COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:1590H.03P Bill No.:Perfected HCS for HB 589 Subject:Taxation and Revenue - General; Taxation and Revenue - Income; Salaries; Saint
Louis City; Kansas City; Employees - Employers
Type:Original Date:April 24, 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 $783,059Up to $880,771Up to $880,771Total Estimated Net
Effect on General
RevenueUp to $783,059Up to $880,771Up to $880,771
*A reduction in earnings tax collected by St. Louis (or larger earnings tax refunds), would reduce
the amount of deductions used in calculating Missouri’s state income tax, thereby increasing
state income tax collections.
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.03P
Bill No. Perfected HCS for HB 589
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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 2026
Local Government*Up to ($66,005,030)Up to ($66,005,030)Up to ($66,005,030)
*The fiscal impact depends upon the number of workers (taxpayers) telecommuting or working
remotely in St. Louis City. Work circumstances in future years may differ substantially from
2020/2021. L.R. No. 1590H.03P
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FISCAL ANALYSIS
ASSUMPTION
§92.114 – City Earnings Tax on Remote Workers
Officials from the Office of Administration - Budget and Planning (B&P) assume this section
would exempt nonresident workers of Kansas City and St. Louis City from their 1% earnings
tax, for work done remotely. The proposal would begin with all tax returns filed after January 1,
2024. B&P notes that such tax returns would be for tax year 2023 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 59.8% of St. Louis City residents are
employed within 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 34.4% 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.
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.
1
https://www.stlouis-mo.gov/government/departments/comptroller/documents/current-comprehensive-annual-
financial-report.cfm L.R. No. 1590H.03P
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However, deductions do not reduce revenues on a dollar for dollar bases, but rather in proportion
to the top tax rate applied. Therefore, B&P will show the estimated impact throughout the
implementation of SB 3 (2022).
B&P assumes that this provision may increase TSR and GR by less than $783,059 to $908,295 in
FY24. Once SB 3 (2022) has fully implemented, this provision could increase TSR and GR by
$711,872 to $825,723 annually.
This provision may reduce St. Louis City earnings tax revenue by less than ($66,005,030) in
FY24 and beyond. Table 1 shows the estimated state GR impact for future years, through the
implementation of SB 3 (2022).
Table 1: Estimated Revenue Gain by Fiscal Year Tax Year (Fiscal Year)2023 (FY24)2024 (FY25)2025 (FY26)Tax
Rate
LowHighLowHighLowHigh4.95%$783,059 $908,295 $783,059 $908,295 $783,059 $908,295 4.80% $759,330 $880,771 $759,330 $880,771 4.70% $743,511 $862,422 4.60% 4.50% Table 1: Estimated Revenue Gain by Fiscal Year Tax Year (Fiscal Year)2026 (FY27)2027 (FY 28)Tax
Rate
LowHighLowHigh4.95%$783,059 $908,295 $783,059 $908,295 4.80%$759,330 $880,771 $759,330 $880,771 4.70%$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.
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. L.R. No. 1590H.03P
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In response to a previous version, 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:
-
-
-
-
-
-
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. L.R. No. 1590H.03P
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Responses regarding the proposed legislation as a whole
Officials from the Office of the State Auditor, the Department of Revenue, the Office of the
State Courts AdministratorMissouri House of Representatives and the Missouri Senate
each 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.
In response to a previous version, officials from the Department of Labor and Industrial
Relations, the St. Louis County Board of Elections, the Platte County Board of Elections
and the each assumed 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.
In response to a previous version, officials from the Office of the Secretary of State (SOS)
noted 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 §92.114 p.4 Up to $783,059Up to $880,771Up to $880,771
ESTIMATED NET
EFFECT ON
GENERAL REVENUEUp to $783,059Up to $880,771Up to $880,771 L.R. No. 1590H.03P
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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 §92.114 p. 4
Up to
($66,005,030)
Up to
($66,005,030)
$0 or up to
($66,005,030)
ESTIMATED NET
EFFECT ON LOCAL
POLITICAL
SUBDIVISIONS
Up to
($66,005,030)
Up to
($66,005,030)
Up to
($66,005,030)
FISCAL IMPACT – Small Business
No direct fiscal impact to small businesses would be expected as a result of this proposal.
FISCAL DESCRIPTION
This proposal modifies provisions relating to the Chapter 92 Earnings Tax.
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
St. Louis City
Office of Administration - Budget and Planning
Department of Labor and Industrial Relations
Office of the State Auditor
Department of Revenue
Missouri House of Representatives
Missouri Senate
Office of the Secretary of State
St. Louis County Board of Elections L.R. No. 1590H.03P
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Platte County Board of Elections
Jackson County Board of Elections
Office of the State Courts Administrator
Julie MorffRoss StropeDirectorAssistant DirectorApril 24, 2023April 24, 2023