COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:2178H.02C Bill No.:HCS for HB 1076 Subject:Taxation and Revenue - General; Taxation and Revenue - Income; Internet and E-
Mail
Type:Original Date:April 12, 2023Bill Summary:This proposal authorizes an income tax deduction for certain grant money
for expanding or providing broadband services.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUNDFUND AFFECTEDFY 2024FY 2025FY 2026
General RevenueCould exceed
($20,888,190) *
Could exceed
($1,037,905 to
$16,265,810)
Could exceed
($1,037,905 to
$16,265,810)
Total Estimated Net
Effect on General
Revenue
Could exceed
($20,888,190) *
Could exceed
($1,037,905 to
$16,265,810)
Could exceed
($1,037,905 to
$16,265,810)
*Oversight notes the FY24 impact includes both income exempted in tax year 2023 and refund
requests for newly excluded income received in tax year 2022.
ESTIMATED NET EFFECT ON OTHER STATE FUNDSFUND AFFECTEDFY 2024FY 2025FY 2026Total Estimated Net
Effect on Other State
Funds $0$0$0
Numbers within parentheses: () indicate costs or losses. L.R. No. 2178H.02C
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ESTIMATED NET EFFECT ON FEDERAL FUNDSFUND AFFECTEDFY 2024FY 2025FY 2026Total Estimated Net
Effect on All Federal
Funds $0$0$0
ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE)FUND AFFECTEDFY 2024FY 2025FY 2026Total Estimated Net
Effect on FTE 000
☒ 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 AFFECTEDFY 2024FY 2025FY 2026Local Government$0$0$0 L.R. No. 2178H.02C
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FISCAL ANALYSIS
ASSUMPTION
Section 143.121 Broadband Federal Grant Money Subtraction
Officials from the Department of Revenue (DOR) note the proposal appears to create an
income tax subtraction from a taxpayer’s federal adjusted gross income. The proposal would
become effective on August 28, 2023 but attempts to make this tax subtraction retroactively
applicable to tax years ending on or after December 31, 2022. Therefore, any fiscal impact will
have tax year 2022 and tax year 2023 being shown in fiscal year 2024.
This proposal is unclear in exactly what would qualify for the subtraction. It says
“For all tax years ending on or after December 31, 2022, the amount of any federal,
state, or local grant received by the taxpayer, and the amount of any discharged federal, state, or
local indebtedness incurred by the taxpayer, for purposes of providing or expanding access to
broadband services in this state”.
The Department notes the language is unclear in its intent. It appears it could be exempting all
of the following:
All federal, state and local grants.
All discharged federal, state and local indebtedness.
All discharged federal, state and local indebtedness for providing or expanding access to
broadband services.
All federal, state and local grants for the purpose of providing or expanding access to
broadband services.
The Department does not have enough information to estimate the amount of all federal, state
and local grants. There is no single source of information that could provide that data.
Additionally, it should be noted that many of the state agencies administer grant programs. If the
intent of this proposal is to give a subtraction for all grants, this would result in an unknown
significantly over $1 million loss to general revenue.
The Department does not have not have enough information to estimate the amount of all
discharged federal, state and local indebtedness. There is no single source of information that
could provide that data. Recently the federal government granted a discharge of student loan
payments and other types of loan forgiveness. If the intent of this proposal is to give a
subtraction for all discharged/forgiven federal, state and local indebtedness, this would result in
an unknown significantly over $1 million loss to general revenue.
If this subtraction only applies to loans or grants for providing broadband services, DOR can
provide an estimate of the impact. DOR notes that some federal grant money is exempt from
taxation while other grants are not. Currently, broadband grants that are taxable include those L.R. No. 2178H.02C
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distributed through the American Rescue Plan Act (ARPA), Infrastructure Investment and Jobs
Act (IIJA), Broadband Equity, Access, and Deployment Program (BEAD), the Digital Equity
Act, and USDA’s ReConnect program.
