COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:1590H.01I Bill No.:HB 589 Subject:Taxation and Revenue - General; Taxation and Revenue - Income; Salaries; Saint
Louis City; Kansas City; Employees - Employers
Type:Original Date:March 20, 2023Bill Summary:This proposal modifies provisions relating to the chapter 92 earnings tax.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUNDFUND AFFECTEDFY 2024FY 2025FY 2026General Revenue*Up to $1,621,487Up to $880,771Up to $880,771Total Estimated Net
Effect on General
RevenueUp to $1,621,487Up to $880,771Up to $880,771
*A reduction in earnings tax collections (or larger earnings tax refunds), would reduce the
amount of deductions used in calculating Missouri’s income tax, thereby increasing state income
tax collections which Oversight believes could exceed the $250,000 threshold.
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. 1590H.01I
Bill No. HB 589
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March 20, 2023
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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*/**
Could exceed
($132,010,060)
Could exceed
($66,005,030)
Could exceed
($66,005,030)
*The fiscal impact depends upon the number of workers (taxpayers) telecommuting or working
remotely in Kansas City and St. Louis City. Work circumstances in future years may be very
different than 2020/2021.
** Provisions in §92.115 may make it harder to renew the earnings tax by vote (last approved in
April 2021 (for 5 years) for each). L.R. No. 1590H.01I
Bill No. HB 589
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March 20, 2023
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FISCAL ANALYSIS
ASSUMPTION
§92.111 – Chapter 92 Earnings Tax on Remote Workers
Officials from the Office of Administration - Budget and Planning (B&P) assume this
proposal would exempt nonresident workers of Kansas City and St. Louis City from their 1%
earnings tax, if the nonresidents worked remotely. The proposal would begin with all tax returns
filed after January 1, 2023. B&P notes that such tax returns would be for tax year 2022 earnings.
B&P notes that currently Kansas City is already exempting nonresident remote workers from the
earnings tax for the days that nonresident employee worked remotely. Therefore, B&P assumes
that this proposal will not impact earnings tax revenues in Kansas City.
B&P notes that St. Louis City is not exempting nonresident income for days that the nonresident
worked remotely. B&P is unable to determine the number of working days that nonresidents
work remotely; therefore, the estimates below reflect the maximum amount of revenue impacts
to St. Louis City and state general revenue. Actual revenue impacts per year may vary
depending on the level of actual remote work that occurs.
Based on data published by the U.S. Census Bureau 57.1% of St. Louis City residents are
employed within the city. Based on data previously published by MERIC, approximately 5.8%
of workers in St. Louis reside in Illinois. Therefore, B&P estimates that approximately 37.1% of
St. Louis City workers reside within Missouri, but outside of St. Louis City.
Using data published by St. Louis City
1
, B&P determined that earnings tax collections for FY21
was $152,015,000. Therefore, B&P estimates that of the $152,015,000, approximately
$90,904,970 comes from St. Louis City residents who work within the city, $9,100,780 comes
from Illinois residents, and $56,904,250 comes from Missouri residents outside of St. Louis City.
B&P notes that city residents would still be liable for the tax because of their residency status.
Therefore, B&P estimates that this provision could reduce St. Louis City earnings tax by
$66,005,030 ($152,015,000 total earning tax - $90,904,970 St. Louis City residents).
B&P notes that some taxpayers claim the amount of earnings tax paid to St. Louis City in their
itemized deductions. Based on information provided by DOR, B&P determined that 27.8% of
Missouri taxpayers itemize their deductions. B&P further notes that residents outside of
Missouri are not liable for Missouri income tax on the days where they worked remotely.
1
https://www.stlouis-mo.gov/government/departments/comptroller/documents/current-
comprehensive-annual-financial-report.cfm, FY20 CAFR – Table 9, page 213 L.R. No. 1590H.01I
Bill No. HB 589
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March 20, 2023
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Therefore, B&P estimates that $15,819,382 to $18,349,398 [($56,904,250 MO residents x
27.8%) + ($0 to $9,100,780 Illinois residents x 27.8%)] in deductions would no longer be
claimed on Missouri’s individual income tax.
