COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION


FISCAL NOTE


L.R. No.:        4669-06

Bill No.:          Perfected HCS for HB 1295

Subject:          Taxation and Revenue - Income

Type:              Original

Date:               February 19, 2014 




 

Bill Summary:            This proposal would modify provisions relating to income taxes.


FISCAL SUMMARY


ESTIMATED NET EFFECT ON GENERAL REVENUE FUND

FUND AFFECTED

FY 2015

FY 2016

FY 2017


General Revenue *

(More than $77,969)

($235,564,210)

($145,608,453 to $341,239,453)

 

 

 

 

Total Estimated

Net Effect on

General Revenue

Fund *

(More than $77,969)

($235,564,210)

($145,608,453 to $341,239,453)

* Fully implemented revenue reduction in the seventh year would be ($703,647,000)


ESTIMATED NET EFFECT ON OTHER STATE FUNDS

FUND AFFECTED

FY 2015

FY 2016

FY 2017

School District Trust

$0

$60,000,000

$0 or $60,000,000

 

 

 

 

Total Estimated

Net Effect on Other

State Funds

$0

$60,000,000

$0 or $60,000,000


Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 20 pages.





ESTIMATED NET EFFECT ON FEDERAL FUNDS

FUND AFFECTED

FY 2015

FY 2016

FY 2017

 

 

 

 

 

 

 

 

Total Estimated

Net Effect on All

Federal Funds

$0

$0

$0



ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE)

FUND AFFECTED

FY 2015

FY 2016

FY 2017

General Revenue

0

4 FTE

4 FTE

 

 

 

 

Total Estimated

Net Effect on

FTE

0

4 FTE

4 FTE


Estimated Total Net Effect on All funds expected to exceed $100,000 savings or (cost).


Estimated Net Effect on General Revenue Fund expected to exceed $100,000 (cost).


ESTIMATED NET EFFECT ON LOCAL FUNDS

FUND AFFECTED

FY 2015

FY 2016

FY 2017

Local Government

$0

$0

$0









FISCAL ANALYSIS


ASSUMPTION


This proposal would make several changes in current Missouri income tax provisions.


Sections 143.011, 143.022, and 143.151, RSMo - Personal Income Tax Changes:


Changes to Section 143.011, RSMo, would gradually reduce the maximum individual income tax rate. Beginning January 1, 2015, the Director of the Department of Revenue would be required to adjust the tax tables by rule each year in which the amount of net general revenue collected in the previous fiscal year exceeds the highest amount of net general revenue collected in any of the three fiscal years prior to such fiscal year by at least one hundred million dollars.


Each reduction in the maximum tax rate would be one-tenth of a percent, and no more than one reduction could be made in a calendar year. The reductions would take effect on January first of a calendar year and would continue in effect until the next reduction occurs. The reductions would only apply to tax years that begin on or after a modification takes effect. The maximum individual tax rate could not be reduced below five and three tenths percent.


Section 143.022, RSMo, would provide a deduction of a percentage of the amount of business income reported by individuals from proprietorships, partnerships, and small corporations.

Beginning January 1, 2015, there would be a ten percent deduction, provided the amount of net general revenue collected in the previous fiscal year exceeds the highest amount of net general revenue collected in any of the three fiscal years prior to such fiscal year by at least one hundred million dollars. An additional deduction would take effect each year in which the required increase in net general revenue collections was met, and the deduction would be increased by ten percent each year until the maximum deduction of fifty percent of reported business income takes effect.


Changes to Section 143.151, RSMo, would allow an individual filer with Missouri adjusted gross income under twenty thousand dollars to take an additional deduction of one thousand dollars; an additional deduction would be allowed a spouse if the spouse also had Missouri adjusted gross income less than twenty thousand dollars.



ASSUMPTION (continued)


Officials from the Office of Administration - Division of Budget and Planning (BAP) assume this proposal would not result in any additional costs or savings to their organization.


