COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:1286S.02I Bill No.:SB 138 Subject:Taxation and Revenue - Income Type:Original Date:January 9, 2025Bill Summary:This proposal modifies provisions relating to income taxes.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUNDFUND
AFFECTED
FY 2026FY 2027FY 2028Fully Implemented
(FY Unknown)
General
Revenue*($170,587,806)($569,458,359)
($507,340,756 to
$571,680,542)
($290,336,708
to $8,423,526,973)
Total Estimated
Net Effect on
General
Revenue($170,587,806)($569,458,359)
($507,340,756 to
$571,680,542)
($290,336,708
to $8,423,526,973)
*Oversight notes, currently, the top individual income tax rate (4.70% in TY 2025) is to be
reduced in annual 0.1% increments (if certain triggers are met) until it reaches 4.5%. This
proposal changes the individual income tax rate to a flat 4% rate in tax year 2026. Additional
individual income tax rate reductions could occur beyond FY 2028 until the individual income
tax rate reaches 0% (pending voter approval AND revenue growth triggers being met). Oversight
notes the fully implemented impact of this proposal is based upon 2022 data provided by DOR
and is not adjusted for inflation or future revenue growth.
ESTIMATED NET EFFECT ON OTHER STATE FUNDSFUND
AFFECTED
FY 2026FY 2027FY 2028Fully
Implemented
(FY Unknown)
Total Estimated
Net Effect on
Other State
Funds $0$0$0$0
Numbers within parentheses: () indicate costs or losses. L.R. No. 1286S.02I
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ESTIMATED NET EFFECT ON FEDERAL FUNDSFUND
AFFECTED
FY 2026FY 2027FY 2028Fully
Implemented
(FY Unknown)
Total Estimated
Net Effect on
All Federal
Funds $0$0$0$0
ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE)FUND
AFFECTED
FY 2026FY 2027FY 2028Fully
Implemented
(FY Unknown)
Total Estimated
Net Effect on
FTE 0000
☒ 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
AFFECTED
FY 2026FY 2027FY 2028Fully
Implemented
(FY Unknown)
Local
Government$0$0$0$0 L.R. No. 1286S.02I
Bill No. SB 138
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FISCAL ANALYSIS
ASSUMPTION
Sections 143.011 - 143.021 - Individual Income Tax Rate Changes
Officials from the Department of Revenue (DOR) note this proposal implements immediate
changes to the individual income tax rate and creates optional reductions to the individual
income tax rate should a constitutional amendment pass in the future.
It should be noted that SB 3 adopted in 2022, set the current individual income tax rate top
bracket at 4.95% in TY 2023 and set it at 4.8% in TY 2024 and based on certain revenue triggers
allows the tax rate to continue to fall 0.1% until it hits 4.5%. The tax rate for tax year 2025 is
4.7%. Based on the current revenue forecasts and for fiscal note purposes only, DOR shows the
final two SB 3 rate reductions occurring in tax year 2028 (4.6%) and 2029 (4.5%).
Required Reductions
FLAT Tax Rate Reduction
Starting January 1, 2026, this proposal would eliminate the current individual income tax
brackets with its graduated tax rates and replace it with a flat 4% tax on all income over $1,000
per Section 143.021.3.
It should be noted, this proposal is removing the current SB 3 reductions effective August 28,
2025, with the passage of this proposal. That would in essence change the individual income tax
rate to 4.95% for the rest of tax year 2025 starting August 28, 2025, from its current rate of 4.7%.
DOR notes that income is generally earned equally throughout a year and will reflect 33.33% of
income (4 out of 12 months) as earned during the higher tax rate period, for this fiscal note.
The newly proposed tax bracket and future rate would be: L.R. No. 1286S.02I
Bill No. SB 138
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Table 1: Proposed Tax RatesTax
YearCurrentProposed Rate
2025*4.7%
4.7% - Current Law (1/2025 -
8/2025)
4.95% - Proposal (9/2025 -
12/2025)
20264.7%4.0%20274.7%4.0%20284.6%4.0%20294.5%4.0%20304.5%4.0%*The repeal of 143.011.3 would become effective
8/28/2025. While the new language would not begin until
1/1/2026.