However, deductions do not impact revenues on a dollar for dollar bases, but rather in proportion
to the top tax rate applied. B&P notes that the top income tax rate for tax year 2022 is 5.3%.
Therefore, B&P estimates that this provision could increase state tax collections by $838,427 to
$972,518 for tax year 2022. B&P notes that this provision would not become effective until
August 28, 2023, which is after tax year 2022 income tax returns are filed. B&P also notes that
nonresident worker have up to one year to apply for an earnings tax refund from St. Louis City.
Therefore, individuals would have to file an amended income tax return removing the itemized
deduction.
B&P assumes that this provision may increase TSR and GR by less than $1,621,487 to
$1,880,813 in FY24, from amended tax year 2022 and newly filed tax year 2023 returns. This
could also reduce FY24 revenues to St. Louis City by significantly less than ($132,010,060),
from amended tax year 2022 and newly filed tax year 2023 returns.
Oversight notes the 12% itemized deduction percentage used by B&P is a rounded percentage.
B&P stated to Oversight that the percentage is closer to 11.88% in the calculation of their
numbers above. Oversight does not have information to the contrary and therefore, Oversight
will reflect the estimates as provided by the B&P.
This provision may reduce St. Louis City earnings tax revenue by less than ($66,005,030) in
FY25 and beyond. Table 1 shows the estimated state GR impact for future years, through the
implementation of SB 3 (2022).
Table 2: Estimated Revenue Gain by Fiscal Year Tax Year (Fiscal Year)2022 (FY24)2023 (FY24)2024 (FY25)Tax
Rate
LowHighLowHighLowHigh5.30%$838,427 $972,518 4.95% $783,059 $908,295 $783,059 $908,295 4.80% $759,330 $880,771 4.70% 4.60% 4.50% L.R. No. 1590H.01I
Bill No. HB 589
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Table 2: Estimated Revenue Gain by Fiscal Year Tax Year (Fiscal Year)2025 (FY26)2026 (FY27)2027 (FY 28)Tax
Rate
LowHighLowHighLowHigh5.30% 4.95%$783,059 $908,295 $783,059 $908,295 $783,059 $908,295 4.80%$759,330 $880,771 $759,330 $880,771 $759,330 $880,771 4.70%$743,511 $862,422 $743,511 $862,422 $743,511 $862,422 4.60% $727,692 $844,072 $727,692 $844,072 4.50% $711,872 $825,723
B&P notes that these estimates do not include any potential impacts on the payroll tax. If remote
work is also excluded from the payroll tax, the actual revenues impacts to St. Louis City and the
state could be significantly greater.
Officials from St. Louis City noted the Earnings Tax is the City’s single largest source of
revenue amounting to over a third of the general fund budget. Total receipts in FY2022 exceeded
$206M. The proposed legislation would eliminate the Earnings Tax on nonresidents of the City
who telecommute or work remotely. While there is no definitive total of the portion of the
Earnings Tax this would represent, it is fair to assume that with approximately half or more of
earnings tax receipts coming from non-residents, the subset of these who telecommute
particularly in a year which encompassed a pandemic would be substantial. A loss of revenue of
this magnitude would be a devastating blow to the City’s credit and fiscal condition, and would
seriously impair the City’s ability to provide basic City services. The following illustration
shows the order of magnitude of these Earnings tax receipts:
1 /2 of Earnings Tax receipts are:
-
$153M
Or:
-
Or about equivalent to the costs of these services:
-
-
-
-
-
- L.R. No. 1590H.01I
Bill No. HB 589
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The potential loss of revenue which could exceed $100M annually would jeopardize the City’s
ability to maintain basic City services.
In addition to General Revenue, there would be a similar negative impact on all TIF
developments which utilized a portion of the Earnings tax receipts in its financings, an amount
which totaled $6.2M in FY22.
Furthermore, a State wide initiative from 2010 imposed a 5 year retention vote requirement on
the Earnings Tax. In response, City voters have repeatedly reaffirmed the tax by significant
margins in 2011 (88%), 2016 (72%), and 2021 (79%). The proposed legislation would seek to
place further requirements by expanding the retention vote to voters not residing within the City
itself which would be an intrusion into the City’s right of self-determination on a major fiscal
issue and raises serious questions as to fairness on a variety of other taxes paid to municipalities
throughout the state by non-residents of those municipalities.