BAP officials assumed the proposal would impact the calculation under Article X, Section 18(e).


BAP officials noted the proposal would make numerous changes to current income tax provisions. Since several of the changes impact the individual income tax, the combined impact of the changes may differ from the sum of the estimates below.


Individual Income Tax Rate


This provision would reduce the top marginal individual income tax rate from 6.0% to 5.3%, in a series of incremental 0.1% steps. Each reduction would be based on previous year's collections, beginning January 1, 2015. Based on 2011 data, BAP officials estimated that each 0.1% reduction in the rate would reduce Total State Revenues by at least $68.8 million, depending on the current rate in effect. If the first reduction occurs for 2015, taxpayers would adjust withholdings and declarations beginning in January 2015. BAP officials assumed this provision could reduce Total State Revenues in FY 2015 by an estimated $24.8 million.


When fully phased-in, the provision would reduce Total State Revenues by an estimated $485.7 million.


Personal Business Income Subtraction


This provision would allow an exclusion for up to 50% of business income from taxable income, in a series of incremental 10% steps. The provision would define business income as that reported on Schedule C and partnership income. BAP officials assumed partnership income means Schedule E. Based on 2011 data, BAP officials estimated the first 10% reduction would reduce Total State Revenues by $38.3 million. If the first reduction occurs for 2015, taxpayers would adjust withholdings and declarations beginning in January 2015. This proposal could reduce Total State Revenues in FY 2015 by an estimated $13.8 million.


When fully phased-in, this provision would reduce Total State Revenues by an estimated $189.1 million.




ASSUMPTION (continued)


BAP notes it is very difficult to identify Missouri source business income from available data. If the proportion of taxable income that is Missouri source income is greater than that estimated for this analysis, then the loss of revenues would be higher.


Also, BAP officials noted their analysis makes no attempt to quantify the loss of revenues that might occur if taxpayers alter their filing status to take advantage of the business income subtraction.


Additional Individual Deduction


This provision would provide an additional deduction of $1,000 from Missouri Adjusted Gross Income for taxpayers with less than $20,000 of adjusted gross income. Based on 2011 data, BAP officials estimated this provision would reduce Total State Revenues by $21.7 million annually. Since this provision would be implemented in 2015, taxpayers would adjust withholdings and declarations beginning in January 2015. This proposal would reduce Total State Revenues in FY 2015 by an estimated $7.8 million.


Officials from the Department of Revenue (DOR) provided the following response to a previous version of this proposal.


Section 143.011, RSMo


This provision would reduce the top tax rate by 1/10th of one percent beginning in 2015. The top rate could not be reduced to an amount lower than five and three tenths percent (5.3%). The reduction could only occur if net general revenue collected in the previous year exceeded the highest amount collected in any of the previous three years by $100 million. This provision would also eliminate tax rate brackets as the percentage is reduced below the rate for that bracket.




ASSUMPTION (continued)


Fiscal impact

 

If net general revenue collected meets the proposed threshold, the Department estimated a reduction in individual income as follows.

 

                                    First Year:                   $68.8 million

                                    Second Year:              $137.5 million

                                    Third Year:                 $206.3 million

                                    Fourth Year:               $275.1 million

                                    Fifth Year:                  $343.8 million

                                    Sixth Year:                 $414.8 million

                                    Seventh Year:             $485.7 million


Administrative impact


DOR officials assume Personal Tax would be required to make form changes, and ITSD-DOR programming support would be required to update systems to include the deduction. Personal Tax would require two additional Revenue Processing Technicians I for error correction and correspondence.

 

DOR officials assume Collections and Tax Assistance (CATA) would have additional adjustments to individual income tax returns due to the calculation to reduce taxable income. This, in turn, would increase CATA contacts. CATA would require two additional Tax Collection Technicians I for additional contacts to the delinquent and non-delinquent tax line and one Revenue Processing Technician I for additional contacts to the field offices.