Additionally, this proposal removes the individual and corporate federal income tax deduction in
Section 143.171. DOR will account for the corporate federal income tax cut separately but will
include in the rate change calculations the individual federal income tax deduction repeal.
The Department used its internal Income Tax Model that contains confidential taxpayer data for
tax year 2022 data (the most complete data available) to estimate the fiscal impact of the change
to a flat tax from the current graduated brackets and the individual federal income tax deduction
repeal.
Required Flat Tax by Tax Year
Tax YearImpact to GR2025$108,838,557 2026($665,244,206)2027($655,417,424)2028($521,088,687)2029($381,995,306)
Since this proposal would change the individual income tax rate in the middle of the first year,
DOR assumes many filers would be unable to adjust their withholdings and therefore DOR is
showing the full impact of tax year 2025, in FY 26. For all other years since the change begins
each January, taxpayers would be able to adjust their withholding. Based on DOR’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, DOR would expect to see a loss to
general revenue per fiscal year as follows:
Required Flat Tax by Fiscal Year L.R. No. 1286S.02I
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Fiscal
YearLoss to GR
2026($170,563,988)2027($661,116,957)2028($598,999,354)2029($462,669,467)2030($381,995,306)
Eliminate the Federal Income Tax Deduction for Corporations
Starting January 1, 2026, this proposal in Section 143.171, will eliminate the federal income tax
deduction for corporations and individuals. DOR removed the individual deduction when
calculating the new rate above. DOR used their internal confidential database to run the amount
of revenue gained from corporations which is estimated at $91,658,598 annually.
Summary of Required Reductions
These mandatory changes to the individual income tax and corporate tax will result in the
following impact:
Fiscal YearIndividual Income TaxCorporate - Fed Tax
Deduction
Total GR Impact2026($170,563,988)$0 ($170,563,988)2027($661,116,957)$91,658,598 ($569,458,360)2028($598,999,354)$91,658,598 ($507,340,757)2029($462,669,467)$91,658,598 ($371,010,869)2030($381,995,306)$91,658,598 ($290,336,708)
DOR notes that this proposal’s flat tax and federal income tax rate changes will require the MO-
1040 (individual return) and the MO 1120 (corporate return) to be changed annually. The tax
year 2025 changes will require changing the forms twice in that year. It is estimated to cost
$19,054 annually for the computer programming ($14,654), the forms and website changes
($4,400). Tax year 2025 will cost $38,108 ($19,054 * 2) for the extra set of changes.
Additional Reductions based on Constitutional Amendment
This proposal also has language allowing for additional reductions of the individual income tax
rates. If a constitutional amendment passes authorizing the creation of a Tax Reform Fund, then
this proposal beginning with tax year 2027, would allow the 4% flat tax rate to decrease further.
This proposal notes the constitutional amendment would go to the voters on November 3, 2026,
and would not become certified until December 3, 2026, if adopted. DOR assumes it would go
into effect on January 1, 2027.
It should be noted that in section 143.011.3(2) this proposal requires DOR to adjust the
appropriate tax rates by rule and to post on the department’s website. DOR just posts the current L.R. No. 1286S.02I
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rates on the department’s website. Should it be determined that DOR is required to adjust the
rates by the rule process, it will delay the implementation of each of these decreases by one year.
The state’s current rulemaking process takes a minimum of six months for a rule to be effective.
This proposal says these additional rate reductions will occur only if the amount of net general
revenue collected in the previous fiscal year meets the trigger threshold of $1 million and the tax
reform fund has a balance of $120 million. Once this happens, a one tenth of one percent
reduction can take place for the balance of the fund being $120 million. And for every additional
$60 million in the fund another one twentieth reduction can occur.
DOR for fiscal note purposes will assume only 1 reduction would occur at a time. The optional
reductions would lead to these potential rates.
