Following close behind broad tax reforms at the federal level, Gov. Eric Greitens visited Springfield Jan. 30 to promote his proposed changes to the state’s corporate and personal income tax rates. From tax cuts and smaller deductions to internet sales tax collection and slashed spending, the governor is targeting aggressive budget changes in his second year in office.
Greitens pitched his plan at Arrowhead Building Supply, 3020 N. Martin Ave., as part of a six-city tour emphasizing a decrease in the corporate tax rate in Missouri to 4.25 percent from 6.25 percent, along with sweeping cuts to personal income tax rates and some counteracting hikes.
“We’re going to have the second-lowest corporate tax rate in the country,” he told the Springfield crowd of about 100.
Missouri is currently tied with Indiana for the 14th lowest corporate tax rate, of the 44 states that employ one, according to independent tax policy research organization The Tax Foundation. North Carolina enforces the smallest rate at 3 percent, followed by North Dakota, Colorado and Arizona, which collect between 4.31 and 4.9 percent from businesses. Neighboring Iowa’s corporate tax rate, at 12 percent, is more than two points higher than any other state in the nation.
While Missouri’s rate already is lower than five of eight bordering states, Greitens said a further decrease would attract more employers. “We’re also in a competition with places around the world. We have to have a great environment for people to come and build businesses,” he said.
Missouri Department of Revenue officials estimate businesses would save some $95.8 million per year through the proposed cuts.
Business owners and other individuals would see a decrease in their personal income tax rate, if the governor’s plan is put in place. The top personal income tax rate would drop to 5.3 percent from 5.9 percent, he said, and 97 percent of Missourians would see a decrease in state income taxes.
“Everybody in the state of Missouri who makes over $9,000 [a year] is going to see a 10 percent cut in their tax rate,” he said. “Three-hundred and eighty-thousand of the hardest-working Missourians are going to see their tax bill cut to zero.”
DOR forecasts provided to SBJ show income tax changes would cost the state $210 million in fiscal 2019.
The move comes just days after the Springfield Area Chamber of Commerce released its 2018 legislative agenda, which specifically asks that Missouri lawmakers not make “broad-based tax cut measures until current reforms have been fully implemented and the state budget has stabilized.”
But when SBJ pointed to the local chamber’s opinion, Greitens insisted the time was right for tax reforms.
“Our Department of Revenue actually ran over 7,000 different scenarios to make sure that this was an extraordinarily well-researched, very thoughtful plan,” he said, referring to studies that began before the federal tax reforms were signed into law.
Greitens hinges his confidence on the private-sector experience of Missouri DOR Director Joel Walters, who is a former PricewaterhouseCoopers tax expert.
Parker Briden, Greitens’ press secretary, said the proposed cuts in total would cost the state $787 million, while plans for new revenue would generate $774 million. Briden noted the governor’s office also used a static scoring model, which does not account for assumed economic growth, unlike neighboring Kansas, which used a dynamic scoring model in its failed attempt to lower taxes.
The governor’s $28.8 billion fiscal 2019 budget proposal estimates a 2.5 percent growth rate in net general revenue, with 70 percent coming from personal income taxes. For the budget beginning July 1, and yet to be introduced in the General Assembly, Greitens projects sales tax collections would account for 23 percent of the general revenue and corporate taxes would contribute 3.5 percent.
To balance the state’s operating budget, Greitens proposed several changes to the tax code to increase state revenue, including removal of the timely filing discount.
Missouri currently offers vendors a discount up to 2 percent for filing sales taxes on time, Greitens said.
“The government gives a discount to some businesses just for doing what everyone is legally required to do,” he said.
Timely filing discounts are offered in 28 states, but most put restrictions on the amount that can be collected, according to a report released by Avalara Inc., makers of a software platform specializing in sales tax compliance. For example, Kentucky only allows each business to save $50 per month.
DOR officials project a state savings of $57.4 million by eliminating the discount.
Greitens also wants to alter the tax code to favor in-state employment and investment from businesses, by requiring companies to use only one of three tax-calculation rubrics currently available. He said businesses should be taxed based on a ratio of their in-state sales and total sales. This would eliminate the two other options that calculate taxes based on in-state capital verses total capital or in-state payroll compared to total payroll, options Greitens said favor out-of-state investments. The change could gain the state $141.6 million, according to DOR planning documents.
Greitens also would like to end the federal income tax deduction for businesses and reduce the deduction for wealthier individuals – essentially raising tax collections by some $109 million.
The governor’s proposed tax plan also includes the implementation of a streamlined sales-and-use tax agreement, which would make it easier for retailers around the country to voluntarily collect Missouri sales taxes from online and mail-order purchases.
Wisconsin-based nonprofit Streamlined Sales Tax Governing Board Inc. facilitates the tax-collection model and now employs it in 24 states, said Executive Director Craig Johnson. The organization works with seven contracted businesses that manage the collection of internet sales taxes for states in return for a percentage of funds collected.
According to research by the National Conference of State Legislatures, Missouri lost $210 million in uncollected sales tax from electronic transactions in 2012 alone. The DOR estimates the state would only capture $21 million in internet sales taxes the next fiscal year.
The Springfield chamber supports a streamlined sales tax agreement and reform to the early filing discount, said Senior Vice President of Public Affairs Sandy Howard. But she said officials would need to time to consider Greitens’ other proposals.
Wellness Collective LLC launched downtown; I Love Tacos Taqueria LLC expanded; and MLP Accounting & Consulting moved.