DOR officials assume Withholding Tax would be required to update withholding tables for any changes in the tax rate; however, no additional staff would be required.




ASSUMPTION (continued)


IT impact


DOR officials provided an estimate of $13,759 in IT cost for 504 hours of programming for new tax tables and rates.


Section 143.022, RSMo


Fiscal impact


This provision would allow for the subtraction of business income from federal adjusted gross income (FAGI). This provision would allow small corporations or partnerships to apportion the deduction in proportion to individuals' share of ownership of the business.


The proposal would increase the subtraction by 10 percent, once per year, with a maximum subtraction of 50 percent. This provision would allow an additional subtraction to become

effective if net general revenue collected in the previous year exceeded the highest of the three previous fiscal years by $100 million.


DOR officials noted individual income tax filers reported $14.4 billion in "business" income for 2011 on their federal Form 1040s. The Department included the total reported on Schedule C and Schedule E in the calculation. Of the $14.4 billion reported, the Department estimates Missouri sourced income at $9.8 billion. DOR officials noted that $14.4 billion does not include those returns filed by nonresidents where the federal information is not available.


If net general revenue collections meet the proposed threshold, the Department estimates the following reduction in individual income tax:

 

                        2015     $38.4 million

                        2016     $76.3 million

                        2017    $114.1 million

                        2018    $151.9 million

                        2019    $189.6 million




ASSUMPTION (continued)


Administrative Impact


DOR officials assume Personal Tax would be required to make form changes and provide ITSD-DOR programming support to update systems to include the deduction. Personal Tax would require two additional Revenue Processing Technicians I for error correction and correspondence.


DOR officials assume the additional employees requested under Section 143.011 above would be used to implement this section.


IT impact


DOR officials provided an estimate of $13,759 based on 504 hours of programming to make changes to individual tax programs for the individual business income deduction and $41,278 based on 1,512 hours of programming changes for the small corporation business income deduction.


Section 143.151 RSMo.


DOR officials assume this section would allow Missouri residents with an adjusted gross income of less than $20,000 to claim an additional $1,000 deduction beginning January 1, 2015. It would also allow the same deduction for the taxpayer's spouse if the spouse's income is also below $20,000.


Fiscal impact


Based on the number of qualifying taxpayers in 2011 the Department estimated a reduction of individual income tax of $21.7 million per year.


Administrative Impact


DOR officials assume Collections and Tax Assistance (CATA) would implement this provision with the additional employees requested for Section 143.011.




ASSUMPTION (continued)


IT impact


DOR officials provided an estimate of $9,173 for 336 hours of programming to make changes to personal income tax systems.


Summary of DOR cost estimate


The DOR response included seven additional employees; with benefits, equipment, and expenses, the DOR estimate of cost to implement this proposal totaled $354,805 for FY 2015, $287,253 for FY 2016, and $290,210 for FY 2017. DOR officials did not indicate any of the additional employees were required to implement the corporation income tax changes and noted that $9,173 of the total $87,142 in IT cost was required to implement the corporate income tax change.


Oversight assumes this proposal could be implemented with four additional employees and has, for fiscal note purposes only, changed the starting salary for the additional employees to correspond to the second step above minimum for comparable positions in the state’s merit system pay grid. This decision reflects a study of actual starting salaries for new state employees and policy of the Oversight Subcommittee of the Joint Committee on Legislative Research. Oversight has also adjusted the DOR estimate of equipment and expense in accordance with OA budget guidelines. Finally, Oversight assumes a limited number of additional employees could be accommodated in existing office space.


Oversight notes the changes to personal income tax provisions would be implemented for 2015 and will include the DOR costs for additional employees beginning January 1, 2016 (FY 2016) when the first tax returns for 2015 would be filed. Oversight assumes the IT cost would be applicable to FY 2015 since DOR systems would need to be updated before FY 2016.