Table 5: Proposed Tax Rates
Tax Year
Current
LawProposed RateTax Year
Current
Law
Proposed
Rate
2025*4.7%
4.7% - Current Law (1/2025 -
8/2025)
4.95% - Proposal (9/2025 -
12/2025)TY 20x174.5%2.0%
20264.7%4.0%TY 20x184.5%1.9%20274.7%4.0%TY 20x194.5%1.8%20284.6%3.9%TY 20x204.5%1.7%20294.5%3.8%TY 20x214.5%1.6%20304.5%3.7%TY 20x224.5%1.5%TY 20x14.5%3.6%TY 20x234.5%1.4%TY 20x24.5%3.5%TY 20x244.5%1.3%TY 20x34.5%3.4%TY 20x254.5%1.2%TY 20x44.5%3.3%TY 20x264.5%1.1%TY 20x54.5%3.2%TY 20x274.5%1.0%TY 20x64.5%3.1%TY 20x284.5%0.9%TY 20x74.5%3.0%TY 20x294.5%0.8%TY 20x84.5%2.9%TY 20x304.5%0.7%TY 20x94.5%2.8%TY 20x314.5%0.6%TY 20x104.5%2.7%TY 20x324.5%0.5%TY 20x114.5%2.6%TY 20x334.5%0.4%TY 20x124.5%2.5%TY 20x344.5%0.3%TY 20x134.5%2.4%TY 20x354.5%0.2%TY 20x144.5%2.3%TY 20x364.5%0.1%TY 20x154.5%2.2%TY 20x374.5%0.0%TY 20x164.5%2.1% L.R. No. 1286S.02I
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*The repeal of 143.011.3 would become effective 8/28/2025. While the new language would
not begin until 1/1/2026.
*If voter approved in November 2026, this proposal could begin reducing rates as early as tax
year 2028.
*For simplicity, B&P will show only one 0.1% reduction per year. Actual implementation
could be much faster (or slower) than what is shown above.
The Department used its internal Income Tax Model that contains confidential taxpayer data to
calculate the fiscal impact of these additional triggered changes. The new impact would be:
Tax YearAmount Tax YearAmount2025$108,838,578 TY 20x17($3,257,459,906)2026($665,244,206) TY 20x18($3,397,707,522)2027($655,417,424) TY 20x19($3,537,562,690)2028($674,278,653) TY 20x20($3,677,195,861)2029($688,363,859) TY 20x21($3,818,343,175)2030($829,480,489) TY 20x22($3,956,530,463)TY 20x1($975,449,749) TY 20x23($4,098,937,068)TY 20x2($1,118,403,020) TY 20x24($4,236,096,213)TY 20x3($1,263,364,625) TY 20x25($4,372,517,918)TY 20x4($1,405,438,424) TY 20x26($4,515,590,066)TY 20x5($1,549,850,452) TY 20x27($4,653,072,710)TY 20x6($1,693,795,463) TY 20x28($4,789,987,909)TY 20x7($1,836,967,222) TY 20x29($4,926,083,705)TY 20x8($1,977,369,648) TY 20x30($5,066,309,969)TY 20x9($2,122,382,506) TY 20x31($5,200,910,625)TY 20x10($2,264,249,646) TY 20x32($5,337,098,499)TY 20x11($2,405,927,105) TY 20x33($5,476,810,371)TY 20x12($2,549,514,840) TY 20x34($5,608,640,119)TY 20x13($2,692,632,178) TY 20x35($5,741,579,063)TY 20x14($2,832,572,128) TY 20x36($5,875,243,067)TY 20x15($2,974,766,033) TY 20x37($8,515,185,571)TY 20x16($3,118,710,572)
Using a split to convert tax years would result in a fiscal year impact: L.R. No. 1286S.02I
Bill No. SB 138
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Fiscal YearLoss to GR
Fiscal
YearLoss to GR
2026($170,563,988) TY 20x18($3,316,363,905)2027($661,116,957) TY 20x19($3,456,446,693)2028($663,339,140) TY 20x20($3,596,208,622)2029($680,194,439) TY 20x21($3,736,477,733)2030($747,632,843) TY 20x22($3,876,381,836)TY 20x1($890,787,578) TY 20x23($4,016,341,237)TY 20x2($1,035,490,123) TY 20x24($4,156,543,909)TY 20x3($1,179,286,894) TY 20x25($4,293,393,329)TY 20x4($1,323,035,621) TY 20x26($4,432,608,221)TY 20x5($1,466,091,476) TY 20x27($4,573,332,777)TY 20x6($1,610,307,357) TY 20x28($4,710,577,093)TY 20x7($1,753,927,602) TY 20x29($4,847,148,143)TY 20x8($1,895,936,241) TY 20x30($4,984,978,736)TY 20x9($2,038,275,049) TY 20x31($5,122,842,245)TY 20x10($2,181,966,705) TY 20x32($5,258,109,532)TY 20x11($2,323,754,179) TY 20x33($5,395,777,486)TY 20x12($2,466,233,954) TY 20x34($5,532,178,866)TY 20x13($2,609,624,122) TY 20x35($5,664,474,476)TY 20x14($2,751,406,957) TY 20x36($5,797,717,944)TY 20x15($2,892,293,568) TY 20x37($6,984,018,919)TY 20x16($3,035,222,740) TY 20x38($8,515,185,571)TY 20x17($3,176,985,292)
