COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:4812H.01I Bill No.:HB 2464 Subject:Political Subdivisions; Taxation and Revenue - Income; Cities, Towns, and
Villages; Counties
Type:Original Date:January 29, 2024Bill Summary:This proposal modifies provisions governing income exempt from earnings
tax.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUNDFUND AFFECTEDFY 2025FY 2026FY 2027
General Revenue
More or Less than
$30,347
More or Less than
$91,040
More or Less than
$91,040
Total Estimated Net
Effect on General
Revenue
More or Less than
$30,347
More or Less than
$91,040
More or Less than
$91,040
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. 4812H.01I
Bill No. HB 2464
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January 29, 2024
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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 2027Total 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 2025FY 2026FY 2027
Local Government
More or Less than
($2,233,245)
More or Less than
($6,699,735)
More or Less than
($6,699,735) L.R. No. 4812H.01I
Bill No. HB 2464
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January 29, 2024
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FISCAL ANALYSIS
ASSUMPTION
Oversight was unable to receive some responses in a timely manner due to the short fiscal note
request time. Oversight has presented this fiscal note on the best current information that we
have or on prior year information regarding a similar bill. Upon the receipt of agency responses,
Oversight will review to determine if an updated fiscal note should be prepared and seek the
necessary approval to publish a new fiscal note.
§92.130 – Income Exempt from Earnings Tax for Low-Income Taxpayers
Officials from the Office of Administration - Budget and Planning (B&P) assume this
proposal would exempt citizen income from the earnings tax levied by St. Louis City and Kansas
City, for individuals with income up to 150% of the federal poverty level.
B&P notes that this proposal would become effective August 28, 2024 – in the middle of tax
year 2024. B&P further notes that while earnings tax returns are not due until January of the
next year, many city residents have the 1% tax withheld from their paychecks. B&P assumes
that the city would still collect (and retain) earnings tax on income earned through August 2024.
B&P further notes that the term “citizen” is not defined. It is unclear whether this term refers to
city residents, state residents, or U.S. citizens. Due to data limitations, B&P can only estimate
the impact from city residents; however, this term could encompass a much broader group of
people.
In addition, this proposal sets the income level at “150% of the federal poverty level”. B&P
notes that the federal poverty level is dependent on family size. It is unclear whether the term
used here refers to the income limit for single people or whether household size should be used.
Due to data limitations, B&P will estimate the impact based on the 150% FPL for singles. B&P
notes that in 2023 that amount was $21,870. L.R. No. 4812H.01I
Bill No. HB 2464
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Kansas City and St. Louis City
Based on data published by the U.S. Census Bureau, B&P estimates that up to 22,216 residents
of Kansas City, age 16 and up, could qualify for this exemption. In addition, up to 13,445 St.
Louis City residents, age 16 and up, could qualify. Table 1 shows the resident county by income
level.
Table 1: Residents by Income
Income Level
Kansas
City
St. Louis
City
$1 to $9,999 or
less3,3051,750
$10,000 to
$14,9994,4122,854
$15,000 to
$24,99914,4998,841
Total22,21613,445
Using this data, B&P estimates that this proposal could exempt resident income up to
$416,315,413 from the Kansas City earnings tax and up to $253,658,066 from the St. Louis City
earnings tax.
Therefore, B&P estimates that this proposal could reduce Kansas City earnings tax collections by
up to $4,163,154 ($416,315,413 x 1%) and St. Louis City earnings tax collections by $2,536,581
($253,658,066 x 1%) annually. For tax year 2024 (FY25), B&P estimates that this could reduce
Kansas City earnings taxes by $1,387,718 (four months of collections). This could also reduce
St. Louis City earnings tax collections by $845,527 (four months of collections) for tax year
2024 (FY25).
General Revenue
B&P notes that some taxpayers claim the amount of earnings tax paid to St. Louis City in their
itemized deductions. Based on 2021 tax return data (the most recent complete year available),
B&P determined that 28.3% (rounded) of Missouri taxpayers itemize their deductions.
Therefore B&P estimates that $632,219 (($1,387,718 + $845,527) x 28.3%) in fewer deductions
would be claimed for tax year 2024. Once fully implemented, B&P estimates that $4,840,144
(($4,163,154 + $2,536,581) x 28.3%) in fewer deductions would be claimed annually.
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). L.R. No. 4812H.01I
Bill No. HB 2464
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January 29, 2024
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B&P assumes that this provision may increase TSR and GR by $60,693 in FY25. Once SB 3
(2022) has fully implemented, this provision could increase TSR and GR by $85,350 annually.
Table 3 shows the estimated state GR impact for future years, through the implementation of SB
3 (2022).
Table 3: Estimated Revenue Gain by Fiscal Year Tax Year (Fiscal Year)
Tax Rate
2024
(FY25)
2025
(FY26)
2026
(FY27)
2027
(FY28)
4.80%$30,347 $91,040 $91,040 $91,040 4.70% $89,143 $89,143 $89,143 4.60% $87,246 $87,246 4.50% $85,350
Officials from the Department of Revenue (DOR) assume this proposal will make changes to
the earning tax that the City of Kansas City and the City of St. Louis assess. This proposal
would allow “low-income” citizens an exemption from paying the earnings tax. A low-income
citizen is defined as an individual who has an income at or below 150% of the federal poverty
level. DOR notes that the federal poverty level is based on family size and income. It is unclear
from this proposal if these cities are to calculate the poverty level on an individual or their
family. The federal poverty income limit for an individual at 150% of the poverty level is
$21,870.
