Amendment 5 could boost Missouri to the highest state and local sales tax rate in the nation

By Ray McCarty, president, Associated Industries of Missouri

July 7, 2026 - The Tax Foundation, a well-respected source of tax revenue statistics since 1937, issued a report yesterday comparing combined state and local sales tax rates across the country. Based on the report, Missouri could have the highest combined state and local sales tax rate in the nation if the state sales tax rate is increased by as little as two percent under Governor Kehoe's plan to replace individual income taxes with expanded and increased sales taxes.

The report compares each state’s combined state and average local sales tax rate. In Missouri, local sales tax rates vary widely because local sales taxes must be approved by local voters. The combined state and local rate is important because it reflects the total sales tax a purchaser pays. Missouri currently has the 12th highest combined state and average local sales tax rate in the nation.

Amendment 5, which voters will decide in the August 4, 2026, election, would authorize the General Assembly to expand the sales and use tax on services and other transactions that are not currently taxed. It would also authorize lawmakers to increase the state sales tax rate as needed to offset the cost of eliminating the individual income tax. Other similar taxes could also be considered.

Voters will not know the specific replacement-revenue plan before voting on the proposal in August. If voters approve Amendment 5, legislators are expected to consider implementing legislation during the 2027 legislative session.

Based on Missouri Department of Revenue tax collection data, Associated Industries of Missouri has calculated that replacing the individual income tax without expanding the sales tax base to services would require a state sales tax rate increase of approximately 5.6%. A rate increase of that size will not be necessary if the state expands the sales tax to services and digital transactions that are not taxed today. Supporters say that if the sales tax is expanded to most additional services, only a small increase in the state sales tax rate may be needed to provide sufficient revenue, perhaps as little as one or two percent.

Individual Income Tax Receipts:
Estimated Declarations	$                     785,646,226
Fiduciary	$                        89,939,743
Individual Income Returns	$                  1,225,862,683
Withholding	$                  7,065,083,726
College New Job Training	$                                         -
College Job Retention	$                          9,730,494
TOTAL INCOME COLLECTIONS:	$                  9,176,262,872
Less Refunds:
Individual Returns	$                  1,268,426,882
Withholding	$                        50,170,553
Fiduciary	$                        15,393,331
Senior Citizen Tax Credits	$                        58,881,417
TOTAL REFUNDS INDIVIDUAL:	$                  1,392,872,183
NET INDIVIDUAL INCOME TAX:	$                  7,783,390,689
1% Education Sales Tax FY 25
School District Trust Fund:	$1,240,879,927
Highway Fund:	$137,687,278
TOTAL REVENUE FROM 1% STATE SALES TAX:	$1,378,567,205
Rate needed to replace $7.783 billion:	5.6%

Governor Kehoe asked legislators to consider this tax policy shift in his 2026 State of the State Address. At that time, he said he would not support expanding the sales tax to “agriculture, healthcare, or real estate” transactions. As services are removed from the taxable base, the state sales tax rate would need to be higher to generate the $7.8 billion needed to replace individual income tax revenues.

If voters approve Amendment 5 on August 4, 2026, and state legislators increase the state sales and use tax rate by as little as two percent, the combined state and local sales tax rate in Missouri would reach 10.44%. That would be the highest combined state and average local sales tax rate in the nation, according to the Tax Foundation report.

Associated Industries of Missouri initially supported the legislation during the first legislative committee hearing for the purpose of continuing discussion of the proposal but noted the organization would oppose the measure if sufficient protections were not included to prevent shifting of the tax burden to Missouri businesses. Because business protections were not included, Associated Industries opposed the legislation before it was considered by the full Missouri House of Representatives and the Missouri Senate. Associated Industries of Missouri was the only statewide business advocacy organization that opposed the legislation.

Voters are encouraged to thoroughly research the proposal before deciding how to vote on Amendment 5 in the August 4, 2026, election.