SUMMARY
If the constitutional amendment is adopted, this proposal will result in the following loss to the
state of the required flat tax amount up to the optional rate reduction language.
Fiscal
Year
Individual
Income
Corporate
Fed Tax
DeductionTotal GR Impact
Fiscal
Year
Individual
Income
Corporate
Fed Tax
DeductionTotal GR Impact
2026($170,563,988)$0 ($170,563,988)
TY
20x18($3,316,363,905)$91,658,598 ($3,224,705,307)2027($661,116,957)$91,658,598 ($569,458,359)
TY
20x19($3,456,446,693)$91,658,598 ($3,364,788,095)2028($663,339,140)$91,658,598 ($571,680,542)
TY
20x20($3,596,208,622)$91,658,598 ($3,504,550,024)2029($680,194,439)$91,658,598 ($588,535,841)
TY
20x21($3,736,477,733)$91,658,598 ($3,644,819,135)2030($747,632,843)$91,658,598 ($655,974,245)
TY
20x22($3,876,381,836)$91,658,598 ($3,784,723,238)TY 20x1($890,787,578)$91,658,598 ($799,128,980)
TY
20x23($4,016,341,237)$91,658,598 ($3,924,682,639) L.R. No. 1286S.02I
Bill No. SB 138
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Officials from the Office of Administration - Budget and Planning (B&P) note this proposal
makes the following changes to individual and corporate income tax:
Tax year 2025
between August 28, 2025 through December 31, 2025.
Tax year 2026+
Tax Year 2027+
approval of a tax reform fund.
TY 20x2($1,035,490,123)$91,658,598 ($943,831,525)
TY
20x24($4,156,543,909)$91,658,598 ($4,064,885,311)TY 20x3($1,179,286,894)$91,658,598 ($1,087,628,296)
TY
20x25($4,293,393,329)$91,658,598 ($4,201,734,731)TY 20x4($1,323,035,621)$91,658,598 ($1,231,377,023)
TY
20x26($4,432,608,221)$91,658,598 ($4,340,949,623)TY 20x5($1,466,091,476)$91,658,598 ($1,374,432,878)
TY
20x27($4,573,332,777)$91,658,598 ($4,481,674,179)TY 20x6($1,610,307,357)$91,658,598 ($1,518,648,759)
TY
20x28($4,710,577,093)$91,658,598 ($4,618,918,495)TY 20x7($1,753,927,602)$91,658,598 ($1,662,269,004)
TY
20x29($4,847,148,143)$91,658,598 ($4,755,489,545)TY 20x8($1,895,936,241)$91,658,598 ($1,804,277,643)
TY
20x30($4,984,978,736)$91,658,598 ($4,893,320,138)TY 20x9($2,038,275,049)$91,658,598 ($1,946,616,451)
TY
20x31($5,122,842,245)$91,658,598 ($5,031,183,647)
TY
20x10($2,181,966,705)$91,658,598 ($2,090,308,107)
TY
20x32($5,258,109,532)$91,658,598 ($5,166,450,934)
TY
20x11($2,323,754,179)$91,658,598 ($2,232,095,581)
TY
20x33($5,395,777,486)$91,658,598 ($5,304,118,888)
TY
20x12($2,466,233,954)$91,658,598 ($2,374,575,356)
TY
20x34($5,532,178,866)$91,658,598 ($5,440,520,268)
TY
20x13($2,609,624,122)$91,658,598 ($2,517,965,524)
TY
20x35($5,664,474,476)$91,658,598 ($5,572,815,878)
TY
20x14($2,751,406,957)$91,658,598 ($2,659,748,359)
TY
20x36($5,797,717,944)$91,658,598 ($5,706,059,346)
TY
20x15($2,892,293,568)$91,658,598 ($2,800,634,970)
TY
20x37($6,984,018,919)$91,658,598 ($6,892,360,321)
TY
20x16($3,035,222,740)$91,658,598 ($2,943,564,142)
TY
20x38($8,515,185,571)$91,658,598 ($8,423,526,973)
TY
20x17($3,176,985,292)$91,658,598 ($3,085,326,694) L.R. No. 1286S.02I
