COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:1683H.02P Bill No.:Perfected HCS for HB Nos. 594 & 508 Subject:Taxation and Revenue - Income; Taxation and Revenue - General; Revenue,
Department of Revenue
Type:Original Date:February 11, 2025Bill Summary:This proposal authorizes an income tax deduction for capital gains.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUNDFUND AFFECTEDFY 2026FY 2027FY 2028
General Revenue
Could exceed
($334,818,750)*
Could exceed
($233,082,139)
Could exceed
($232,135,093)
Total Estimated Net
Effect on General
Revenue
Could exceed
($334,818,750)*
Could exceed
($233,082,139)
Could exceed
($232,135,093)
*The fiscal impact for FY2026 will be impacted by 100% of the subtraction for tax year 2025
and a portion of the subtraction for tax year 2026.
ESTIMATED NET EFFECT ON OTHER STATE FUNDSFUND AFFECTEDFY 2026FY 2027FY 2028Total Estimated Net
Effect on Other State
Funds $0$0$0
Numbers within parentheses: () indicate costs or losses. L.R. No. 1683H.02P
Bill No. Perfected HCS for HB Nos. 594 & 508
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ESTIMATED NET EFFECT ON FEDERAL FUNDSFUND AFFECTEDFY 2026FY 2027FY 2028Total Estimated Net
Effect on All Federal
Funds $0$0$0
ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE)FUND AFFECTEDFY 2026FY 2027FY 2028Total 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 2026FY 2027FY 2028Local Government$0$0$0 L.R. No. 1683H.02P
Bill No. Perfected HCS for HB Nos. 594 & 508
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FISCAL ANALYSIS
ASSUMPTION
Section 143.121 - Income Tax Subtraction for Capital Gains
Officials from the Department of Revenue (DOR) starting January 1, 2025, this proposal would
allow a taxpayer, both individuals and corporations, to subtract from their Federal adjusted gross
income (FAGI) any amount reported as capital gains for determining their Missouri adjusted
gross income (MAGI). DOR notes this proposal would become effective on August 28, 2025, in
the middle of the 2025 tax year. DOR notes that these changes will begin January 1, 2025,
however, they will not impact state revenue until the first tax returns are filed in January 2026
(FY 2026). DOR also notes this would limit the amount of time taxpayers have to adjust their
withholdings for the tax year.
All sources of income are reported on the federal return and only the total income amount (FAGI
number) is reported on the Missouri return. DOR used its internal Income Tax Model that
contains confidential taxpayer data from both the federal and state tax return to calculate the
fiscal impact of this proposal to individuals.
DOR notes that subtractions do not reduce revenues on a dollar-for-dollar basis, but rather in
proportion to the top tax rate applied. SB 3 adopted in 2022, lowers the individual income tax
rate over a period of years based on certain revenue triggers. The individual income tax rate for
tax year 2025 is 4.7%. For fiscal note purposes only, and based on the current consensus
revenue estimates, DOR will show the next reduction of the individual income tax rate occurring
in consecutive years starting in tax year 2028.
Individual Income Tax
Tax
YearAmount
2025($111,051,234.18)2026($111,035,453.09)2027($111,028,327.15)2028($108,683,825.07)2029($106,287,765.44) L.R. No. 1683H.02P
Bill No. Perfected HCS for HB Nos. 594 & 508
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Based on the department’s collection data, the department knows that 42% of all individual
income tax is received in the first fiscal year and 58% is received in the second year. Therefore,
the department would expect to see a loss to general revenue per fiscal year as follows:
Individual Income Tax
Fiscal
YearLoss to GR
2026*($157,686,124.47)2027($111,032,460.20)2028($110,043,636.28)2029($107,677,480.02)2030($106,287,765.44)
*FY26 will be impacted by 100% of the subtraction for tax year 2025 and a portion of the
subtraction for tax year 2026.
Additionally, this proposal allows corporations to subtract their capital gains for determining
MAGI. The current corporate income tax rate is 4%. DOR used its internal Income Tax Model
that contains confidential taxpayer data from both the federal and state tax returns to calculate
the fiscal impact of this proposal to corporations. DOR notes the data was only able to pull
information from the electronically filed returns and not those filed on paper. Therefore, DOR
notes the actual impact will be larger than estimated.
This proposal will not become effective until August 2025 and taxpayers pay declaration
payments on capital gains four times a year in anticipation of their final tax liability. Corporate
declarations are due in April, June, September, and December. Therefore, corporations will have
a limited time to adjust their declarations to account for this new subtraction. Based on this,
DOR will reflect the full impact of tax year 2025 in FY26.
