The Missouri House sent a bill repealing the corporate income tax to the Senate on a party-line vote Wednesday, with Republicans saying it will boost economic growth and Democrats calling it a business giveaway.
The bill sponsored by state Rep. Travis Smith of Dora would cut the tax rate, currently 4%, to 3% on Jan. 1 and make another one percentage point cut each year until the tax is eliminated in 2028.
“When you reduce the corporate income tax you are helping workers more than anything else because the corporation is not going to be paying those taxes,” Smith said. “They’re putting it back in improving their facilities and paying wages.”
The corporate income tax is paid by larger companies with many stockholders. A fiscal note for the bill estimates it would reduce state revenues by at least $884 million when fully implemented. The state collected $13.2 billion in general revenue in the fiscal year that ended June 30.
The bill passed on a 100-50 vote with Republicans voting for it and Democrats opposed.
“We are one of the lowest corporate income tax states in the nation,” said state Rep. Joe Adams, a University City Democrat.
Legally, Adams noted, corporations are people with many of the same rights as humans.
“As people they should pay part of the freight for the operation of the government of this state,” Adams said.
Missouri’s corporate income tax for decades was 5%. In 1993, in a bill that increased revenue to pay for education needs, the tax was boosted to 6.25%. The rate was cut to 4% in 2018.
This is the second year in a row that the House has voted to cut the corporate tax. Last year, the House voted to cut the rate in half but the Senate did not go along. A similar bill is awaiting debate on the Senate.
Lawmakers in the past 18 months have cut the top rate on income taxes and excluded Social Security and other retirement income from the state income tax. Those cuts, when fully in effect, will reduce annual revenue by more than $1 billion.
The state is sitting on one of its biggest surpluses in history, with about $6.4 billion on hand on Feb. 29. Revenues for the year, however, are lagging 1.45% behind collections for the previous fiscal year.
To soften the impact of repealing the tax, the bill also bars corporations holding state tax credits from claiming them against corporate tax liability in years after the rate is cut to zero. Smith said he received information from the Department of Revenue that there are $600 million to $700 million in outstanding tax credits that could be claimed by corporations.
“It just means no new tax credits will be given out and they will not renew the existing tax credits,” Smith said.
The fiscal note for the bill, however, reports that tax credit redemptions applied to corporate income taxes totaled $89.7 million in the most recent fiscal year and that redemptions would shift to other taxes if the corporate tax is repealed.
“Many of the state tax credits are allowed to be sold, transferred and assigned and it is assumed corporations would continue that practice,” the fiscal note states.
The corporate tax rate isn’t a priority for businesses, said Rep. Kemp Strickler, a Democrat from Lee’s Summit. Corporations want well-educated workers and access to materials and services, Strickler said.
“Is this a good return on investment?” Strickler asked. “Is that really helping or is this just a giveaway?”