Oversight assumes the DOR estimate of expense and equipment cost for the new FTE could be overstated. If DOR is able to use existing desks, file cabinets, chairs, etc., the estimate for equipment could be reduced by roughly $6,000 per new employee.




ASSUMPTION (continued)


Officials from the University of Missouri, Economic and Policy Analysis Research Center (EPARC) provided the following response.


This proposal would allow any resident with a Missouri adjusted gross income of less than $20,000 an additional deduction of $1,000. It would reduce the top individual income tax rate by one-tenth of one percent each year the previous fiscal year’s net general revenue collections exceeds the highest of the three previous fiscal year’s net general revenue collections by at least $100 million. The proposed reduction in the individual income tax rate could only happen once per year and the reductions would cease once the top individual tax rate reaches 5.3%.


Starting in 2015, if the previous fiscal year’s net general revenue exceeds the highest of the three previous fiscal year’s net general revenue by at least $100 million, this proposal would allow a “business income” deduction for individual income tax filers equal to 10% of “business income”. This proposal would increase the “business income” deduction by 10% each year the previous fiscal year’s net general revenue collections exceeds the highest of the three previous fiscal year’s net general revenue collections by at least $100 million until a maximum “business income” subtraction of 50% is reached.


Individual Income Tax Simulation


This proposal would allow any resident with a Missouri adjusted gross income of less than $20,000 an additional deduction of $1,000. Beginning in 2015, this proposal would reduce the top individual income tax rate by one-tenth of one percent each year until it equals 5% in 2024. It would allow a “business income” subtraction starting at 10% of “business income” in 2015, increasing by 10% each year until it reaches its maximum of 50% of “business income”.




ASSUMPTION (continued)

 

NOTE: The additional deduction for low-income filers is not contingent on the aforementioned growth requirement in net general revenue collections. The reduction in individual tax rates and the “business income” subtraction are contingent upon the growth requirement in net general revenue collections. Since we are unable to predict future net general revenue levels, we will provide an estimate of the maximum impact. To prepare that estimate we would assume the net general revenue growth requirement would be met every year until the reduction in the top individual income tax rate reaches 5.3% in seven years (2021), and the “business income” subtraction would reach its maximum of 50% in five years (2019).


Oversight prepared the following table which summarizes the EPARC estimate of the fiscal impact of individual income tax changes for this proposal.



 

 

Individual

Estimated

Calendar

Fiscal

Income Tax

Revenue

Year

Year

Revenue

Reduction

 

 

 

 

Baseline

 

$5,109,439,000

$0

2015

2016

$4,963,979,000

($145,460,000)

2016

2017

$4,858,348,000

($251,091,000)

2017

2018

$4,755,068,000

($354,371,000)

2018

2019

$4,654,289,000

($455,150,000)

2019

2020

$4,556,153,000

($553,286,000)

2020

2021

$4,480,895,000

($628,544,000)

2021

2022

$4,405,792,000

($703,647,000)



Oversight notes the fiscal impact of this proposal for a year in which the previous year's net general revenue collections did not meet the requirement for the contingent tax law changes would be the same as that for the previous year. Tax rates and provisions would not revert to a previous status, but additional changes would not be implemented until the requirement is met again.




ASSUMPTION (continued)


Oversight will use the EPARC estimate of revenue reduction for fiscal note purposes, and will use the indicated amounts in this fiscal note. Oversight is aware that filers may choose to reduce their estimated tax payments or their income tax withholding in anticipation of reduced tax rates, and assumes this could reduce revenues a year in advance of the fiscal year indicated in the table. For fiscal note purposes, however, Oversight will indicate the full fiscal impact of the tax changes as shown in the table.


