Missouri Senate Passes Income Tax Cut, Sales Tax Increase

On Tuesday, the Missouri Senate approved SB 26 by a 23-11 vote. The bill would phase in reductions of the state’s income and corporate taxes while raising the sales tax by half a point:

If the Marketplace Fairness Act or similar legislation becomes federal law, the top income tax rate and the corporate tax rate will both fall a further 0.25 percentage points.

Missouri’s rather absurd income tax brackets – stepping up in $1,000 increments to top out at $9,000 – are a relic of 1931, when $9,000 was a lot of money (equivalent to around $136,000 today). Missouri might be better off junking everything but that top rate, since most taxpayers are probably in the top bracket anyway. The bill instead creates a new 50 percent income tax deduction for business income, a problematic trend started in neighboring Kansas.

The state’s sales tax rate is currently 4.225 percent, comprised of 3 percent for the general fund, 1 percent for education, 0.125 percent for conservation, and 0.1 percent for parks and soils. Local sales taxes average an additional 3.23 percent for a combined average of 7.46 percent. The 8.925 percent combined sales tax rate in St. Louis would rise to 9.425 percent in 2018 under this bill.

The legislation also centralizes sales tax administration, collection, enforcement, and operation with the state – a key reform for Missouri, where many of those functions currently rest with local sales tax authorities. The state’s list of local sales tax rates runs 53 pages, so there’s a lot of them.

Altogether, the Joint Legislative Research Committee estimates the bill would reduce revenue by about $477 million annually when fully implemented. Governor Jay Nixon (D) has criticized the bill but has not yet threatened a veto.