It’s not often that a taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. reform package posts such impressive support, but in Missouri, Senate Bill 674 sailed out of the upper chamber on a bipartisan vote of 28-4. The bill lowers the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate to a highly competitive 3.5 percent—that would be the second-lowest corporate income tax rate in the country—paid for by tax simplification measures that eliminate companies’ ability to choose the method of tax apportionmentApportionment is the determination of the percentage of a business’ profits subject to a given jurisdiction’s corporate income or other business taxes. U.S. states apportion business profits based on some combination of the percentage of company property, payroll, and sales located within their borders. most favorable to them.
For all its support, however, the legislation may yet fall victim to a larger tax battle waging between the House and Senate.
Both chambers have advanced their own comprehensive tax reform proposals, which combine cuts to both corporate and individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rates with base-broadening “pay-fors.” Both bills (Senate Bill 617 and House Bill 2540) have much to commend them, but they also represent distinct approaches and reflect the different priorities of each chamber.
With only about a month to go in session, the chances of a compromise are dwindling. There may be too many sticking points: taxes versus fees, target rates and revenues, utilization of triggers, the possible inclusion of a so-called “throwback” rule as a revenue-raiser, and more.
These are conversations worth having. Both bills have flaws, but they also identify many of the key shortcomings of the state’s current tax code. There’s a real opportunity for comprehensive tax reform, this year or next.
But SB 674 needn’t be seen as competing with these ideas, and it would be unfortunate if a proposal with such broad support were held up due to a broader, yet largely separate, debate. There are indications that the House might amend SB 674 to include many or all of the House’s tax reform priorities, a move which could leave all tax legislation still languishing when the session adjourns.
Legislators could, however, move forward on SB 674 independently while continuing to work toward a broader agreement on tax reform, whether that happens this year or next. If comprehensive tax reform happens in 2018, so much the better. If not, passage of SB 674 would give legislators something to build on, while improving the state’s appeal with a notably competitive corporate income tax rate—achieved on a revenue-neutral basis, with adjustments taking place fully within the corporate code.
We’ve written previously about the pending comprehensive tax plans, and about the changes contemplated in SB 674.
With a bill that enjoys this much support from members of both parties, there’s no reason that Missouri legislators shouldn’t be able to walk away from the 2018 session with a win on tax reform.
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