Kehoe tax plan passes - voters will now decide whether to eliminate state income tax using expanded and increased sales/use taxes

April 21, 2026 - The Missouri House gave final approval today to Gov. Mike Kehoe's proposal to eliminate the individual income tax using growth from increased and expanded sales and use taxes. The proposal will be submitted to voters in November, 2026, unless the Governor moves the election to August.

Although we were able to improve the bill from its original language, many questions and concerns remain.

The final bill:

• Includes pass-through entities (PTE) in tax cut and elimination;

• Mandates the General Assembly reduce and eliminate income tax through growth, but there is no set schedule of rate reductions as in prior versions;

• Requires income tax rate reductions and sales/use/transaction-based tax increases to be included in the same legislation;

• Allows taxes to be increased in one year and reduced in another fiscal year without voter approval if enacted within 5 years;

• Allows taxes to be increased on motor vehicles, trailers, boats, and services used by road users and the money diverted to income tax elimination (instead of highway uses);

• Requires local governments to reduce local sales/use and property taxes to compensate for increases in sales and use tax receipts because of any sales tax expansion to services and digital transactions (language says “one-time adjustment” but it appears to be one time per piece of legislation).

• Contains ballot language that says sales taxes will be “modified” but there is no mention of rate increases or expanding taxes to apply to services not currently taxed in the ballot language.

We continue to evaluate the proposal - watch for more later.