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Major individual income tax reform bill – AIM supports

The Missouri Senate and Missouri House have passed an individual income tax reform package that Associated Industries of Missouri supports.

You may recall HB 2540 passed the House with a large tax increase on Missouri corporations. We worked with legislators in the House and Senate and came up with two separate tax reform packages: one for individual taxpayers sponsored by House Speaker Pro Tem Elijah Haahr and handled in the Senate by Senator Bill Eigel; and another for corporation income taxpayers sponsored by Senator Andrew Koenig and handled by House Speaker Pro Tem Haahr and Rep. John Wiemann.

The individual income tax package is contained in HB 2540 and is as follows:

  1. 5.5% income tax rate effective for tax years beginning on or after 1/1/19 (currently 5.9%);

  2. Definition for “net general revenue” used in calculation of future cuts under the tax cut bill we passed in a previous session (SB 509);

  3. The cuts from SB 509 will continue if the revenue triggers are met, which could result in an additional .4% reduction in the individual income tax rate, a .1% reduction each time the revenue trigger is achieved ($150m more in net GR than the highest amount in the previous 3 years);

  4. The AIM-inspired Business Income Deduction, currently at 5%, will be allowed to increase in 5% increments each year the revenue trigger is achieved until it reaches a maximum of 20%. While the business income deduction may reach 25% under current law, the offsetting rate reductions make this a good deal for the 95% of Missouri businesses that report their business income on their individual income tax returns;

  5. Personal and dependent exemption deductions are eliminated – the federal tax cut bill eliminated these exemption deductions from the federal income tax code; and,

  6. Federal income tax deduction is phased out. The percentage of federal income tax that will continue to be deductible for tax years after 1/1/19 will be based on the amount of Missouri adjusted gross income:

  7. less than $25,000: 35%

  8. more than $25,000 and less than $50,000: 25%

  9. more than $50,000 and less than $100,000: 15%

  10. more than $100,000 and less than $125,000: 5%

  11. greater than $125,000: no FIT is allowed

  12. Corporation income tax federal income tax deduction is unchanged at 50%.

While we would normally object to reducing the business income deduction cap, the rate reductions in the bill make this a good deal for business taxpayers that pay their taxes on their individual income tax returns.

“Associated Industries is proud of the hard work of all legislators to come up with a tax reform package that truly reduces income tax liability for Missouri businesses – both those that report their income on the corporation income tax return, and those that report their income on individual income tax returns,” said Ray McCarty, president/CEO of Associated Industries of Missouri. “We thank Sen. Andrew Koenig, Sen. Bill Eigel, Speaker Pro Tem Elijah Haahr, Rep. John Wiemann and all others that helped make these bills a reality, as well as the hard work of AIM lobbyist Chuck Pierce without whose constant guidance these cuts would not be possible,” he said.

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