Plan to shift from income tax to sales tax advances to Missouri Senate

by Rudi Keller, Missouri Independent
February 19, 2025

A plan to make Missouri dependent on sales tax for general revenue by eliminating the income tax is heading to the state Senate for debate after a party-line committee vote on Wednesday.

Two proposals — one to immediately end the state individual income tax and depend on sales tax for revenue, and another a proposed constitutional amendment to allow the transition to sales taxes, — make up the package intended to keep Republicans’ campaign promise to eliminate the state income tax.

If the constitutional amendment passes, it would end the individual income tax starting in 2027. 

The two proposals were each approved Wednesday on a 5-2 vote in the Senate Economic and Workforce Development Committee, with all Republicans in support and Democrats opposed.

Democratic state Sen. Barbara Washington of Kansas City said she’s worried about the impact of the immediate tax cut.

“I don’t see a clear plan as to how we make this money up,” Washington said.

Missouri House votes on party lines to eliminate income tax on capital gains

The income tax is a tax on productivity, and shifting taxes to other areas will help the economy, said Republican state Sen. Ben Brown of Washington, chairman of the committee and sponsor of the two bills.

“That has a more negative impact in our society than taxes in other areas,” Brown said of the income tax.

The top marginal rate for Missouri’s income tax has declined from 6% in 2015 to 4.7% this year under a design to slowly cut it as revenue increases that began with legislation passed in 2014.

Two future tax cuts, to a 4.5% rate, are already in state law and will take effect if general revenue growth hits targets.

Income tax remains the single largest portion of state general revenue, with the individual income tax contributing 65% and the corporate income tax about 7% of the $13.4 billion received in fiscal 2024.

The tax cut bill passed in 2014 also began indexing state tax brackets, which had not been changed since the 1930s, for inflation. The top tax rate applies to taxable income of more than $8,900, which is about $23,500 in total income when the standard deduction is included.

The tie between the two measures takes effect after the statewide vote to eliminate the income tax.

The constitutional proposal, intended to be on a ballot by November 2026, would create a mechanism for limiting the growth in state spending and directing revenue in excess of the cap to a special fund dedicated to sales tax reduction.

When the special fund holds at least $45 million, and revenues exceed a cap on spending, the state sales tax rate would be cut by one-hundredth of a percentage point. When the sales tax rate has been reduced to 4%, excess funds would be dedicated to reducing or eliminating the corporate income tax.

While every Republican on the committee voted for the measures, at least one showed he’s nervous about the key revenue-raising portion of the proposal — an expanded sales tax.

State Sen. Kurtis Gregory of Marshall said he couldn’t go along with any proposal that repealed sales tax exemptions enjoyed by farmers. Farmers don’t pay sales tax on fertilizer, fuel for farm vehicles and a host of other products.

“I don’t know where that sales tax rate is going to end up, but I’m just instantly looking at some of this and folks are going to be seeing a $50 to maybe $60 an acre increase in cost of production of row crops,” Gregory said.

The constitutional amendment does not directly repeal any sales tax exemption, Brown said.

“I don’t see anything that would be impacted one way or another by this bill,” he said.

It does repeal a 2016 initiative, placed on the ballot by Missouri Realtors, that barred lawmakers from imposing state sales tax on any market transaction “that was not subject to sales, use or similar transaction-based tax on January 1, 2015.”

Along with preventing any effort to tax services such as mechanic’s labor or tax accounting, the amendment protected from repeal exemptions to the sales tax on tangible goods in law at the time, such as prescription drugs and the general revenue portion of sales tax on groceries.

Retail sales in Missouri are taxed at 4.225% for state purposes — 3% for general revenue, 1% for public schools, 0.125% for the Department of Conservation and 0.1% for state parks and soil conservation. Local option sales taxes are in addition to the state tax and push the total rate in some areas above 10%.

Brown’s proposal would target a state sales tax of up to 4%.

The tax would be applied to “all sellers for the privilege of selling tangible personal property or rendering taxable services at retail in this state.”

The constitutional amendment does target one service with a special, higher tax. Lobbying firms would be required to pay a 6% sales tax on top of the general sales tax of up to 4%.

Missouri Realtors, who have shown substantial financial strength in campaigns, will oppose any effort to weaken the provisions added to the constitution in 2016, said Bobbi Howe, president of the Realtors

“Adding new taxes to services Missourians use every day,” Howe said, “is not sound policy and it unfairly impacts those least able to pay.”

CORRECTION: This article was updated on February. 20 at 7 a.m.  to reflect the changes made when the Senate committee voted for substitute bills.

