COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:3988H.01I Bill No.:HB 2457 Subject:Taxation and Revenue - General; Taxation and Revenue - Income; Department of
Revenue; Business and Commerce; Tax Incentives
Type:Original Date:February 2, 2024Bill Summary:This proposal authorizes income tax addition and subtraction modifications
for research and experimentation costs.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUNDFUND AFFECTEDFY 2025FY 2026FY 2027
General Revenue
(Unknown, could be
substantial)
(Unknown, could be
substantial)
(Unknown, could be
substantial)
Total Estimated Net
Effect on General
Revenue
(Unknown, could be
substantial)
(Unknown, could be
substantial)
(Unknown, could be
substantial)
ESTIMATED NET EFFECT ON OTHER STATE FUNDSFUND AFFECTEDFY 2025FY 2026FY 2027Total Estimated Net
Effect on Other State
Funds $0$0$0
Numbers within parentheses: () indicate costs or losses. L.R. No. 3988H.01I
Bill No. HB 2457
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ESTIMATED NET EFFECT ON FEDERAL FUNDSFUND AFFECTEDFY 2025FY 2026FY 2027Total Estimated Net
Effect on All Federal
Funds $0$0$0
ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE)FUND AFFECTEDFY 2025FY 2026FY 2027General Revenue -
DOR 1 FTE1 FTE1 FTE
Total Estimated Net
Effect on FTE1 FTE1 FTE1 FTE
☒ 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 2025FY 2026FY 2027Local Government$0$0$0 L.R. No. 3988H.01I
Bill No. HB 2457
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FISCAL ANALYSIS
ASSUMPTION
Section 143.121 Qualified Research Income Tax Addition/Subtraction
Officials from the Department of Revenue (DOR) note under federal law a business is allowed
to subtract from their Federal Adjusted Gross Income (FAGI) some of their qualified research
expenses allowed per 26 U.S.C Section 174(a)(2)(B). The starting line on the Missouri
individual income tax return is your FAGI number. Any deductions or subtractions at the federal
level, means less taxable income on the Missouri Return.
This proposal would require those same businesses to add the deducted income back into their
FAGI for calculating their Missouri adjusted gross income (MAGI). Then the proposal allows
the same business to subtract their entire qualified research expenditures that are charged to a
capital account.
This proposal is to become effective starting August 28, 2024. However, this proposal is
backdating these changes to January 1, 2022. The backdating of the changes will require
businesses to file amended returns. DOR assumes these amended returns will be received after
August 2024, and therefore the first fiscal impact will be in FY 2025.
This proposal is in response to changes made regarding the reporting of qualified research
expenditures under the Tax Cuts & and Jobs Act (TCJA). Prior to the passage of the TCJA in
December 2017, businesses were allowed to decide how they wanted to report their qualified
research expenditures. They could deduct their total expenses in a single year or amortize the
expenses over a period of years. DOR notes that a provision in the TCJA prohibits the full
deduction in year 1. Implementation of this provision went into effect starting January 1, 2022.
Businesses now must amortize over time. Per numerous articles and reports written, most
businesses choose to do the deduction in the first year.
When a business is allowed to remove the qualified research expenditures from their federal
taxable income in a single year, it results in the business having a smaller tax liability in
Missouri. The starting point on the Missouri tax return is with your FAGI. By having the
businesses place all their income back onto the Missouri the department will be able to see what
was reported before. Then allowing them the subtraction, will allow them to deduct their
expenses in a single year, lowering their taxable income in Missouri.
DOR was unable to provide a single source on the amount of qualified research expenditures
reported. DOR is also unable to predict the number of companies or the amount of expenses
they will claim. This could potentially result in a loss to general revenue of over $1,000,000. L.R. No. 3988H.01I
Bill No. HB 2457
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This proposal creates a new addition and subtraction that would require 2 new lines being added
to the Form MO-A ($7,138), updates to the department’s website and changes to the individual
income tax computer system ($1,785). These changes are estimated to cost $8,923. DOR’s
existing tax credit staff is no longer able to take on any additional additions and subtractions
without additional resources. Due to the intensive knowledge of what will qualify as an allowed
expense means DOR is not able to use temporary staff to help with processing these returns.