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For the purpose of this fiscal note, B&P will separate the potential impact as mandatory
(regardless of any constitutional amendment) and contingent (with the constitutional
amendment).
Mandatory Changes – Individual and Corporate Income Taxes
Sections 143.011, 143.021, and 143.171- Individual Income Tax Reduction
Section 143.011 would create a flat tax of 4.0%, starting with tax year 2026. B&P notes that
section 143.011.3 is deleted on the effective date of the bill (August 28, 2025), but the
replacement language would not become effective until January 1, 2026. Section 131.011.3
contains the additional rate reductions created under SB 3 (2022). The first three of which
(reducing the top rate to 4.7% for tax year 2025) have been triggered and implemented.
Based on previous court precedent, income earned between January 1, 2025 and August 28, 2025
would be taxed at the current 4.7% rate, while income earned between August 28, 2025 and
December 31, 2025 would be taxed at a top rate of 4.95%. For the purpose of this fiscal note,
B&P will assume that income is generally earned equally throughout a year and will reflect
33.33% of income (4 out of 12 months) as earned during the higher tax rate period.
Section 143.021 would prohibit the individual income tax on taxable income up to $1,000. B&P
notes that currently (tax year 2025), there is no individual income tax levied on incomes below
$1,313. B&P further notes that under current law, this amount is adjusted annually for inflation.
This proposal would reset the exemption at $1,000 and stop the annual inflation adjustment.
Section 143.171 would end the federal income tax deduction for both corporate and individual
income tax, starting with tax year 2026. B&P will only include the impact for individual income
under this section, please see the discussion for corporations for the estimated impact from
eliminating the corporation federal income tax deduction.
Impact
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%). Table 1 shows the estimated tax rates throughout the implementation of this proposal. L.R. No. 1286S.02I
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Table 1: Proposed Tax RatesTax
YearCurrentProposed Rate
2025*4.7%
4.7% - Current Law (1/2025 -
8/2025)
4.95% - Proposal (9/2025 -
12/2025)
20264.7%4.0%20274.7%4.0%20284.6%4.0%20294.5%4.0%20304.5%4.0%*The repeal of 143.011.3 would become effective
8/28/2025. While the new language would not begin until
1/1/2026.
Using tax year 2022 data, the most recent complete tax year available, and accounting for the
changes in individual income tax law created by SB 3 (2022), B&P estimates that this provision
could increase GR by $109,121,164 for tax year 2025. Once SB 3 (2022) would have been fully
implemented, this proposal could reduce GR by $388,616,096 annually. Table 2 shows the
estimated impact by tax year.
Table 2: Individual Income
Estimated Impact by Tax
Year
Tax YearGR Impact2025$109,121,164 2026($672,532,002)2027($662,706,846)2028($528,038,911)2029($388,616,096)
However, because this proposal would take effect January 1
st
of a tax year, individuals will
adjust their withholdings and declarations during FY1. 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. (B&P notes this applies to tax year 2026+ changes.)
