COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:5974S.05F Bill No.:Perfected SS for SCS for SB Nos. 3 & 5 Subject:Taxation and Revenue - Income Type:Original Date:September 20, 2022Bill Summary:This proposal modifies provisions relating to income taxes.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUNDFUND AFFECTEDFY 2023FY 2024FY 2025Fully
Implemented
(FY 2028)
General Revenue
Fund *($130,633,876)($335,434,081)($370,091,425)($371,230,602)
Total Estimated Net
Effect on General
Revenue($130,633,876)($335,434,081)($370,091,425)($371,230,602)
*Oversight notes the state individual income tax rate (5.3% in CY 2022) is to be reduced in
0.10% annual increments (if certain triggers are met) until it reaches 4.8%. This proposal would
change the tax rate to 4.95% starting January 1, 2023. This proposal also allows for an additional
0.15% GR-growth-dependent reduction in CY 2024 to 4.8%. Additionally, this proposal allows
for an additional three 0.1% GR-growth-dependent reductions that could occur as early as CY
2025 (assuming the GR dependent trigger was met) until it reaches 4.5%. The impact for FY
2023 is smaller because it reflects a partial year. The fiscal note reflects the assumptions that the
current triggers would have been met each year (would have reduced the rate to 4.8% regardless
of this bill) and that the additional triggers in the bill will be met each year, occurring in CY
2024 – CY 2027.
ESTIMATED NET EFFECT ON OTHER STATE FUNDSFUND AFFECTEDFY 2023FY 2024FY 2025Fully
Implemented
(FY 2028)
Total Estimated Net
Effect on Other State
Funds$0$0$0$0
Numbers within parentheses: () indicate costs or losses. L.R. No. 5974S.05F
Bill No. Perfected SS for SCS for SB Nos. 3 & 5
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ESTIMATED NET EFFECT ON FEDERAL FUNDSFUND
AFFECTED
FY 2023FY 2024FY 2025Fully
Implemented
(FY 2028)
Total Estimated
Net Effect on
All Federal
Funds $0$0$0$0
ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE)FUND
AFFECTED
FY 2023FY 2024FY 2025Fully
Implemented
(FY 2028)
Total Estimated
Net Effect on
FTE 000$0
☒ Estimated Net Effect (expenditures or reduced revenues) expected to exceed $250,000 in any
of the three fiscal years after implementation of the act or at full implementation of the act.
☐ Estimated Net Effect (savings or increased revenues) expected to exceed $250,000 in any of
the three fiscal years after implementation of the act or at full implementation of the act.
ESTIMATED NET EFFECT ON LOCAL FUNDSFUND
AFFECTED
FY 2023FY 2024FY 2025Fully
Implemented
(FY 2028)
Local
Government$0$0$0$0 L.R. No. 5974S.05F
Bill No. Perfected SS for SCS for SB Nos. 3 & 5
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September 20, 2022
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FISCAL ANALYSIS
ASSUMPTION
Oversight notes this proposal contains a Section B with an effective date for a designated
section (143.011). That section would go into effect on January 1, 2023.
Oversight notes this proposal contains an emergency clause (Section C) that would make this
proposal effective upon signing by the Governor for section 143.021. For the simplicity of the
fiscal note, we will assume this provision would go into effect on October 1, 2022.
Sections 143.011 – 143.021 Individual Income Tax Rate
Officials from the Department of Revenue (DOR) noted in 2013 Missouri’s individual income
tax rate was 6% per the tax tables printed in statutes. In 2014, SB 509 then allowed for five
reductions of the individual income tax rate based on certain revenue triggers (Section
143.011.2). The Department notes that currently three of those reductions have occurred (TY
2018, TY 2019 and TY 2022) and the fourth is forecasted to happen in tax year 2023, which will
set the rate at 5.2%.
Additionally, in 2019, HB 2540 was added to statues that caused the individual income tax rate
to be decreased by four-tenths of one percent (Section 143.011.3). Then during the 101
st
General
Assembly regular session SB 153 & 97 was passed that would allow starting in tax year 2024
another two reductions of SB 509 (Section 143.011.4). Therefore, as of the filing of the fiscal
note the individual income tax rate for tax year 2022 is 5.3% and the tax rate scheduled for tax
year 2023 is 5.2%.
This proposal in Section 143.011.2 adds language that would lower the individual income tax
rate to 4.95% starting January 1, 2023. This proposal would then allow for another fifteen
hundreds of a percent reduction in the individual income tax rate starting January 1, 2024 if a
certain trigger is met. A reduction in the rate of tax shall only occur if 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 seventy-
five million dollars.