Based on actual collections data, DOR notes that 45% of corporate income taxes are paid during
fiscal year 1 and 55% are paid during fiscal year 2. This will result in a loss to general revenue
of greater than $183,626,879 in FY 2026 and of greater than $126,639,225 in FY 27 and beyond. L.R. No. 1683H.02P
Bill No. Perfected HCS for HB Nos. 594 & 508
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Summary
This proposal is estimated to impact general revenue by:
Table 3: Impact SummaryFiscal
Year
Individual
Income
Corporate IncomeTotal
FY26*($157,686,124)could exceed($183,626,876)could exceed($341,313,000)FY27($111,032,460)could exceed($126,639,225)could exceed($237,671,685)FY28($110,043,636)could exceed($126,639,225)could exceed($236,682,861)FY29($107,677,480)could exceed($126,639,225)could exceed($234,316,705)FY30($106,287,765)could exceed($126,639,225)could exceed($232,926,990)*FY26 will be impacted by 100% of the subtraction for tax year 2025 and a portion of the subtraction
for tax year 2026.
This proposal will require DOR to modify the department’s MO-A and MO-1040 forms at a cost
of $14,654 ($7,327 apiece), the department’s website at a cost of $2,200 and the department’s
individual income tax computer programming system at a cost of $3,664. These items are
estimated to cost $20,518.
Oversight does not have any information to the contrary. Therefore, Oversight will reflect the
above costs to DOR to implement this proposal in FY 2026.
Officials from the Office of Administration - Budget and Planning (B&P) note beginning
with tax year 2025, this proposal would allow taxpayers to subtract capital gains income from
their federal adjusted gross income (FAGI) to determine their Missouri adjusted gross income
(MAGI).
B&P notes that this subtraction would apply to both individuals and corporations.
Individual Income Tax
B&P notes that under Section 143.011, the top individual income tax rate will be 4.7% for tax
year 2025. In addition, based on current revenue forecasts and average revenue growth, B&P
estimates that net general revenue growth will not be high enough to trigger another reduction
until at least tax year 2028 (FY27 revenue). For the purpose of this fiscal note, B&P will assume
that the remaining two 0.1% reductions will occur for tax year 2028 (4.6%) and tax year 2029
(4.5%). L.R. No. 1683H.02P
Bill No. Perfected HCS for HB Nos. 594 & 508
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Using tax year 2022 data, the most recent complete tax year available, B&P estimates that this
proposal could reduce GR by $106,464,031. Once SB 3 (2022) has fully implemented, this
proposal could reduce GR by $101,915,438 annually. Table 1 shows the estimated impact by tax
year.
Table 1: Estimated
Impact by Tax Year
Tax
YearGR Impact
2025($106,464,031)2026($106,446,013)2027($106,438,634)2028($104,193,953)2029($101,915,438)
B&P notes that this proposal will not become effective until August 2025. B&P further notes
that taxpayers pay declarations payments on capital gains four times a year in anticipation of
their final tax liability. Individual declarations are due in January, April, June, and September.
Therefore, individuals would only have September 2025 and January 2026 to adjust their
declarations to account for this new subtraction. Based on this, B&P will reflect the full impact
from the tax year 2025 subtraction as occurring during FY26.
Beginning with tax year 2026, individuals will adjust their declarations payments. Based on
actual collections data, B&P estimates that 42% of individual income taxes are paid during fiscal
year 1 and 58% are paid during fiscal year 2. Therefore, B&P estimates that this proposal could
reduce GR by $151,171,356 in FY26. Once SB 3 (2022) has fully implemented, this proposal
could reduce GR by $101,915,438 annually. Table 2 shows the estimated impact by fiscal year. L.R. No. 1683H.02P
Bill No. Perfected HCS for HB Nos. 594 & 508
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Fiscal
YearGR Impact
FY26*($151,171,356)FY27($106,442,914)FY28($105,495,868)FY29($103,249,392)FY30($101,915,438)*FY26 will be impacted
by 100% of the
subtraction for tax year
2025 and a portion of the
subtraction for tax year
2026.