Bill as a whole responses


In response to a previous version of this proposal, officials from the Office of the Secretary of State (SOS) assume many bills considered by the General Assembly include provisions allowing or requiring agencies to submit rules and regulations to implement the act. The SOS is provided with core funding to handle a certain amount of normal activity resulting from each year's legislative session. The fiscal impact for this fiscal note to the Secretary of State's Office for Administrative Rules is less than $2,500. The SOS recognizes that this is a small amount and does not expect that additional funding would be required to meet these costs. However, we also recognize that many such bills may be passed by the General Assembly in a given year and that collectively the costs may be in excess of what our office can sustain with our core budget. Therefore, we reserve the right to request funding for the cost of supporting administrative rules requirements should the need arise based on a review of the finally approved bills signed by the governor.

 

Officials from the Joint Committee on Administrative Rules assume that this proposal would not have a fiscal impact to their organization in excess of existing resources.


Amendments


Amendment 1


This amendment would increase the threshold at which income tax rate reductions would apply from $100 million to $150 million. The amendment would also require 40% or $60 million of the additional revenue to be transferred to the School District Trust Fund and $20% or $30 million to be devoted to the support of Higher Education until such time as the foundation formula is fully funded.




ASSUMPTION (continued)


Oversight will indicate a $60 million transfer from the General Revenue Fund to the School District Trust Fund and an additional cost of $30 million for Higher Education. Oversight will assume for fiscal note purposes the transfer and additional expenditure would be made in the same year as the revenue reductions from the income tax rate reductions. Oversight is aware that amounts in the School District Trust Fund are transferred to school districts according to a statutory formula but will not include those transfers in this fiscal note.


Amendment 2


This amendment would change Section 143.221, RSMo. - Withholding Tax Filing Requirement to increase the amount of accumulated withholding tax at which an employer would be required to file and pay withholding taxes on a quarterly bases. An employer who did not meet this threshhold would be required to file on an annual basis.


In response to similar language in HB 1224, LR 4672-01, Oversight received the following responses.


Officials from the Office of the Secretary of State (SOS) assume many bills considered by the General Assembly include provisions allowing or requiring agencies to submit rules and regulations to implement the act. The SOS is provided with core funding to handle a certain amount of normal activity resulting from each year's legislative session. The fiscal impact for this fiscal note to the Secretary of State's Office for Administrative Rules is less than $2,500. The SOS recognizes that this is a small amount and does not expect that additional funding would be required to meet these costs. However, we also recognize that many such bills may be passed by the General Assembly in a given year and that collectively the costs may be in excess of what our office can sustain with our core budget. Therefore, we reserve the right to request funding for the cost of supporting administrative rules requirements should the need arise based on a review of the finally approved bills signed by the governor.


Officials from the Office of Administration - Division of Budget and Planning (BAP) assumed the proposal would not result in any additional costs or savings to their organization.


BAP officials noted the proposal would increase the threshold for annual withholding filers from $20 to $100. Withholding taxes that would have otherwise been collected on a quarterly basis in April, July, and October would be delayed until January. The proposal would not directly impact Total State Revenues in the aggregate, but could have a cash flow impact across fiscal years.



ASSUMPTION (continued)


Assuming the proposal would become effective Aug. 28, 2014, quarterly payments due in October 2014 would instead be remitted in January 2015. This would have no cash effect overall for FY 2015, though timing of payments are different. However, quarterly payments due in April and July of 2015 would not arrive until January 2016. Therefore, revenue collections would be reduced in FY 2015, but the payments in FY 2016 would be increased by similar amounts. Further, similar patterns would follow in subsequent years.


Department of Revenue (DOR) officials informed BAP that about 6,500 businesses would be impacted by this proposal. BAP deferred to DOR for estimated withholding amounts.


Officials from the Department of Revenue (DOR) assumed the proposal would raise the quarterly aggregate amount required to file a withholding return from $20 to $100.


Fiscal impact


DOR officials assumed the proposal would not reduce Total State Revenue, but would delay the collection of withholding taxes. The legislation would impact approximately 3,500 businesses that would currently file and pay withholding in April, July, and October could now delay the remittance of their withholding taxes until January of the following year.


