Missouri tax payments are unlikely to set off penalties in federal incentive law

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Missouri tax bills are unlikely to trigger penalties in federal incentive law

When Congress passed the COVID-19 bill, which gave Missouri nearly $ 3 billion for government operations, it also contained an order that the money could not be used to offset tax cuts.

Both houses of the Missouri General Assembly have passed laws that include tax cuts, and one or the other version seems like a good choice for passage when the current session ends in May. But each chamber also contained provisions designed to increase revenue, and sponsors said Wednesday they don’t expect their bills to trigger the penal provisions of the federal incentive law.

Missouri House passed MP J. Eggleston’s bill on the last day before recess in last week’s session to lower the highest income tax rate on Jan. 1 and begin collecting sales tax from online retailers the same day. While the tax cut will bring an estimated $ 44 million out of general state revenue in the coming fiscal year, the sales tax increase will add $ 37-58 million while bringing in $ 15-23 million for schools, conservation, and state parks.

The reason a bill with only a modest increase in revenue is likely to pass in the tax-averse general assembly is pressure from corporations to enact law by the US Supreme Court to implement the 2018 Wayfair ruling. The ruling expanded states’ powers to collect sales taxes from online retailers.

“We’re trying to cut income tax in our state because we’re getting Wayfair money,” said Eggleston, R-Maysville. “Our bill was submitted long before the Restoration Act.”

For the first three fiscal years, Eggleston’s bill would be $ 22 million to $ 168 million in government operations.

Also on the last day before the break, the Senate passed Senator Andrew Koenig’s bill with income tax cuts and sales tax increases. The tax bill for Koenig’s account assumes that in the first three fiscal years after the adoption, 147 to 255 million US dollars would flow into the treasury.

A provision changing the due date for monthly sales tax reports is expected to reduce the state’s general revenue by $ 42 million to $ 48 million through June 30, 2022. However, Koenig said he doesn’t see how that would trigger federal law. since it only changes when the taxes are due.

“We’re still going to raise the same amount of money,” said Koenig, R-Manchester.

The US bailout, signed by President Joe Biden last week, bans states from using their allocations “to offset, either directly or indirectly, a reduction in net tax revenues.” The penalty is the amount of the tax cut or the total state allocation, whichever is less.

Missouri attorney general Eric Schmitt joined 21 other Republican attorneys general in a letter to Secretary of the Treasury Janet Yellen objecting to the dictation on constitutional grounds. In interviews, Eggleston and Koenig said they oppose federal interference in state affairs.

“The government seems to have been questioning or postponing the 10th Amendment for years,” said Eggleston. “This seems to be another example of this. Time and the courts have to decide what is and what is not. “

A key difference between the two bills is when the online tax collection and, with it, the new tax cuts would begin. Eggleston’s bill sets the date to January 1, 2022, and Koenig’s bill postpones it by one year to January 1, 2023.

The annual revenue from the sales tax expansion would be $ 105 million or more. There would also be roughly $ 60 million for cities and counties that have voter-approved use taxes.

The tax cuts in Eggleston’s bill would lower the highest income tax rate by 0.1 percentage points and provide a further 0.1 percentage point cut in the future.

Koenig’s Bill lowers income taxes for low-income families by introducing a new Missouri working family tax credit equal to 10 percent of the federal earned income tax credit. The credit would be carried out at the same time as the online tax collection.

The tax cuts will pave the way for Wayfair legislation, Koenig said, which is a priority for businesses.

“We literally have the worst in tax law – we tell people they get a tax break when they buy from companies outside of Missouri,” he said.

His bill also includes cuts in the highest income tax rate by 0.1 percentage points, three in all.

A 2014 tax cut bill will cut the highest income tax rate by 0.1 percentage points if the state’s general revenue is $ 150 million more than the highest amount of revenue generated in the past three years. Revenue growth is measured at the end of the fiscal year on June 30th. If triggered, the tax cut will take effect on January 1st of the following year.

The rate for 2021 is 5.4 percent and is expected to decrease to 5.3 percent on January 1, 2022. However, as the 2021 fiscal year revenue is artificially high due to a change in tax return dates, it is unlikely that there will be another automatic cut by 2025.

Under current law, the tax rates for the upper bracket would stabilize at 5.1 percent. Over time, the passage of Koenig’s bill would lower the top tax rate to 4.8 percent. The Missouri working family tax credit would also increase to 20 percent of the federal earned income tax credit the next time the maximum rate was lowered.

According to Eggleston’s version, the tax rate for 2022 would be 5.2 percent and the top tax rate would be 4.9 percent.

Without the rate cuts, Eggleston would not be ready to waive the new online taxes.

“You can get into the ballpark and you can’t get it to zero,” he said of the offsets. “It’s because without that, when you factor in local, state, and local tax increases of $ 200 million, you take a look. I will not put my name on it. “

The working family tax credit helped Koenig’s Senate bill pass 28-4, with nine Democrats backing him. In the House of Representatives, no Democrats supported Eggleston’s bill, while 14 Republicans opposed it with 96-59 votes.

One change Koenig is willing to do is to postpone the effective date of its bill for another year if necessary, as the COVID-19 penalties for relief bills are being imposed.

“If we have to make a change in the house to postpone it for a year, it would be outside the timeframe of what the law says,” Koenig said. “I find it hard to believe that the federal government can stop all tax policies in all 50 states at the same time.”

The Missouri Independent is a non-profit, impartial news organization dedicated to the state government and its impact on Missourians.