Starting after the two previous reductions, this proposal will allow three additional reductions of
one-tenth of one percent reductions in the individual income tax rate. No more than one
reduction can be made annually and will only occur if three triggers are met. A reduction in the
rate of tax shall only occur if:
a. 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 two hundred million dollars; and L.R. No. 5974S.05F
Bill No. Perfected SS for SCS for SB Nos. 3 & 5
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b. The amount of net general revenue collected in the previous fiscal year exceeds the
amount of net general revenue collected in the fiscal year five years prior, adjusted by the
percentage increase in inflation over the preceding five fiscal years.
(b) The amount of net general revenue collected required by subparagraph a of paragraph (a) of
this subdivision in order to make a reduction pursuant to this subsection shall be adjusted
annually by the percent increase in inflation beginning with the effective date of this section.
This proposal also adds language that starting January 1, 2023, eliminates the current lowest tax
bracket. This would make the lowest bracket start at $1,000 instead of $100.
For fiscal note purposes only, the Department shows the individual income tax reductions
occurring in consecutive years. Using the Department’s internal Income Tax Model that contains
confidential taxpayer data, DOR was able to estimate the following impact of these new changes
starting in tax year 2023.
Tax
YearAmount
2023($309,618,774)2024($367,313,334)2025($369,576,908)2026($368,358,203)2027($370,662,102)
The Department uses a 42%/58% split when converting from tax years to fiscal years.
Fiscal
YearLoss to GR
2023($130,039,885)2024($333,850,489)2025($368,264,035)2026($369,065,052)2027($369,325,840)2028($370,662,102)
This proposal will require computer upgrades, form changes and website changes. This is
estimated at $10,000 in one-time costs.
Oversight notes that DOR assumes this proposal will require programming changes estimated to
cost $10,000. Oversight
handle a certain amount of activity each year. Oversight assumes DOR could absorb the costs
related to this proposal. If multiple bills pass which require additional staffing and duties at
substantial costs, DOR could request funding through the appropriation process. L.R. No. 5974S.05F
Bill No. Perfected SS for SCS for SB Nos. 3 & 5
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Officials from the Office of Administration - Budget and Planning (B&P) note Section
143.011 would reduce the top tax rate to 4.95% beginning with tax year 2023. This would also
create an additional rate reduction of 0.15% as early as tax year 2024, depending on net general
revenue growth. In order to trigger this reduction, net general revenue must grow by $175
million over the largest of the three previous fiscal years.
In addition, as early as tax year 2025 three additional 0.1% reductions may occur, depending on
net general revenue growth. In order to trigger these reductions, net general revenue must grow
by at least $200 million, adjusted for inflation, over the highest of the three previous fiscal years
and net general revenue must be greater than the five-year inflation adjusted net general revenue.
Section 143.021 would eliminate the bottom individual income tax bracket.
B&P notes that under current law the top tax rate will be 5.2% starting with tax year 2023. B&P
notes that per SB 153 (2021) there will be a 0.1% reduction in the top rate for tax year 2024.
Based on current revenue forecasts and average revenue growth, B&P estimates that revenues in
FY24, FY25, and FY26 will reach the growth trigger requirement for reductions to the top rate of
tax. Therefore, the top rate of tax is estimated to be reduced by 0.1% in tax years 2025, 2026,
2027 under SB 509 (2014) and SB 153 (2021). For the purpose of this fiscal note, B&P will
assume that the rate reductions created under this proposal will trigger for each tax year from
2024 through 2027. However, B&P acknowledges that it is unlikely that the reductions will
trigger in consecutive years. Table 1 shows the current versus proposed top rate of tax.
Table 1: Current versus
Proposed Top Tax Rate
Tax
Year
Current
LawProposed
20235.20%4.95%20245.10%4.80%20255.00%4.70%20264.90%4.60%20274.80%4.50%
Using tax year 2019 data, the most recent complete tax year available, and accounting for the
changes in individual income tax law created by SB 509 (2014) and SB 153 (2021), B&P
estimates that this proposal may reduce tax collections by $311.0M in tax year 2023. Once this
proposal fully implements, B&P estimates this provision could reduce tax collections by
$371.2M annually, compared to revenues under SB 509 (2014) and SB 153 (2021) with a top
rate 4.8%. Table 2 shows the estimated revenue impact by tax year. L.R. No. 5974S.05F
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Table 2: Estimated
Impact by Tax Year
Tax
YearGR Impact
2023($311,033,037)2024($369,130,762)2025($371,418,054)2026($370,204,431)2027($371,230,602)
However, because this proposal would take effect January 1, 2023, individuals will adjust their
withholdings and declarations during FY23. Based on actual collections data, B&P estimates
that 42% of individual income taxes are paid during fiscal year 1 and 58% are paid during fiscal
year 2. Therefore, B&P estimates that this provision could reduce TSR and GR by $130.6M in
FY23. Once fully implemented, and annually thereafter, this proposal may reduce TSR and GR
by $371.2M, compared to revenues under SB 509 (2014) and SB 153 (2021) with a top rate
4.8%. Table 3 shows the estimated impact by fiscal year.