The grants distributed under the Broadband Technology Opportunities Program (BTOP), the
Broadband Initiative Program (BIP), and Coronavirus Relief Fund (CRF) were specifically
exempt from federal tax and therefore Missouri tax.
DOR reached out to the Department of Economic Development (DED) to find out how much
they have distributed under programs that would be taxable. They noted that between 2020 and
2023 they will have distributed $315,370,000 in broadband grants that are taxable. Additionally,
they expect to receive up to $1 Billion more to distribute from 2023-2028. How much of that
would come from a program that has taxable grants has not been determined.
Based on research into grants it was found that the USDA-Reconnect program has distributed
$175 million in grants to Missouri companies for expansion of broadband. Additionally, the
federal grants are being distributed by local governments. One report estimated that as much as
$5 billion could be distributed throughout Missouri over the next few years.
Based on the best information available, DOR estimates that the following amounts of taxable
broadband grants have been distributed in Missouri.
Table 1: Estimated Taxable GrantsTax
Year
Federal Grants2019$22,716,387 2020$121,174,813 2021$30,805,895 2022$86,151,208 2023$356,005,895 L.R. No. 2178H.02C
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So this proposal could exempt between $22 million and $356 million annually from income tax.
It should be noted that deductions due not reduce revenue on a dollar for dollar basis, but rather
in proportion to the tax rate applied. SB 3 (2022) set the current individual income tax rate at
4.95% for tax year 2023 with additional reductions in the future. Those reductions are currently
estimated to be:
Table 2: Future Estimated Tax Rates
Tax YearEstimated Tax Rate20234.95%20244.8%20254.8%20264.7%20274.6%2028+4.5%
Therefore, DOR will show the impact of the implementation of this proposal through the
reductions scheduled under SB 3. DOR notes that some of the grant recipients are businesses
that file as pass-through entities and therefore use the individual income tax rate shown above.
However, other grant recipients are corporations and file at the current corporate rate of 4%.
Based on research of award amounts, DOR found that 28.9% of the grant awards go to
corporations and 71.1% go to the pass-through entities. DOR has distributed the grants per
entity type.
Estimated Taxable Grants by Entity
TypeTax
Year
Corporate
Awards
Pass-
Through
Awards
2019$6,560,151 $16,156,236 2020$34,993,464 $86,181,350 2021$8,896,279 $21,909,616 2022$24,879,173 $61,272,035 2023$102,809,148 $253,196,747
Corporate Income Tax
This proposal could reduce corporate tax collections by $995,167 ($24,879,137 x 4.0%) in FY24,
for tax year 2022 broad brand grants. In addition, this proposal could reduce corporate tax
collections by $4,112,366 ($102,809,148 x 4.0%) in FY24, for tax year 2023 broadband grants.
This proposal could reduce corporate tax collections by $262,406 ($6,560,151 x 4.0%) to
$4,112,366 ($102,809,148 x 4.0%) annually thereafter, depending on the amount of grants
awarded each year. The estimated impact by tax and fiscal years. L.R. No. 2178H.02C
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Estimated Corporate Income Tax Loss by YearTax
Year
Fiscal
YearLowHigh
TY
2022FY 2024($995,167)
TY
2023FY 2024($4,112,366)
TY
2024FY 2025($262,406)($4,112,366)
Individual Income Tax
This proposal could reduce individual income tax by $3,247,418 ($61,272,035 x 5.3%) in FY24,
for tax year 2022 broadband grants. In addition, this proposal could reduce individual income
tax by $12,533,239 ($253,196,747 x 4.95%) in FY24, for tax year 2023 broadband grants.
Once SB 3 (2022) has fully implemented, this proposal could reduce individual income tax
collections by $727,031 ($16,156,236 x 4.5%) to $11,393,854 ($253,196,747 x 4.5%). The
estimated impact by year and top tax rate.