Additionally, this proposal does not make clear if “citizen” refers to city residents, state residents
or U.S. citizen. For purposes of the fiscal note, DOR will assume it refers to the citizens that are
residents of the city.
This proposal would become effective on August 28, 2024, in the middle of a tax year. Earnings
tax is owed each year in January covering your earnings of the year before. Most people who
pay the tax have money withheld throughout the year to pay the tax. DOR assumes that those
who would no longer owe, would have the collection stopped on their income. Therefore, when
this proposal starts, some citizens would no longer owe the tax.
Using information from the U.S Census Bureau, DOR estimates that 22,216 residents of Kansas
City and 13,445 residents of St. Louis City ages 16 and up would no longer owe this tax. This
table shows the resident county by income level.
Table 1: Residents by Income
Income Level
Kansas
CitySt. Louis City
$1 to $9,999 or less3,3051,750$10,000 to $14,9994,4122,854$15,000 to $24,99914,4998,841Total22,21613,445 L.R. No. 4812H.01I
Bill No. HB 2464
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Using the same data, DOR notes that this could exempt total income of $416,315,413 in Kansas
City and $253,658,066 in St. Louis. Both citizens currently collect a 1% earnings tax so this
would result in a loss of $4,163,154 to Kansas City and $2,536,581 to St. Louis City for a total of
$6,699,735 in tax year 2025. DOR notes this would reduce the tax year 2024 collections by four
months.
When citizens pay the earnings tax and they itemize their MO individual income tax return, they
are allowed a deduction of the local tax paid. Therefore, any reduction in the amount paid to
Kansas City or St. Louis would result in increased revenue to the general revenue fund.
Using DOR’s individual income tax data for the most complete year, tax year 2021, DOR
determined that 28.3% of Missouri taxpayers itemize their deductions. Using that same 28.3%
DOR assumes that $718,092 ($2,536,581*28.3%) is itemized in St. Louis and $1,178,566
($4,163,154*28.3%) is itemized in Kansas City. This would result in $1,896,658 increased
revenue to general revenue in tax year 2025 with $632,219 (4 months) in tax year 2024.
A deduction does not reduce revenue on a dollar-for-dollar basis, but rather in proportion to the
highest tax rate. SB 3 will be phasing down the individual income tax from 4.8% to 4.5%. We
will show the impact of this proposal throughout implementation of SB 3.
The impact to general revenue:
Table 3: Estimated Revenue Gain by Fiscal Year Tax Year (Fiscal Year)
Tax Rate
2024
(FY25)
2025
(FY26)
2026
(FY27)
2027
(FY28)
4.80%$30,347 $91,040 $91,040 $91,040 4.70% $89,143 $89,143 $89,143 4.60% $87,246 $87,246 4.50% $85,350
This will require DOR to update our MO-1040 and MO-A form, our website and our computer
programs. These changes are estimated at 8,923.
Oversight assumes DOR is provided with core funding to handle a certain amount of activity
relating to the updating of tax forms 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.
Oversight does not have information to the contrary and therefore, Oversight will reflect the
estimates as provided by the B&P and DOR. L.R. No. 4812H.01I
Bill No. HB 2464
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January 29, 2024
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Officials from the Department of Labor and Industrial Relations assume the proposal will
have no fiscal impact on their organization. Oversight does not have any information to the
contrary. Therefore, Oversight will reflect a zero impact in the fiscal note.
FISCAL IMPACT – State GovernmentFY 2025
(4 Mo.)
FY 2026FY 2027GENERAL REVENUESavings – calculation of deductions
relating to earnings tax that can no
longer be itemized on state taxes
§92.130
More or Less
than $30,347
More or Less
than $91,040
More or Less
than $91,040
ESTIMATED NET EFFECT ON
GENERAL REVENUE
More or Less
than $30,347
More or Less
than $91,040
More or Less
than $91,040
FISCAL IMPACT – Local GovernmentFY 2025
(4 Mo.)
FY 2026FY 2027LOCAL POLITICAL
SUBDIVISIONS
Revenue Loss – potential loss in
revenue from eliminating the Earnings
Tax on Low-Income Taxpayers
§92.130
More or Less
than
($2,233,245)
More or Less
than
($6,699,735)
More or Less
than
($6,699,735)
ESTIMATED NET EFFECT ON
LOCAL POLITICAL
SUBDIVISIONS
More or Less
than
($2,233,245)
More or Less
than
($6,699,735)
More or Less
than
($6,699,735)
FISCAL IMPACT – Small Business
No direct fiscal impact to small businesses would be expected as a result of this proposal.
FISCAL DESCRIPTION
This bill exempts from the city earnings tax all taxpayers whose income is at or below 150% of
the Federal Poverty Level.
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. 4812H.01I
Bill No. HB 2464
Page 8 of
January 29, 2024
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SOURCES OF INFORMATION
Office of Administration - Budget and Planning
Department of Revenue
Department of Labor and Industrial Relations
Julie MorffRoss StropeDirectorAssistant DirectorJanuary 29, 2024January 29, 2024