B&P notes that the change in section 143.011.3 would take effect the last four months of the tax
year, and within FY26. Therefore, B&P will reflect the full impact from tax year 2025 as
occurring during FY26. L.R. No. 1286S.02I
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Therefore, B&P estimates that this provision could reduce GR by $173,342,277 in FY26. Once
SB 3 (2022) would have been fully implemented, this proposal could reduce GR by
$388,616,096 annually. Table 3 shows the estimated impact from this section by fiscal year.
Table 3: Individual Income
Estimated Impact by Fiscal
Year
Fiscal
Year
GR Impact
2026($173,342,277)2027($668,405,437)2028($606,146,313)2029($469,481,328)2030($388,616,096)
Section 143.071 – Corporate Federal Income Tax Deduction
This proposal would end the federal income tax deduction for both corporate and individual
income tax, starting with tax year 2026. B&P will only include the impact for corporate income
under this section, please see the discussion for individuals for the estimated impact from
eliminating the individual federal income tax deduction.
Using tax year 2022 data, the most recent complete year available, B&P notes that corporations
claimed $143.15 billion in federal income taxes paid. B&P further notes that based on the
percentage of total taxable income versus Missouri source income, approximately 1.7% of that
federal income tax would be apportioned to Missouri. Therefore, B&P estimates that of the
$143.15 billion in federal taxes, approximately $2.29 billion was related to Missouri source
income.
B&P notes that the federal income tax deduction is granted when corporations file their annual
tax returns. For the purpose of this fiscal note, B&P will assume that corporations file their
annual returns the fiscal year after the end of the calendar year (i.e. annual returns filed during
FY27 for tax year 2026).
Therefore, B&P estimates that this provision could increase TSR and GR by $91,658,598
($2,291,464,939 x 4.0%) annually beginning in FY27.
Mandatory – Summary
Based on the above information, B&P estimates that this proposal may reduce TSR and GR by
$173,342,277 in FY26. Once fully implemented, this proposal may reduce TSR and GR by
$296,957,498 annually. Table 4 shows the summary of impacts. L.R. No. 1286S.02I
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Table 4: Summary Impact - General Revenue
Fiscal
Year
Individual
Income Tax
Corporate -
Fed Tax
Deduction
Total GR
Impact
2026($173,342,277)$0 ($173,342,277)2027($668,405,437)$91,658,598 ($576,746,839)2028($606,146,313)$91,658,598 ($514,487,716)2029($469,481,328)$91,658,598 ($377,822,731)2030($388,616,096)$91,658,598 ($296,957,498)
Contingent Changes – Individual Income Tax
B&P notes that all impacts estimated below are in addition to the impacts estimated above under
“mandatory”.
Sections 143.011 - Individual Income Tax Reduction
Section 143.011.4 would reduce the tax rate, dependent upon certain thresholds, until the
individual income tax is phased-out. Reductions to the tax rate will only occur if a qualifying
constitutional amendment is voter approved.
The individual income tax rate will be reduced when net general revenue exceeds “anticipated
general fund revenue expenditures” by at least $1 million and the tax reform fund has a balance
of at least $120 million. The tax rate will be reduced by 0.1% for the $120 million balance plus
0.05% for every additional $60 million held in the fund.
B&P notes the following:
voter approval to authorize the creation of the fund. It does not require such
constitutional amendment to define or lay out any other requirements of such fund. If
this fund is voter approved, but never created, B&P assumes that these provisions will
not become effective.
this:
o
funding.
o
general revenue monies.
the balance in the fund could remain at, or above, the $120 million threshold even when
general revenues are declining. L.R. No. 1286S.02I
Bill No. SB 138
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January 9, 2025
KLP:LR:OD
remains at $120 million and actual revenues exceed anticipated expenditures, even when
actual and anticipated revenues are below the previous fiscal year. This proposal does
not require actual general revenue growth to trigger a rate reduction.
For the purpose of this fiscal note, B&P will show each 0.1% reduction to the tax rate
individually. However, it is possible that the fund balance could be high enough to trigger
additional 0.05% reduction(s) in the same year.