Table 3: Estimated Impact
by Fiscal Year
Fiscal
YearGR Impact
2023($130,633,876)2024($335,434,081)2025($370,091,425)2026($370,908,333)2027($370,635,423)2028($371,230,602) L.R. No. 5974S.05F
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Oversight notes that under the current law, SB 509 (2014) and SB 153 (2021) allows
for a top rate of 4.8% to be established by CY 2027, as shown below.
Oversight notes that this proposal reduces the top individual income tax rate to
4.95% beginning with the 2023 calendar year. This proposal allows an additional
0.15% GR-growth-dependent reduction in calendar 2024 to 4.8%. Finally, Oversight
notes this proposal
after the State reaches the 4.8% tax top rate. Each year, for purpose of this fiscal
note, the additional trigger would be met to show the greatest impact to the general
revenue as shown below:
Tax
Year
Current
Law
Proposed
LawEffect
20235.20%4.95%Proposed top individual income tax rate
20245.10%4.80%
Proposed fifteen hundredths of a
percent reduction
20255.00%4.70%
Proposed one-tenth of a
Percent reduction (Dependent on GR growth)
20264.90%4.60%
Proposed one-tenth of a
Percent reduction (Dependent on GR growth)
20274.80%4.50%
Proposed one-tenth of a
Percent reduction (Dependent on GR growth)
Oversight notes both DOR and B&P’sestimates include data from DOR and B&P’s internal
Income Tax Model. Additionally, Oversight notes both DOR and B&P’s estimates of revenue
impact assume all scheduled rate reductions will occur.
Oversight notes that it does not currently have the resources and/or access to state tax data to
produce a thorough independent revenue estimate and is unable to verify the revenue estimates
provided by B&P and DOR. Therefore, for the purpose of this fiscal note, Oversight will note
B&P’s estimated impact for this proposal.
Oversight notes the senate substitute provided two word changes to the bill language and does
not change the fiscal impact of the bill. L.R. No. 5974S.05F
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FISCAL IMPACT –
State Government
FY 2023
(10 Mo.)
FY 2024FY 2025Fully
Implemented
(FY 2028)
GENERAL
REVENUE FUND
Revenue Loss -
§143.011 - §143.021
Individual Income Tax
p.3-7($130,633,876)($335,434,081)($370,091,425)($371,230,602)
ESTIMATED NET
EFFECT ON
GENERAL
REVENUE FUND($130,633,876)($335,434,081)($370,091,425)($371,230,602)
FISCAL IMPACT –
Local Government
FY 2023
(10 Mo.)
FY 2024FY 2025Fully
Implemented
(FY 2028)
$0$0$0$0
FISCAL IMPACT – Small Business
Certain small businesses may pay less in income tax as a result of this proposal.
FISCAL DESCRIPTION
Current law provides for reductions to the top rate of income tax to an eventual rate of 4.8% over
a period of years, contingent on meeting certain net general revenue collection triggers. This act
repeals all such scheduled reductions and reduces the top rate of income tax to 4.95% beginning
in the 2023 calendar year. This act also adds one additional potential 0.15% reduction in the top
rate of tax. Such additional reduction shall only be effective if 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 $175 million. Finally, this act
adds three additional potential 0.1% reductions in the top rate of tax, for an eventual rate of
4.5%. Such additional reductions shall only be effective if 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 $200 million, and exceeds the
amount of net general revenue collections from the fifth prior fiscal year, adjusted for inflation.
The amount of net general revenue collected required to reduce the top rate of tax from 4.8% to
4.5% shall be adjusted annually by the percent increase in inflation. (Section 143.011) L.R. No. 5974S.05F
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Current law exempts the first $100 of a taxpayer's income from taxation. For all tax years
beginning on or after January 1, 2023, this act exempts the first $1,000 of income from taxation.
(Section 143.021)
This act contains an emergency clause.
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
Department of Revenue
Office of Administration - Budget and Planning
Julie MorffRoss StropeDirectorAssistant DirectorSeptember 20, 2022September 20, 2022