Missouri House passes authorization for sales and use tax increase and expansion to services to allow elimination of income tax despite business concerns

Governor Mike Kehoe giving the State of the State Address in January, 2026

March 12, 2026 - Despite objections from Associated Industries of Missouri, the Voice of Missouri Business®, the Missouri House today gave final approval to HCS HJR 173 & 174, a bill sponsored by Speaker of the House Jon Patterson and Rep. Bishop Davidson that asks voters for permission to increase sales and use tax rates and expand the taxes to services for the purpose of eliminating the individual income tax. The bill implements a proposal made by Governor Mike Kehoe in his State of the State Address in January.

Businesses are completely excluded from the income tax rate phaseout and elimination.

"Associated Industries of Missouri's top objection to the 'plan' is there is no plan for replacing the revenue in the constitutional amendment, allowing legislators over the next several sessions to decide what services to tax and how much to increase the rate without voter approval," said Ray McCarty, president of Associated Industries of Missouri. "If voters approve this constitutional amendment, they will essentially set the legislature free to increase the tax on any services, including digital transactions like streaming services, etc., and increase the sales and use tax rate as much as necessary to offset the loss of $7.75 billion that is currently generated by the individual income tax."

Higher sales and use tax rates and expanding the tax to services that are not taxed today will increase the cost of doing business in Missouri and make Missouri businesses less competitive with other states. This is particularly true in border areas like Kansas City, where only a road separates Missouri from Kansas. Business costs would also increase as business purchases, including services, would be subject to tax and there are no protections against eliminating current sales tax exemptions, no caps on corporation income tax rates, and no protections against new types of business taxes.

Other states without income tax have created new types of business taxes to augment revenues. Texas, for example, established a "margins tax" - a tax on profits - despite a constitutional prohibition against income taxes and courts have found that a tax on "profits" does not violate this provision because it is not a tax on income.

Although businesses would bear the additional burden of higher sales and use taxes, no Missouri business would receive a tax cut under the proposal. Only "natural persons" would be allowed to enjoy the lower rate and elimination of the tax, according to the current draft of the proposal. That means 90% of Missouri businesses such as partnerships, sole proprietorships, S corporations, and others that currently report their taxes on individual income tax returns would have to pay the current income tax rate, while those working as employees of another establishment would enjoy the reduced rate and eventual elimination of the tax.

"This proposal is patently unfair," said McCarty. "Business taxpayers who report their taxes on the individual income tax return should enjoy the benefit of this tax elimination plan. They are risking their own capital and working hard to employ other Missourians. Because corporations are already excluded, no Missouri business would enjoy any direct benefit from elimination of the individual income tax under the bill as currently drafted," he said.

Associated Industries of Missouri is opposed to the current draft of the proposal but will continue to try to negotiate language that will benefit the business community and may support the proposal in the future, if additional business protections are added in the Senate.

You may read more about AIM's requirements for support and data showing Missouri is already very competitive when compared with states that have no income tax in our previous article HERE. You may also read more about the bill on the main bill page HERE. You may see how your state representative voted on the bill HERE.

The bill now moves to the Senate for further consideration where Sen. Curtis Trent, sponsor of the companion bill in the Senate, is expected to handle the bill.