B&P notes that while this proposal indicates that the reductions could begin in tax year 2027, the
tax reform fund would not be approved until November 2026 at the earliest. If approved, FY27
would be the first year that could be used to determine whether a reduction should occur.
Therefore, the earliest this provision could be triggered is tax year 2028. Table 5 Table 5 shows
the estimated individual income tax rates.
Table 5: Proposed Tax Rates
Tax Year
Current
LawProposed RateTax Year
Curre
nt
Law
Proposed
Rate
2025*4.7%
4.7% - Current Law (1/2025 -
8/2025)
4.95% - Proposal (9/2025 -
12/2025)TY 20x174.5%2.0%
20264.7%4.0%TY 20x184.5%1.9%20274.7%4.0%TY 20x194.5%1.8%20284.6%3.9%TY 20x204.5%1.7%20294.5%3.8%TY 20x214.5%1.6%20304.5%3.7%TY 20x224.5%1.5%TY 20x14.5%3.6%TY 20x234.5%1.4%TY 20x24.5%3.5%TY 20x244.5%1.3%TY 20x34.5%3.4%TY 20x254.5%1.2%TY 20x44.5%3.3%TY 20x264.5%1.1%TY 20x54.5%3.2%TY 20x274.5%1.0%TY 20x64.5%3.1%TY 20x284.5%0.9%TY 20x74.5%3.0%TY 20x294.5%0.8%TY 20x84.5%2.9%TY 20x304.5%0.7%TY 20x94.5%2.8%TY 20x314.5%0.6%TY 20x104.5%2.7%TY 20x324.5%0.5%TY 20x114.5%2.6%TY 20x334.5%0.4%TY 20x124.5%2.5%TY 20x344.5%0.3%TY 20x134.5%2.4%TY 20x354.5%0.2% L.R. No. 1286S.02I
Bill No. SB 138
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TY 20x144.5%2.3%TY 20x364.5%0.1%TY 20x154.5%2.2%TY 20x374.5%0.0%TY 20x164.5%2.1%*The repeal of 143.011.3 would become effective 8/28/2025. While the new language
would not begin until 1/1/2026.
*If voter approved in November 2026, this proposal could begin reducing rates as early as
tax year 2028.
*For simplicity, B&P will show only one 0.1% reduction per year. Actual implementation
could be much faster (or slower) than what is shown above.
Using tax year 2022 data, the most recent complete tax year available, and accounting for the
changes in individual income tax law created by SB 3 (2022), B&P estimates that this provision
could decrease GR by $681,443,223 for tax year 2028, if a 0.1% rate reduction is triggered.
Once fully implemented, this proposal could reduce GR by $8,515,185,571 annually. Table 6
shows the estimated impact by tax year.
Table 6: Individual Income Estimated Impact by Tax YearTax YearGR Impact Tax YearGR Impact2025$109,121,164 TY 20x17($3,268,369,008)2026($672,532,002)TY 20x18($3,408,762,319)2027($662,706,846)TY 20x19($3,548,803,083)2028($681,443,223)TY 20x20($3,688,600,977)2029($695,406,425)TY 20x21($3,829,890,698)2030($836,708,715)TY 20x22($3,968,267,717)TY 20x1($982,913,961)TY 20x23($4,110,857,128)TY 20x2($1,126,130,095)TY 20x24($4,248,155,633)TY 20x3($1,271,340,030)TY 20x25($4,384,712,893)TY 20x4($1,413,646,008)TY 20x26($4,527,905,489)TY 20x5($1,558,274,392)TY 20x27($4,665,494,128)TY 20x6($1,702,452,839)TY 20x28($4,802,502,259)TY 20x7($1,845,897,880)TY 20x29($4,938,716,231)TY 20x8($1,986,503,800)TY 20x30($5,079,070,310)TY 20x9($2,131,708,226)TY 20x31($5,213,809,794)TY 20x10($2,273,770,589)TY 20x32($5,350,147,463)TY 20x11($2,415,658,139)TY 20x33($5,490,115,354)TY 20x12($2,559,465,291)TY 20x34($5,622,181,657)TY 20x13($2,702,787,652)TY 20x35($5,755,428,028)TY 20x14($2,842,906,367)TY 20x36($5,889,462,790)TY 20x15($2,985,277,709)TY 20x37($8,515,185,571)TY 20x16($3,129,442,367) L.R. No. 1286S.02I
Bill No. SB 138
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January 9, 2025
KLP:LR:OD
However, because this proposal would take effect January 1
st
of a tax year, individuals will
adjust their withholdings and declarations during FY1. 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 provision could reduce GR by $668,405,437 in FY28, if a
0.1% rate reduction is triggered for tax year 2028. Once SB fully implemented, this proposal
could reduce GR by $8,515,185,571 annually. Table 7 shows the estimated impact from this
section by fiscal year.
