Understanding Missouri’s new tax cut

In early May, the Missouri General Assembly overrode a veto by Gov. Jay Nixon to give Missourians their first income tax cut in nearly 100 years. Here are the details of who gets the cut, when it will begin and how small businesses will benefit.

taxcutWhat is the new income tax?

Once fully phased in, the new income tax in Missouri will be 5.5 percent. The state’s current income tax rate is 6 percent.

Who gets this tax cut?

All Missouri taxpayers.

When will the tax cut take effect?

The tax cut is designed to be phased in over five years, with the income tax rate dropping by .1 percent each year. The law specifies that the first cut could happen in 2017. However, the bill also requires that state revenue increase by $150 million before each of the yearly .1 percent drops happen. So, depending on state revenue growth, 2022 is the earliest year when Missourians would be paying 5.5 percent. However, the full phase in could take longer if state revenues don’t grow by $150 million per year.

Will the tax cut hurt education funding?

No. The bill was carefully designed to ensure lawmakers will continue to have funds available to increase funding for education. By requiring revenue growth prior to taxpayers seeing a rate reduction, the law ensures state budget makers will continue to have the funds they need to fulfill their obligations to Missouri’s schools, colleges and universities.

How does this help small businesses?

Small business owners, like all Missourians, will be paying the lower 5.5 percent income tax rate once it is fully phased in. However, the new law also includes a special pass-through provision allowing a new 25 percent deduction on business income that is reported by individuals.

When does the new small business tax cut take effect?

This new 25 percent small business income deduction has the same trigger as the income tax cut. It will occur in five annual 5 percent deductions beginning in 2017. Like the income tax cut, state revenues must grow by $150 million each year for the cut to take effect. So, again, 2022 is the earliest year this deduction could be fully phased in.

What bill contained this tax cut?

Senate Bill 509, sponsored by Sen. Will Kraus.

Who should I contact for more information?

You can contact Tracy King, Missouri Chamber vice president of governmental affairs, at tking@mochamber.com, or by phone at 573-634-3511.

Senators give approval to tax cut bill, moving it to House Committee

A tax bill with the intention of making Missouri’s tax rates more competitive was third read and passed by the Missouri Senate and moved into the House Ways and Means Committee. The bill passed out of the Senate on a 23-9 vote.

Senate Bill 509, sponsored by Sen. Will Kraus, R-Lee’s Summit, contains a number of tax cutting provisions. Among them, the bill would cut Missouri’s top income tax rate from 6 percent to 5.5 percent over a number of years, beginning in two years. The tax cut would only phase in during years when the state’s general revenue collections grow by at least $150 million.

In addition, the bill creates an individual income tax deduction for business income, which would also be phased in beginning in two years. The new deduction would allow Missouri businesses to deduct up to 25 percent of their business income. This also would be triggered by state revenues increasing by $150 million.

The bill also includes a new $500 deduction for Missourians making less than $20,000.

It is estimated that the tax cut would cost Missouri approximately $450 million.

“This bill offers aggressive tax relief to all Missourians, freeing up greater resources for businesses and individuals to invest in our economy and job creation,” said Tracy King, Missouri Chamber vice president of governmental affairs. “At the same time, these bills protect our state’s important investments in areas such as education. We continue to advocate for an approach that both reduces our tax burden while providing adequate funding to help ensure our students are receiving the education they need for tomorrow’s economy.”

The Missouri Chamber supports efforts to reduce taxation in our state while holding education funding harmless.

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

Senators voice approval for tax cut bill

Seeking to make Missouri’s tax rates more competitive, Senators have given first round approval to a bill to reduce the tax burden on citizens and businesses.

Senate Bill 509, sponsored by Sen. Will Kraus, R-Lee’s Summit, contains a number of tax cutting provisions. Among them, the bill would cut Missouri’s top income tax rate from 6 percent to 5.5 percent over a number of years, beginning in two years. The tax cut would only phase in during years when the state’s general revenue collections grow by at least $150 million.

In addition, the bill creates an individual income tax deduction for business income, which would also be phased in beginning in 2017. The new deduction would allow Missouri businesses to deduct up to 25 percent of their business income. This also would be triggered by state revenues increasing by $150 million.

The bill also includes a new $500 deduction for Missourians making less than $20,000.

It is estimated that the tax cut would cost Missouri approximately $450 million.

Earlier versions of the bill included triggers related to funding the state’s education foundation formula and reforming Missouri’s tax credit system. However, those were eliminated from the Senate-passed bill in favor of the simple revenue growth trigger.

During floor discussion on the bill, Sen. Kraus stressed that the two year delay and the $150 million revenue growth trigger would protect education funding as the tax cut is phased in. He said that passing a tax cut was critical as Missouri seeks to enhance our business climate and grow our economy.

Senate Bill 509 is one of several tax cut proposals currently under consideration. Among the others are House Bills 1253, 1295 and 1297. House Bill 1253 is sponsored by Rep. T.J. Berry, R-Kearney, while House Bills 1295 and 1297 are sponsored by Rep. Andrew Koenig, R-Manchester.

The Missouri Chamber supports efforts to reduce taxation in our state while holding education funding harmless.

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

Senate challenges proposed tax cut compromise

The Missouri Senate debated a tax cut bill this week but a vote was delayed as more discussion is needed about the proposal.

Senate Bill 509, sponsored by Sen. Will Kraus, R-Lee’s Summit, would lower Missouri’s personal and business income taxes depending on different criteria.

For example, Sen. Kraus’ proposal would cut the state’s 6 percent income tax rate by a quarter percent. But it would only happen if revenues increase by $200 million and if schools are fully funded.

Likewise, businesses would receive a new 25 percent deduction on the first $100,000 of certain business income dependent on whether the General Assembly passes new laws to limit tax credits. The same trigger would bring an extra .15 percentage cut to those who pay the top income tax rate.

Sen. Kraus has promoted the proposal as a compromise. Last year, the General Assembly passed tax cut legislation that was vetoed by Gov.  Nixon.  However, Gov.  Nixon has hinted he would approve the language Rep. Kraus is currently proposing.

“I believe this meets the group goal of broad-based tax reform,” Sen. Kraus said. “I believe the triggers are reachable and well within our means to be able to do over the next couple years and meet our obligations for education.”

During discussion on the bill, some senators expressed concern that the bill places too many conditions on the tax cuts. Other senators remained apprehensive that the tax cut could undermine existing state programs and lead to funding challenges in future years.

The bill did not reach a vote in the Senate.

SB 509 is just one option the General Assembly is considering this year as lawmakers work toward cutting taxes.

The Missouri House has already passed House Bills 1253 and 1297, sponsored by Rep. T.J. Berry, R-Kearney, and  Rep. Andrew Koenig, R-Manchester, respectfully. These House bills would reduce the amount of business income taxed by 50 percent and cut the state’s corporate tax rate from 6.25 percent to 3.125 percent. Also on the table is reducing the individual income tax rate from 6 percent to 5.3 percent. All of the proposed tax cuts would be phased in gradually over several years. The bills also contain wording that would protect important state functions, such as education, from the possibility of reduced funding. The tax cuts would only be triggered in years when there was either stable tax revenue or revenue growth.

The proposal by Reps. Berry and Koenig awaits a committee assignment in the Senate.

As lawmakers consider the many options on the table, the Missouri Chamber will continue supporting broad based tax relief for Missouri businesses and all Missourians.

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.