The key portion of Senate Bill 509 that provides tax cuts for more than 94 percent of the businesses in Missouri is the business income tax deduction. The deduction would allow business owners to deduct business income that is reported on their individual income tax returns.
The deduction would be paid for by a growth in state revenues, phased in over five years and gradually increased from 5% the first year to 25%.
The business income deduction was an idea Ray McCarty developed after meeting with AIM members, Kathy and Doug Bennett at Bennett Packaging, a manufacturer that is organized as an S Corporation in Lee’s Summit in August of 2010.
In that conversation, the Bennetts pointed out that our efforts regarding corporation income tax did not help them because they were organized as an S corporation. McCarty realized S corporations paid their taxes on their individual income taxes, but noted that reducing individual income tax rates enough to make a difference for a business operation were cost prohibitive. As a result, McCarty wondered if Missouri could provide a partial deduction of the business income that “flows through” to the personal income tax return, and the idea of providing a “business income deduction” was born.
Ray drafted the first version of the legislation on November 15, 2010, and circulated it to AIM’s 100+ member Tax Committee, asking if anyone had seen anything similar in another state. While nobody offered any similar legislation, they did not see a reason why it would not work and Ray and the tax committee refined the language which was introduced for the first time in the 2011 legislative session.
SB 146 was filed in the 2011 session by Senator Eric Schmitt and HB 78 by Rep. Jerry Nolte that same year. AIM has filed the legislation ever since, with Rep. T.J. Berry filing the bill following Rep. Nolte’s departure from the legislature. Of course, Sen. Will Kraus included the provision in a Senate Committee Substitute that combined his and Sen. Schmitt’s bills into SB 509 this year.