This proposal would require at least 1 FTE Associate Customer Service Rep at a salary of
$35,880.
During the preparation of the fiscal note, it was announced that the U.S. House of
Representatives had passed the Tax Relief for America Families and Workers Act of 2024. This
Act contains the language needed to fix this issue at the federal level starting January 1, 2022.
Should this Act be signed into law, then HB 2457 would become moot.
Officials from the Office of Administration - Budget and Planning (B&P) note this proposal
would decouple Missouri from the federal research and development (R&D) deduction. B&P
notes that prior to January 1, 2022, businesses were allowed to fully deduct expenses in the first
year they were incurred. However, since January 1, 2022, businesses have been required to
amortize those costs over five years (fifteen years for foreign research). B&P further notes that
Missouri has rolling conformity with the federal R&D deduction. When a business claims this
deduction on their federal return, they also receive the tax benefit on their state return.
Section 143.121.3(14) would allow businesses with Missouri income tax to deduct the full
amount of R&D expenses in the first year incurred. Section 143.121.2(7) requires taxpayers to
add any amount of R&D expenses deducted from the Federal adjusted gross income (FAGI).
Taxpayers are required to add that amount to the Missouri adjusted gross income (MAGI) to
prevent taxpayers from receiving the same deduction twice. Section 143.121.2(7) also requires
taxpayer to reduce their R&D deduction by the amount of any R&D tax credit received. This is
consistent with current law and again prevents taxpayers from receiving a tax benefit for the
same expenses twice.
B&P was unable to find enough reliable data to estimate the potential revenue impact from this
provision. However, the potential loss to GR could be significant.
Given the number of returns which might be affected, Oversight will show DOR’s
abovementioned 1 FTE for purposes of this fiscal note. If multiple bills pass which require
additional staffing and duties at substantial costs, DOR could request funding through the
appropriation process.
Oversight notes officials from the Department of Revenue assume this proposal will have a
negative fiscal impact on state revenue. Oversight does not have any information to the contrary.
Therefore, Oversight will show DOR’s estimated impact on the fiscal note. L.R. No. 3988H.01I
Bill No. HB 2457
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FISCAL IMPACT – State GovernmentFY 2025
(10 Mo.)
FY 2026FY 2027GENERAL REVENUECosts - §143.121 Personnel Service($29,900)($36,598)($37,330) Fringe Benefits($23,896)($28,937)($29,204) Expense & Equipment($22,234)($570)($582)Total Costs - ($76,030 )($66,105) ($67,116)FTE Change1 FTE1 FTE1 FTERevenue Reduction - §143.121 -
Addition and subtraction of income for
research and experimentation costs
(Unknown,
could be
substantial)
(Unknown,
could be
substantial)
(Unknown,
could be
substantial)
ESTIMATED NET EFFECT ON
GENERAL REVENUE
(Unknown,
could be
substantial)
(Unknown,
could be
substantial)
(Unknown,
could be
substantial)
Estimated Net FTE Change on General
Revenue1 FTE1 FTE1 FTE
FISCAL IMPACT – Local GovernmentFY 2025
(10 Mo.)
FY 2026FY 2027$0$0$0
FISCAL IMPACT – Small Business
Certain small businesses that qualify for the proposed addition/subtraction could be impacted by
this proposal.
FISCAL DESCRIPTION
Currently, Missouri taxpayers are unable to deduct certain research and experimentation
expenditures from their adjusted gross income for tax purposes. This limitation is a result of the
federal "Tax Cuts and Jobs Act" of 2017. L.R. No. 3988H.01I
Bill No. HB 2457
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This bill de-couples Missouri from the provisions of the federal law, and allows taxpayers to
deduct specified research and experimental expenditures from their federal adjusted gross
income, beginning with the 2022 tax year.
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 DirectorFebruary 2, 2024February 2, 2024