Estimated Income Tax Loss by Fiscal Year Tax Year (Fiscal Year)Tax
Rate
2022
(FY24)
2023 (FY24)2024 (FY25)2025 (FY26)
LowHighLowHigh5.30
%
($3,247,418)
4.95
%
($12,533,239)($799,734)($12,533,239)($799,734)($12,533,239)
4.80
%
($775,499)($12,153,444)($775,499)($12,153,444)
4.70
%
($759,343)($11,900,247)
4.60
%
4.50
%
Estimated Income Tax Loss by Fiscal Year Tax Year (Fiscal Year)Tax
Rate
2026 (FY27)2027 (FY 28)
LowHighLowHigh L.R. No. 2178H.02C
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5.30
%
4.95
%
($799,734)($12,533,239)($799,734)($12,533,239)
4.80
%
($775,499)($12,153,444)($775,499)($12,153,444)
4.70
%
($759,343)($11,900,247)($759,343)($11,900,247)
4.60
%
($743,187)($11,647,050)($743,187)($11,647,050)
4.50
%
($727,031)($11,393,854)
Summary
Due to the unclear nature of the language DOR is only submitting the impact of the broadband
grants and loans. Due to the requirement that this proposal be retroactive to the 2022 tax year,
DOR is showing tax year 2022 and tax year 2023 in FY 2024.
This will result in a loss to general revenue of the following:
Estimated Total Revenue Loss by Fiscal YearFY 2025FY 2026Tax
Rate
FY 2024
LowHighLowHigh5.30% 4.95%
($20,888,190)
($1,062,140)($16,645,605)($1,062,140)($16,645,605)4.80% ($1,037,905)($16,265,810)($1,037,905)($16,265,810)4.70% ($1,021,749)($16,012,613)4.60% 4.50% Table 5 : Estimated Revenue Loss by Fiscal YearFY 2027FY 2028Tax
Rate
LowHighLowHigh4.95%($1,062,140)($16,645,605)($1,062,140)($16,645,605)4.80%($1,037,905)($16,265,810)($1,037,905)($16,265,810)4.70%($1,021,749)($16,012,613)($1,021,749)($16,012,613)4.60%($1,005,593)($15,759,416)($1,005,593)($15,759,416)4.50% ($989,437)($15,506,220)
This will require DOR update their instructions for the MO-1040 and the MO-A forms. It is
estimated these changes will cost $7,193. L.R. No. 2178H.02C
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Oversight assumes the Department of Revenue is provided with core funding to handle a certain
amount of activity each year. Oversight assumes the 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.
Officials from the Office of Administration - Budget and Planning (B&P) note this proposal
would exempt all federal/state/local grants, and all federal/state/local loans that are subsequently
forgiven, for providing or expanding broadband internet. B&P notes that this proposal would
become effective August 28, 2023, but would make the income exemption retroactive to tax year
2022. Therefore, the FY24 impact would include both income exempted in tax year 2023 and
refund requests for newly excluded income received in tax year 2022.
B&P notes that due to the placement of commas within this language, it is unclear if the
language would exempt:
purpose of providing/expanding broadband.
Or
providing/expanding broadband.
Or
discharged/forgiven federal/state/local loans.
B&P does not have enough information to estimate the potential revenue loss from exempting all
federal, state, and local grants from income tax. B&P also does not have enough information to
estimate the potential revenue loss from exempting all federal, state, and local
discharged/forgiven loans. For the purpose of this fiscal note, B&P will estimate the impact
from exempting broadband related grants only. The actual revenue impact from this bill could
significantly exceed the estimates below if other federal/state/local grants and loans become
exempt as a result of this language.
Based on extensive research, B&P determined that the majority of federal broadband grants are
included in a taxpayer’s federal adjusted gross income (FAGI). B&P further notes that the
calculation for Missouri taxes begins with a taxpayer’s FAGI. Therefore, federal broadband
grants are also taxable in Missouri.
