COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:3392S.02I Bill No.:SB 872 Subject:Taxation and Revenue - Income Type:Original Date:January 24, 2024Bill Summary:This proposal modifies an income tax deduction for certain federal grant
money.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUNDFUND AFFECTEDFY 2025FY 2026FY 2027General Revenue($4,242,585)$0 or (Unknown)$0 or (Unknown)Total Estimated Net
Effect on General
Revenue($4,242,585)$0 or (Unknown)$0 or (Unknown)
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. 3392S.02I
Bill No. SB 872
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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 2027Local Government$0$0$0 L.R. No. 3392S.02I
Bill No. SB 872
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FISCAL ANALYSIS
ASSUMPTION
Section 143.121.3(13) Subtraction for Broadband Grants
Officials from the Office of Administration - Budget and Planning (B&P) note this proposal
would expand the income tax exemption for federal broadband grants to include state and local
grants. This proposal would also begin the income subtraction for all tax years starting with
2022.
B&P notes that SB 25 (2023), which authorized a subtraction for federal grants, became effective
August 18, 2023. The estimated impact for SB 25 included the assumption that all grants
received during tax year 2023 would be exempted. Therefore, this proposal would only add
grants received during 2022 to the exemption.
In the fiscal response for SB 25, B&P included information on federal grants received in
Missouri during tax year 2022.
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
In addition, based on historic award data, B&P estimated that approximately 28.9% of awards go
to corporations and 71.1% go to pass-through entities.
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 L.R. No. 3392S.02I
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B&P notes that subtractions do not reduce revenues on a dollar-for-dollar basis, but rather in
proportion to the top tax rate applied. For tax year 2022, the corporate tax rate was 4.0% and the
pass-through business tax rate was 5.3%.
B&P notes that this proposal would not become effective until August 28, 2024 (i.e., FY25).
B&P assumes that impacted businesses would have to amend their tax year 2022 tax returns to
subtract any eligible broadband grant income. For the purpose of this fiscal note, B&P will
assume that all eligible companies amend their tax year 2022 returns during FY25.
Based on the above information, B&P estimates that this proposal could reduce TSR and GR by
$4,242,585 [($24,879,173 corporate grants x 4.0%) + ($61,272,035 pass-through grants x 5.3%)]
in FY25.
This proposal would also expand the subtraction to include any state and local grants. B&P is
unaware of any state or local only grants that have been awarded since FY20 that are not simply
passing on federal grant money. Therefore, this expansion could reduce TSR and GR by an
unknown amount beginning in FY25.
Officials from the Department of Revenue (DOR) note in 2023, the General Assembly adopted
SB 25, that allowed a subtraction from federal adjusted gross income of 100% of the amount of
money received from a federal grant expanding broadband across the state. That proposal was
effective August 28, 2023, and the fiscal note assumed that all grant money awarded in 2023 was
allowed the subtraction. The first change in this proposal is to allow the subtraction to be
retroactive to January 1, 2022.
This proposal would become effective on August 28, 2023, but makes this tax subtraction
retroactively applicable to tax years beginning on or after January 1, 2022. This fiscal note will
show the impact for tax year 2022 grants. DOR assume that the companies will all amend their
returns beginning August 28, 2024, the effective date of this proposal, therefore, the fiscal impact
will all occur in FY 2025.
In 2022, DOR notes that the corporate tax rate was 4% while the rate for the pass-through
entities was 5.3%. In the fiscal note for SB 25, DOR provided the following information on the
number of grants distributed in Missouri.
Table 1: Estimated Taxable GrantsTax YearFederal Grants2019$22,716,387 2020$121,174,813 2021$30,805,895 2022$86,151,208 2023$356,005,895 L.R. No. 3392S.02I
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DOR also noted that based on research of award amounts, 28.9% of the grant awards go to
corporations and 71.1% go to the pass-through entities. DOR assumed the distribution of the
grants per entity type.
Table 2: Estimated Taxable Grants by Entity
Type
Tax
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
Therefore, when these organizations file their amended return in FY 2025, it will result in an
additional loss to the state of $4,242,585 [($24,879,173 corporate grants x 4.0%) + ($61,272,035
pass-through grants x 5.3%)].
Additionally, this proposal expands the subtraction to state and local grants as well. DOR is
unaware of any broadband grants that are distributed by the state or local governments. The only
grants DOR knows of are distributed by the state on behalf of the federal government. DOR
notes that should the state or a local political subdivision be handing out any grants for
broadband purposes, those grants would be allowed the subtraction and the cost of this fiscal
note will be higher than estimated.
This will require DOR to update the department’s instructions for the MO-1040 and the MO-A
forms and this is estimated to cost $8,923.
Oversight assumes the Department of Revenue is provided with core funding to handle a certain
amount of activity each year. Oversight assumes DOR could absorb the administrative 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 notes officials from B&P and DOR both assume the proposal will have a direct fiscal
impact on state revenues. Oversight does not have any information to the contrary. Therefore,
Oversight will reflect DOR’s and B&P’s estimated impact in the fiscal note for FY 2025.
Oversight notes this proposal expands the subtraction to grants distributed by state and local
governments. DOR and B&P both note the only grants currently distributed are distributed by
the federal government. Should a local or state grant be distributed and a subsequent subtraction
issued in the future, there would be a negative impact on general revenue. Oversight is unable to
quantify future local grant disbursements. Therefore, Oversight will show a potential unknown
negative fiscal impact beginning in FY 2026. L.R. No. 3392S.02I
Bill No. SB 872
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FISCAL IMPACT – State GovernmentFY 2025
(10 Mo.)
FY 2026FY 2027GENERAL REVENUERevenue Reduction - §143.121 -
Broadband Grant Subtraction
($4,242,585)
$0 or
(Unknown)
$0 or
(Unknown)
ESTIMATED NET EFFECT ON
GENERAL REVENUE($4,242,585)
$0 or
(Unknown)
$0 or
(Unknown)
FISCAL IMPACT – Local GovernmentFY 2025
(10 Mo.)
FY 2026FY 2027$0$0$0
FISCAL IMPACT – Small Business
This provision would positively impact small businesses that qualify for the subtraction as
described in the proposal.
FISCAL DESCRIPTION
Current law authorizes a taxpayer to claim an income tax deduction for 100% of federal grant
moneys received for the purpose of providing or expanding access to broadband internet to areas
of the state deemed to be lacking such access. This act modifies such deduction to also allow it to
be taken for state and local grant moneys received.
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 L.R. No. 3392S.02I
Bill No. SB 872
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Department of Revenue
Office of Administration - Budget and Planning
Julie MorffRoss StropeDirectorAssistant DirectorJanuary 24, 2024January 24, 2024