairs Tracy King also spoke at the press conference.

“We are hearing from small businesses across the state about the DOR’s overreaching audits,” said King. “We are here today to remind DOR that its job is to collect taxes as defined by law, not redefine the law through audits. We won’t stand for back-door tax increases implemented by bureaucrats,” said King. “That’s not how the law works.”

Rehak is grateful that someone is looking out for his business.

“I appreciate what you guys are doing because I am on the front line here and it’s not fun,” Rehak said.

For more information on tax issues, contact Tracy King, Missouri Chamber vice president of governmental affairs, at tking@mochamber.com, or by phone at 573-634-3511.

NEWS RELEASE – Innocent until proven guilty: House votes to extend basic right to all businesses

 Arriving in court, the common assumption is innocence until proven guilty. Yet in Missouri, that right does not always apply to some businesses.

When the Missouri Department of Revenue chooses to take a company to court in a tax dispute, the company is actually presumed guilty unless it can prove otherwise. This unfair standard applies to Missouri companies with more than 500 employees and a net worth of greater than $7 million. All other taxpayers—individuals and smaller companies—are presumed innocent unless the Department of Revenue can establish guilt.

Today, the Missouri House of Representatives voted to end this bias against Missouri’s employers on a vote of 130-13. In approving House Bill 1455, sponsored by Rep. Denny Hoskins, R-Warrensburg, Missouri lawmakers are working toward bringing fairness to our state’s tax courts. The bill would allow all Missouri taxpayers to be treated as innocent until proven guilty.

“Fairness is the cornerstone of a functional legal system. Yet, in Missouri’s tax courts, we have different rules depending on who you are. It’s a biased system,” said Daniel P. Mehan, Missouri Chamber President and CEO. “We would like to applaud the House for making legal fairness a priority this session, as well as thank the Senators working on a similar measure in that chamber.”

Sen. Will Kraus, R-Lee’s Summit, has parallel language in Senate Bill 829. The Senate legislation has been passed by committee and awaits approval by the entire Senate.