B&P notes that there are times when a federal grant is not taxable. For example, grants that go
to non-profit organizations are not taxable. There are also some federal broadband grants
specifically exempted from federal taxes. These include the Broadband Technology
Opportunities Program (BTOP), the Broadband Initiative Program (BIP), and Coronavirus Relief
Fund (CRF). Other programs, such as the American Rescue Plan Act (ARPA), Infrastructure
Investment and Jobs Act (IIJA), Broadband Equity, Access, and Deployment Program (BEAD),
the Digital Equity Act, and USDA’s ReConnect program are all considered taxable. L.R. No. 2178H.02C
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Based on available data, B&P estimates that from 2019 through 2023 between $22,716,387 and
$356,005,895 in potentially taxable grants have been granted within Missouri. Table 1 shows
the estimated amount per tax year.
Table 1: Estimated
Taxable Grants
Tax
Year
Federal
Grants
2019$22,716,387 2020$121,174,813 2021$30,805,895 2022$86,151,208 2023$356,005,895
Therefore, B&P estimates that this proposal could exempt between $22,716,387 and
$356,005,895 from income tax in any given year. However, deductions do not reduce revenues
on a dollar for dollar basis, but rather in proportion to the top tax rate applied. B&P notes that
grants are awarded to both corporations and pass-through entities. B&P further notes that the
corporate tax rate is 4.0%. The individual income tax rate (for pass-through businesses) is 4.9%
for tax year 2023. However, additional rate reductions are scheduled to occur under current law.
Therefore, B&P will show the estimated impacts throughout the implementation of the tax rate
reductions from SB 3 (2022).
Based on historic award data, B&P estimates that approximately 28.9% of awards go to
corporations and 71.1% go to pass-through entities. Table 2 shows the estimate grant awards per
entity type.
Table 2: Estimated Taxable Grants by
Entity TypeTax
Year
Corporate
Awards
Pass-
Through
Awards
2019$6,560,151 $16,156,236 2020$34,993,464 $86,181,350 2021$8,896,279 $21,909,616 2022$24,879,173 $61,272,035 2023$102,809,148 $253,196,747
Corporate Income Tax
Therefore, B&P estimates that this proposal could reduce corporate tax collections by $995,167
($24,879,137 x 4.0%) in FY24, for tax year 2022 broad brand grants. In addition, this proposal L.R. No. 2178H.02C
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could reduce corporate tax collections by $4,112,366 ($102,809,148 x 4.0%) in FY24, for tax
year 2023 broadband grants.
This proposal could reduce corporate tax collections by $262,406 ($6,560,151 x 4.0%) to
$4,112,366 ($102,809,148 x 4.0%) annually thereafter, depending on the amount of grants
awarded each year. Table 3 shows the estimated impact by tax and fiscal years.
Table 3: Estimated Corporate Income Tax Loss by
Year
Tax
Year
Fiscal
YearLowHigh
TY
2022FY 2024($995,167)
TY
2023FY 2024($4,112,366)
TY
2024FY 2025($262,406)($4,112,366)
Individual Income Tax
B&P estimates that this proposal could reduce individual income tax by $3,247,418
($61,272,035 x 5.3%) in FY24, for tax year 2022 broadband grants. In addition, this proposal
could reduce individual income tax by $12,533,239 ($253,196,747 x 4.95%) in FY24, for tax
year 2023 broadband grants.
Once SB 3 (2022) has fully implemented, this proposal could reduce individual income tax
collections by $727,031 ($16,156,236 x 4.5%) to $11,393,854 ($253,196,747 x 4.5%). Table 4
shows the estimated impact by year and top tax rate.