Assuming the state could earn a five percent rate of interest, this proposal could Reduce Total State Revenue by $17,500 annually.


Administrative impact


The DOR response did not include any estimate of administrative cost involved in implementing this proposal and Oversight assumes any administrative costs would be minimal and could be absorbed with existing resources.

 

IT impact


DOR officials provided an estimate of the IT cost to implement the proposal of $1,092 based on 40 hours of programming to make changes to DOR systems.




ASSUMPTION (continued)


Oversight assumes OA - ITSD (DOR) is provided with core funding to handle a certain amount of activity each year. Oversight assumes OA - ITSD (DOR) could absorb the costs related to this proposal. If multiple bills pass which require additional staffing and duties at substantial costs, OA - ITSD (DOR) could request funding through the appropriation process.


Officials from the Joint Committee on Administrative Rules assumed the proposal would have no fiscal impact on their organization.


Oversight assumes this amendment proposal would allow certain employers to delay filing and paying withholding taxes, which are currently due on a quarterly basis, until the following January 31. The amount of tax due and the overall amount of revenue for a tax year would not change; however, implementing the amendment could delay receipt of withholding taxes as explained below.

 

            *          Taxes withheld for the third calendar quarter ending September 30, 2014 are currently filed and paid by October 31, 2014 (FY 2015); the proposal would include those taxes in an annual filing due January 31, 2015 (FY 2015). Those taxes would be received in the same fiscal year as currently required, although filing and payment of those funds would be delayed three months. For fiscal note purposes there would be no impact from that delay.

 

            *          Taxes withheld for the fourth calendar quarter ended December 31, 2014 would be paid January 31, 2015 (FY 2015) as currently required.

 

            *          Taxes withheld for the first calendar quarter ending March 31, 2015 would currently required to be filed and paid by April 30, 2015 (FY 2015). The proposal would include those taxes in an annual filing due January 31, 2016 (FY 2016). That delay would be permanent, as each year’s first quarter withholding taxes would be paid the following state fiscal year.

 

            *          Taxes withheld for the calendar quarters ending June 30, 2015 currently required to be filed and paid by July 31, 2015 and September 30, 2015 currently required to be filed and paid by October 31, 2015 (FY 2016) would be paid by January 31, 2016 (FY 2016). Those taxes would also be paid in the same fiscal year as currently required but would be delayed six months and three months, respectively, as compared to current requirements. 




ASSUMPTION (continued)


 

            *          Based on the number of filers provided by the Department of Revenue, the amount of first calendar quarter withholding taxes delayed over the end of a state fiscal year could range from (3,500 filers x the current $20 threshold ) = $70,000 to (3,500 filers x the new $100 threshold) = $350,000.


For fiscal note purposes, Oversight will indicate an unknown revenue reduction for FY 2015 due to first calendar quarter withholding taxes which would be remitted in January, 2016 (FY 2016) rather than April 2015 (FY 2015).



FISCAL IMPACT - State Government

FY 2015

(10 Mo.)

FY 2016

FY 2017

 

 

 

 

GENERAL REVENUE FUND

 

 

 

 

 

 

 

Additional revenue - previous year withholding taxes paid

Section 143.221, RSMo



$0



Unknown



Unknown

 

 

 

 

Revenue reduction - delayed filing and payment of withholding taxes

Section 143.221, RSMo



(Unknown)



(Unknown)



(Unknown)

 

 

 

 

Transfer - School District Trust Fund

Section 143.011


$0


($60,000,000)

$0 or ($60,000,000)

 

 

 

 

Additional Cost - Higher Education

Section 143.011


$0


($30,000,000)

$0 or ($30,000,000)

 

 

 

 

Cost - DOR 

 

 

 

     Salaries

$0

($47,280)

($95,506)

     Benefits

$0

($24,115)

($48,713)

     Equipment and expense

$0

($32,815)

($4,234)

          Total

$0

($104,210)

($148,453)

Personal income tax changes

Sections 143.011, 143.022, and 143.151

 

 

 

     FTE change - DOR

0

4 FTE

4 FTE

 

 

 

 

 

 

 

 

 

 

 

 

FISCAL IMPACT - State Government

(Continued)

FY 2015

(10 Mo.)