Missouri Independent is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Missouri Independent maintains editorial independence. Contact Editor Jason Hancock for questions: [email protected].

Missouri Republicans consider delaying voter-approved minimum wage hike, paid sick leave

by Rudi Keller, Missouri Independent
February 5, 2025

A bill changing the terms of the Missouri minimum wage law approved by voters four months ago will leave all the promised benefits in place but may delay their implementation, the chairman of a House committee looking at the law said Wednesday.

State Rep. David Casteel, a High Ridge Republican, told members of the House Commerce Committee during a hearing that they will rewrite the several bills seeking to change Proposition A. That process will take time, he said, telling them not to expect a vote at the panel’s regular meeting next week.

“No one in this body is trying to overturn the choice of the people,” Casteel said.

In an interview, Casteel said he’s considering ideas that would delay a minimum wage increase set for Jan. 1, 2026, or the provision requiring most employers to offer paid sick and family leave.

“We’re going to get into the nitty gritty of everything within the bill,” Casteel said. “There’s a lot we don’t like, and there’s a lot we do like, about all the bills that have been and will be presented.”

Republicans who control the legislature must find a sweet spot between the 58% majority who approved Proposition A and the major business groups who opposed the measure and are among the GOP’s most reliable supporters.

Proposition A increased the minimum wage in Missouri to $13.75 an hour on Jan. 1 and $15 an hour next year. In future years, the wage would be adjusted for changes in prices, a provision that has been in state law since 2006. It also requires employers with business receipts greater than $500,000 a year to provide one hour of paid sick and family time for every 30 hours worked.

The paid leave provisions take effect May 1.

On Wednesday, the Commerce Committee held public hearings on two of the five bills on its agenda that would alter aspects of Proposition A.

One of the bills, filed by state Rep. Carolyn Caton, a Republican from Blue Springs, would repeal the inflation adjustment. It would also allow employers to pay workers younger than 20 the federal minimum wage of $7.25 an hour and exempt all employers with business receipts less than $10 million annually.

“It isn’t that we don’t want to pay people,” Caton said. “We want to pay people well, but we need to do so in a manner that is going to protect our small businesses.”

The other bill, filed by state Rep. Scott Miller, a Republican from St. Charles, would exempt workers under 21 from the state minimum wage and businesses with fewer than 50 employees. It would also allow employers to reduce the final paycheck of anyone who doesn’t give at least two weeks notice before quitting, or any employee who violates the provisions of the employer’s worker handbook.

“If a business is going to be obligated by law to pay a minimum wage, which is, frankly, the government is price-fixing labor, then the government ought to performance-fix the employees,” Miller said.

The campaign to pass Proposition A drew no large-scale opposition prior to the vote. But a court challenge filed in early December by major business advocacy groups asks the Missouri Supreme Court to invalidate the vote. The court has set the case for arguments on March 12.

At the same time, those business groups — Associated Industries of Missouri, the Missouri Chamber of Commerce and Industry and industry groups representing retailers, restaurants and grocers — are urging lawmakers to repeal portions or delay their implementation.

“In an ideal world, we would love to roll it all back,” Kara Corches, president and CEO of the Missouri Chamber of Commerce and Industry, said in a recent webinar. “But part of the legislative process, or the sausage making process as we say sometimes, you don’t always get, in the end, what you started with.”

Ron Berry, lobbyist for one of Proposition A’s biggest backers, Missouri Jobs with Justice Voter Action, said during Wednesday’s hearing that the proposals to exempt businesses with fewer than 50 employees would cover 96% of all private businesses.

Responding to a question about the difficulty employers will have covering the additional cost, Berry said labor isn’t the only thing driving up prices.

“Whether it’s wages or it’s the cost of energy, all of you know inflation is higher, and we’re all having to tighten our belts,” Berry said.

Buddy Lahl, CEO of the Missouri Restaurant Association, told the committee that his members want the exemption threshold raised to 100 employees as well as implementing the $10 million revenue floor.

He also said the sick leave provisions should not allow hours to be carried over from one year to the other.

“It should be a use it or lose it thing,” Lahl said.

Business lobbyists also warned of job losses, or even businesses that won’t survive, if the increased minimum wage stands.

State Rep. Steve Butz, a Democrat from St. Louis, said he didn’t believe that argument, noting that Missouri voters increased the minimum wage twice before without sinking the state’s economy. 

“We’ve had other increases in minimum wage,” Butz said. “We always have been told that it’s going to kill jobs and jobs continue to grow in the state.”

Missouri Independent is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Missouri Independent maintains editorial independence. Contact Editor Jason Hancock for questions: [email protected].