Corporate Income Tax
Using tax year 2022 data, the most recent complete tax year available, B&P estimates that this
proposal could exempt at least $3,165,980,618 in capital gains from Missouri income tax. B&P
notes that this number only includes electronically filed corporate tax returns; therefore, the
actual amount of capital gains exempted could exceed $3,165,980,618. Using the corporate tax
rate of 4.0%, B&P estimates that this proposal could reduce GR by at least $126,639,225 per
year.
B&P notes that this proposal will not become effective until August 2025. B&P further notes
that taxpayers pay declarations payments on capital gains four times a year in anticipation of
their final tax liability. Corporate declarations are due in April, June, September, and December.
Therefore, corporations would only have September and December 2025 to adjust their
declarations to account for this new subtraction. Based on this, B&P will reflect the full impact
from the tax year 2025 subtraction as occurring during FY26.
Beginning with tax year 2026, corporations will adjust their declarations payments. Based on
actual collections data, B&P estimates that 45% of corporate income taxes are paid during fiscal
year 1 and 55% are paid during fiscal year 2. Therefore, B&P estimates that this proposal could
reduce GR by at least $183,626,879 ($56,987,651 Tax Year 2026 declarations adjustments +
$126,639,225 tax year 2025 settle-up) in FY26. Beginning in FY27, this proposal could reduce
GR by at least $126,639,225 annually.
Summary L.R. No. 1683H.02P
Bill No. Perfected HCS for HB Nos. 594 & 508
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B&P estimates that this proposal could reduce TSR and GR by an amount that could exceed
$334,798,232 in FY26. Once fully implemented, this proposal could reduce TSR and GR by an
amount that could exceed $228,554,663. Table 3 shows a summary of the estimated impacts by
fiscal year.
Table 3: Impact SummaryFiscal
Year
Individual IncomeCorporate IncomeTotal
FY26*($151,171,356)could exceed($183,626,876)could exceed($334,798,232)FY27($106,442,914)could exceed($126,639,225)could exceed($233,082,139)FY28($105,495,868)could exceed($126,639,225)could exceed($232,135,093)FY29($103,236,977)could exceed($126,639,225)could exceed($229,876,202)FY30($101,915,438)could exceed($126,639,225)could exceed($228,554,663)*FY26 will be impacted by 100% of the subtraction for tax year 2025 and a portion of the subtraction
for tax year 2026.
Oversight notes both DOR and B&P’s estimates include data from DOR’s internal Income Tax
Model.
Oversight notes that it does not currently have the resources and/or access to state tax data to
produce a thorough independent revenue estimate and is unable to verify the revenue estimates
provided by DOR and B&P. Therefore, for the purpose of this fiscal note, Oversight will note
B&P’s estimated impact for this proposal.
Oversight notes the state individual income tax rate (4.7% in CY 2025) is to be reduced in
annual increments (if certain triggers are met) until it reaches 4.5% pursuant to SB 3 (2022).
Based on current revenue forecasts and average revenue growth, DOR and B&P project the next
reduction(s) of the individual income tax rate occurring in consecutive years starting in tax year
2028. L.R. No. 1683H.02P
Bill No. Perfected HCS for HB Nos. 594 & 508
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FISCAL IMPACT – State GovernmentFY 2026
(10 Mo.)
FY 2027FY 2028GENERAL REVENUECosts - §143.121 - DOR - Income Tax
Subtraction for Capital Gains ($20,518)$0$0
Revenue Reduction - §143.121 -
Individual Income Tax - Income Tax
Subtraction for Capital Gains ($151,171,356)*($106,442,914)($105,495,868)
Revenue Reduction - §143.121 -
Corporate Income Tax - Income Tax
Deduction for Capital Gains
Could exceed
($183,626,876)*
Could exceed
($126,639,225)
Could exceed
($126,639,225)
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND
Could exceed
($334,818,750)
Could exceed
($233,082,139)
Could exceed
($232,135,093)
*FY26 will be impacted by 100% of the subtraction for tax year 2025 and a portion of the
subtraction for tax year 2026.
FISCAL IMPACT – Local GovernmentFY 2026
(10 Mo.)
FY 2027FY 2028$0$0$0
FISCAL IMPACT – Small Business
Small businesses’ taxation would be impacted by this proposal.
FISCAL DESCRIPTION
The proposed legislation authorizes an income tax deduction for capital gains.
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. 1683H.02P
Bill No. Perfected HCS for HB Nos. 594 & 508
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SOURCES OF INFORMATION
Department of Revenue
Office of Administration - Budget and Planning
Julie MorffJessica HarrisDirectorAssistant DirectorFebruary 11, 2025February 11, 2025