FY 2016

FY 2017

 

 

 

 

Cost - DOR

IT cost

Personal income tax changes

Sections 143.011, 143.022, and 143.151




($77,969)




$0




$0

 

 

 

 

Revenue reduction - DOR

Personal income tax changes

Sections 143.011, 143.022, and 143.151



$0



($145,460,000)

($145,460,000 to $251,091,000)

(Fully implemented revenue reduction in seventh program year would be $703,647,000.)

 

 

 

 


ESTIMATED NET EFFECT ON GENERAL REVENUE FUND *


(More than $77,969)



($235,564,210)

($145,608,453 to $341,239,453)

* Fully implemented revenue reduction in the seventh program year would be ($703,647,000)

 

 

 

 

Estimated FTE effect on General Revenue Fund


0


4 FTE


4 FTE

 

 

 

 

SCHOOL DISTRICT TRUST FUND

 

 

 

 

 

 

 

Transfer - General Revenue Fund

Section 143.011


0


$60,000,000

$0 or $60,000,000

 

 

 

 

ESTIMATED NET EFFECT ON SCHOOL DISTRICT TRUST FUND


0


$60,000,000

$0 or $60,000,000

 

 

 

 

 

 

 

 



FISCAL IMPACT - Local Government

FY 2015

(10 Mo.)

FY 2016

FY 2017

  

 

 

 

 

$0

$0

$0

 

 

 

 




FISCAL IMPACT - Small Business


This proposal would reduce income taxes for small business corporations and owners of small businesses.


FISCAL DESCRIPTION


This proposal would modify the individual income tax rate table. The maximum tax rate on personal income would be reduced by one percent over a period of years. Each reduction to the rate would be one-tenth of a percent and no reduction could go into effect unless net general revenue collected in the previous fiscal year exceeded the highest amount of net general revenue collected in any one of the three previous fiscal years by at least $150 million. Once fully phased in, the top rate of tax on individual income would be five and three tenths percent.


House Amendment 1 directs forty percent of the $150 million to be deposited into the School District Trust Fund and twenty percent of the $150 million to go for the support of higher education.


The proposal would also create an individual income tax deduction for business income and would phase the deduction in over a period of years. Each increase to the deduction amount would be ten percent. Once the deduction is fully phased-in, taxpayers would be allowed a fifty percent deduction. No increase to the deduction could go into effect unless net general revenue collected in the previous fiscal year exceeded the highest amount of net general revenue collected in any of the three fiscal previous years by at least $150 million. Shareholders of small corporations and partners in partnerships would be allowed a proportional deduction based their share of ownership.


The proposal would increase the current personal exemption amount of $2,100 by $1,000 for individuals with a Missouri adjusted gross income of less than $20,000.


This proposal would change the amount of payroll tax withholding for annual filing. Currently, an employer is allowed to file an annual withholding tax return instead of four quarterly returns when the aggregate amount withheld is less than $20 in each of the four preceding quarters. The proposal would change the amount to less than $100 in each of the four preceding quarters if the employer is not otherwise required to file a withholding return on a quarterly or monthly basis.


This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.


SOURCES OF INFORMATION


Office of the Secretary of State

Joint Committee on Administrative Rules

Office of Administration

Division of Budget and Planning

Department of Revenue

University of Missouri

            Economic and Policy Analysis Research Center







                                                                                                Mickey Wilson, CPA

                                                                                                Director

                                                                                                February 19, 2014





                                                                                                Ross Strope

                                                                                                Assistant Director

                                                                                                February 19, 2014