Table 4: Estimated Income Tax Loss by Fiscal Year Tax Year (Fiscal Year)2024 (FY25)2025 (FY26)
Tax Rate2022 (FY24)2023 (FY24)
LowHighLowHigh5.30%($3,247,418) 4.95% ($12,533,239)($799,734)($12,533,239)($799,734)($12,533,239)4.80% ($775,499)($12,153,444)($775,499)($12,153,444)4.70% ($759,343)($11,900,247)4.60% 4.50% Table 4: Estimated Income Tax Loss by Fiscal Year Tax Year (Fiscal Year)Tax Rate2026 (FY27)2027 (FY 28) L.R. No. 2178H.02C
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LowHighLowHigh5.30% 4.95%($799,734)($12,533,239)($799,734)($12,533,239)4.80%($775,499)($12,153,444)($775,499)($12,153,444)4.70%($759,343)($11,900,247)($759,343)($11,900,247)4.60%($743,187)($11,647,050)($743,187)($11,647,050)4.50% ($727,031)($11,393,854)
Summary
Therefore, B&P estimates that this proposal may reduce TSR and GR by an amount that could
exceed $20,888,190 [($995,167 corporate TY22 + $3,247,418 individual TY22) + ($4,112,366
corporate TY23 + $12,533,239 individual TY23)] in FY24, depending on whether other
federal/state/local grants and loans qualify under this exemption.
Once SB 3 (2022) has fully implemented, B&P estimates that this proposal could reduce TSR
and GR by an amount that could exceed $989,437 ($262,406 corporate + $727,031 individual) to
$15,506,220 ($4,112,366 corporate + $11,393,854 individual), depending on whether other
federal/state/local grants and loans qualify under this exemption. Table 5 shows the estimated
impact by fiscal year.
Table 5: Estimated Total Revenue Loss by Fiscal YearFY 2025FY 2026Tax
Rate
FY 2024
LowHighLowHigh5.30% 4.95%
($20,888,190)
($1,062,140)($16,645,605)($1,062,140)($16,645,605)4.80% ($1,037,905)($16,265,810)($1,037,905)($16,265,810)4.70% ($1,021,749)($16,012,613)4.60% 4.50% Table 5 : Estimated Revenue Loss by Fiscal YearFY 2027FY 2028Tax
Rate
LowHighLowHigh4.95%($1,062,140)($16,645,605)($1,062,140)($16,645,605)4.80%($1,037,905)($16,265,810)($1,037,905)($16,265,810)4.70%($1,021,749)($16,012,613)($1,021,749)($16,012,613)4.60%($1,005,593)($15,759,416)($1,005,593)($15,759,416)4.50% ($989,437)($15,506,220) L.R. No. 2178H.02C
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Oversight notes officials from B&P and DOR both assume the proposal will have a negative
fiscal impact on general revenue. 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 DOR’s and B&P’s estimated impact for this proposal.
Oversight notes the proposal becomes effective August 28, 2023, but it applies to all tax years
beginning on or after January 1, 2022. Therefore, the FY24 impact includes both income
exempted in tax year 2023 and refund requests for newly excluded income received in tax year
2022.
Due to the confusion from DOR and B&P regarding the language in the bill; Oversight will use
their estimates and assume the fiscal impact could exceed the amounts provided by DOR and
B&P.
FISCAL IMPACT – State GovernmentFY 2024
(10 Mo.)
FY 2025FY 2026GENERAL REVENUERevenue Reduction - §143.121 -
Broadband Federal Grant Money
Subtraction
Could exceed
($20,888,190)
Could exceed
($1,037,905 to
$16,265,810)
Could exceed
($1,037,905 to
$16,265,810)
ESTIMATED NET EFFECT ON
GENERAL REVENUECould exceed
($20,888,190)
Could exceed
($1,037,905 to
$16,265,810)
Could exceed
($1,037,905 to
$16,265,810)
FISCAL IMPACT – Local GovernmentFY 2024
(10 Mo.)
FY 2025FY 2026$0$0$0
FISCAL IMPACT – Small Business
Some small businesses which are pass though entities might be eligible for the deduction
provided in this bill.
FISCAL DESCRIPTION L.R. No. 2178H.02C
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This legislation authorizes an income tax deduction for certain grant money for expanding or
providing broadband services.
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 DirectorApril 12, 2023April 12, 2023