Missouri State Auditor finds revenue department must improve marijuana tax oversight

OG Article

State News

March 19, 2025

A new report from Missouri State Auditor Scott Fitzpatrick highlights concerns about the Missouri Department of Revenue’s (DOR) oversight of marijuana tax returns, citing a lack of compliance measures to detect and prevent fraud. The findings are part of an annual review of the department’s sales, use, and marijuana tax collections, which gave the DOR a “good” rating overall.

“With the significant growth we’ve seen in the marijuana industry, it’s important the department provides proper oversight of marijuana tax returns to identify potential fraud and give the public confidence that taxes are being collected as required by law,” said Auditor Fitzpatrick. “The department has now had more than four years with medical marijuana and more than two years with adult-use marijuana to develop a plan to audit these returns. Department officials should quickly finalize their audit procedures to ensure appropriate oversight of this new and growing industry.”

The report states that the DOR processed approximately 1,500 marijuana tax returns, reflecting taxable sales of about $806.9 million in fiscal year 2023. During that period, the department collected approximately $16.4 million in medical marijuana taxes and $19.6 million in adult-use marijuana taxes. The audit emphasizes the importance of reviewing these returns due to their separate structure from standard sales tax returns, which increases the risk of noncompliance. DOR officials stated they are still developing audit procedures for marijuana tax returns.

Additionally, the report found that the DOR did not document any calculations or justifications for how the collection fee withheld from marijuana tax collections was determined. Department personnel stated the collection fee was set at 1 percent, consistent with retail sales and use taxes. However, no documentation was provided to support this decision. According to the Missouri Constitution, the DOR is authorized to retain no more than 2 percent of medical marijuana tax collections for actual collection costs and no more than 2 percent of total tax collected or actual collection costs, whichever is lower, for adult-use marijuana tax.

The audit also reiterated findings from past reviews, noting that Missouri’s timely sales and use tax discount remains the most generous in the nation and disproportionately benefits the state’s largest retailers. Missouri law allows businesses to retain 2 percent of sales taxes owed to the DOR if they remit payments on time. Originally established to help businesses recover costs associated with tax compliance and encourage timely payments, this policy resulted in businesses keeping $174 million in the fiscal year 2023.

The report highlights that while some states have a higher percentage discount, they often impose caps on the amount businesses can retain. According to the Federation of Tax Administrators, 27 other states offer similar vendor discounts, with eight setting lower discount rates than Missouri and 19 capping the amount businesses can retain.

The audit recommends the Missouri General Assembly evaluate the timely sales tax discount and consider implementing a monthly cap on the amount businesses can keep. It also suggests amending state law to require the DOR to report the total amount of timely discounts retained by businesses annually, as the department currently does not report this information to the General Assembly.

Furthermore, the report identified issues in how the DOR applies local sales tax rates to motor vehicle sales tax transactions. A review of 90 motor vehicle sales tax transactions for the year ending June 30, 2023, found that 22 transactions—24 percent—had incorrect site codes, leading to errors in the local sales tax amounts assessed. The audit states that the DOR did not follow existing policies and procedures to ensure correct local tax rates were applied.

The complete audit of the DOR sales, use, and marijuana taxes can be found on the Missouri State Auditor’s website.