Oversight does not have information to the contrary and therefore, Oversight will reflect the
estimates as provided by the B&P for the City of St. Louis.
Officials from the City of Kansas City state changes to §92.111.2.(2) would have no fiscal
impact. §92.115.1(1) expands the qualified voters to include non-KCMO residents when voting
on renewal. If the Earnings Tax were not renewed because of non-KCMO residents voting to
not renew such Tax, then there would be a negative fiscal impact of $330 million.
Oversight notes according to Kansas City’s 2022 Annual CAFR Report, the following is a
twelve year trend of approximately how much was collected in Earnings Taxes for Kansas City: L.R. No. 1590H.01I
Bill No. HB 589
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March 20, 2023
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Oversight notes the City of Kansas City states the proposal conforms to their current allocation
and B&P states that currently Kansas City is already exempting nonresident remote workers
from the earnings tax for the days that nonresident employee worked remotely. Therefore,
Oversight will reflect a $0 or (Unknown) cost to Kansas City.
§92.115 – Statutory Time Frames of Chapter 92 Earnings Tax
Officials from the Office of Administration - Budget and Planning assume this section would
require the earnings tax reauthorization votes to include residents in surrounding counties. For
the St. Louis City earnings tax votes, residents in St. Louis City, St. Louis County, St. Charles
County, Jefferson County, and Franklin County shall vote on whether to reauthorize the earnings
tax within St. Louis City. For the Kansas City earnings tax votes, residents in Cass County, Clay
County, Jackson County, and Platte County shall vote on whether to reauthorize the earnings tax
within Kansas City. This provision will not have a direct impact on TSR or the calculation under
Article X, Section 18(e).
Oversight is unsure of how much the additional cost would be to include surrounding counties
and will therefore reflect a $0 to unknown cost for this section of the proposal.
Responses regarding the proposed legislation as a whole
Officials from the Department of Labor and Industrial Relations and the Department of
Revenue each assume the proposal will have no fiscal impact on their respective organizations.
Y
ear
T
otal Revenue Base
G
ross Earnings
a
nd Profits Tax
L
ess Redirection
o
f Economic
A
ctivity to TIF
S
pecial
A
llocation Fund
N
et Collection of
E
arnings Taxes
2
011
1
9,627,100,000
1
96,271,000
4
,597,000
1
91,674,000
2
012
2
0,672,700,000
2
06,727,000
2
3,760,000
1
82,967,000
2
013
2
1,325,400,000
2
13,254,000
1
5,079,000
1
98,175,000
2
014
2
1,946,600,000
2
19,466,000
1
8,283,000
2
01,183,000
2
015
2
3,367,900,000
2
33,679,000
1
7,649,000
2
16,030,000
2
016
2
3,689,100,000
2
36,891,000
1
3,067,000
2
23,824,000
2
017
2
4,415,200,000
2
44,152,000
1
3,311,000
2
30,841,000
2
018
2
5,891,400,000
2
58,914,000
1
7,109,000
2
41,805,000
2
019
2
7,805,600,000
2
78,056,000
1
5,263,000
2
62,793,000
2
020
2
5,838,200,000
2
58,382,000
1
4,468,000
2
43,914,000
2
021
2
9,748,800,000
2
97,488,000
1
0,646,000
2
86,842,000
2
022
3
1,536,800,000
3
15,368,000
1
7,495,000
2
97,873,000
S
ource: Kansas City CAFR Annual Reports (C-13, Table 9) L.R. No. 1590H.01I
Bill No. HB 589
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Oversight does not have any information to the contrary. Therefore, Oversight will reflect a zero
impact in the fiscal note for these agencies.
Officials from the St. Louis County Board of Elections, the Platte County Board of Elections
and theeach assume the proposal will have no fiscal
impact on their respective organizations. Oversight does not have any information to the
contrary. Therefore, Oversight will reflect a zero impact in the fiscal note for these agencies.
Officials from the Office of the Secretary of State (SOS) note many bills considered by the
General Assembly include provisions allowing or requiring agencies to submit rules and
regulations to implement the act. The SOS is provided with core funding to handle a certain
amount of normal activity resulting from each year's legislative session. The fiscal impact for
this fiscal note to the SOS for Administrative Rules is less than $5,000. The SOS recognizes that
this is a small amount and does not expect that additional funding would be required to meet
these costs. However, the SOS also recognizes that many such bills may be passed by the
General Assembly in a given year and that collectively the costs may be in excess of what the
office can sustain with the core budget. Therefore, the SOS reserves the right to request funding
for the cost of supporting administrative rules requirements should the need arise based on a
review of the finally approved bills signed by the governor.
FISCAL IMPACT –
State Government
FY 2024
(10 Mo.)
FY 2025FY 2026GENERAL REVENUESavings – calculation of
deductions relating to
earnings tax §92.111 p.4
& 5Up to $1,621,487Up to $880,771Up to $880,771
ESTIMATED NET
EFFECT ON
GENERAL REVENUEUp to $1,621,487Up to $880,771Up to $880,771 L.R. No. 1590H.01I
Bill No. HB 589
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FISCAL IMPACT –
Local Government
FY 2024
(10 Mo.)
FY 2025FY 2026LOCAL POLITICAL
SUBDIVISIONS
Revenue loss – potential
loss in revenue from
eliminating the Earnings
Tax on nonresidents of
St. Louis City who
telecommute or work
remotely §92.111 p. 4
Up to
($132,010,060)
Up to
($66,005,030)
$0 or up to
($66,005,030)
Revenue loss – potential
loss in revenue from
eliminating the Earnings
Tax on nonresidents of
Kansas City who
telecommute or work
remotely §92.111 p. 6$0 or (Unknown) $0 or (Unknown) $0 or (Unknown)
Cost – increase costs to
vote in surrounding
counties §92.115$0 to (Unknown)$0 to (Unknown)$0 to (Unknown)
ESTIMATED NET
EFFECT ON LOCAL
POLITICAL
SUBDIVISIONS
Could exceed
($132,010,060)
Could exceed
($66,005,030)
Could exceed
($66,005,030) L.R. No. 1590H.01I
Bill No. HB 589
Page 10 of 11
March 20, 2023
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FISCAL IMPACT – Small Business
No direct fiscal impact to small businesses would be expected as a result of this proposal.
FISCAL DESCRIPTION
The city earnings tax currently applies to "work done or services performed or rendered in the
city". Beginning January 1, 2023, this bill will exclude from the city earnings tax any "work or
services performed or rendered through telecommuting or otherwise performed or rendered
remotely unless the location where such remote work or services were performed is located in
certain constitutional charter cities".
Currently, a city earnings tax may be imposed on certain kinds of work if the voters of that city
approve the continuation of such an earnings tax every five years.
Under the provisions of this bill, if the earnings tax is imposed by a city not within a county, the
tax must be approved by qualified voters who reside in such city, individuals who reside in a
county with a charter form of government and with more than 950,000 inhabitants, individuals
who reside in a county with a charter form of government and with more than 300,000 but fewer
than 450,000 inhabitants, individuals who reside in a county with a charter form of government
and with more than 200,000 but fewer than 315,000 inhabitants, and individuals who reside in a
county of the first classification with more than 110,000 but fewer than 115,000 inhabitants.
Upon the effective date this applies to St. Louis City, St. Louis County, St. Charles County,
Jefferson County, and Franklin County.
If the earnings tax is imposed by a home rule city with more than 400,000 inhabitants and
located in more than one county, the qualified voters shall include individuals who reside in the
counties in which all or part of such city if located.
Upon the effective date this applies to Kansas City and Jackson County, Clay County, Cass
County, and Platte County.
This legislation is not federally mandated, would not duplicate any other program and would not
require additional capital improvements or rental space. L.R. No. 1590H.01I
Bill No. HB 589
Page 11 of 11
March 20, 2023
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SOURCES OF INFORMATION
St. Louis City
Office of Administration - Budget and Planning
Department of Labor and Industrial Relations
Department of Revenue
Office of the Secretary of State
Kansas City
St. Louis County Board of Elections
Platte County Board of Elections
Jackson County Board of Elections
Julie MorffRoss StropeDirectorAssistant DirectorMarch 20, 2023March 20, 2023