Table 7: Individual Income Estimated Impact by Fiscal Year
Fiscal
Year
GR Impact
Fiscal
Year
GR Impact2026($173,342,277)FY 20x18($3,327,334,198)
2027($668,405,437)FY 20x19($3,467,579,440)2028($670,576,124)FY 20x20($3,607,518,198)2029($687,307,768)FY 20x21($3,747,942,660)2030($754,753,387)FY 20x22($3,888,009,046)FY 20x1($898,114,918)FY 20x23($4,028,155,270)FY 20x2($1,043,064,737)FY 20x24($4,168,522,500)FY 20x3($1,187,118,268)FY 20x25($4,305,509,682)FY 20x4($1,331,108,541)FY 20x26($4,444,853,783)FY 20x5($1,474,389,929)FY 20x27($4,585,692,717)FY 20x6($1,618,829,340)FY 20x28($4,723,037,543)FY 20x7($1,762,699,756)FY 20x29($4,859,712,128)FY 20x8($1,904,952,366)FY 20x30($4,997,664,944)FY 20x9($2,047,489,659)FY 20x31($5,135,660,893)FY
20x10($2,191,374,419)FY 20x32($5,271,071,615)
FY
20x11($2,333,363,360)FY 20x33($5,408,933,977)
FY
20x12($2,476,057,143)FY 20x34($5,545,583,201)
FY
20x13($2,619,660,683)FY 20x35($5,678,145,133)
FY
20x14($2,761,637,513)FY 20x36($5,811,722,628)
FY
20x15($2,902,702,331)FY 20x37($6,992,266,358) L.R. No. 1286S.02I
Bill No. SB 138
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January 9, 2025
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FY
20x16($3,045,826,865)FY 20x38($8,515,185,571)
FY
20x17($3,187,791,556)
Contingent – Summary
Adding in the mandatory elimination of the corporate federal tax deduction (B&P notes the
individual elimination is already included within the individual income tax estimates), B&P
estimates that this proposal could reduce TSR and GR by $576,746,839 in FY28, if a 0.1%
reduction is triggered. Once fully implemented, this proposal could reduce TSR and GR by
$8,423,526,973 annually. Table 8 shows the summary of impacts.
Fiscal Year
Individual
Income Tax
Corporate -
Fed Tax
Deduction
Total GR Impact
2026($173,342,277)$0 ($173,342,277)2027($668,405,437)$91,658,598 ($576,746,839)2028($670,576,124)$91,658,598 ($578,917,527)2029($687,307,768)$91,658,598 ($595,649,170)2030($754,753,387)$91,658,598 ($663,094,789)FY 20x1($898,114,918)$91,658,598 ($806,456,321)FY 20x2($1,043,064,737)$91,658,598 ($951,406,140)FY 20x3($1,187,118,268)$91,658,598 ($1,095,459,670)FY 20x4($1,331,108,541)$91,658,598 ($1,239,449,943)FY 20x5($1,474,389,929)$91,658,598 ($1,382,731,332)FY 20x6($1,618,829,340)$91,658,598 ($1,527,170,742)FY 20x7($1,762,699,756)$91,658,598 ($1,671,041,159)FY 20x8($1,904,952,366)$91,658,598 ($1,813,293,768)FY 20x9($2,047,489,659)$91,658,598 ($1,955,831,061)FY 20x10($2,191,374,419)$91,658,598 ($2,099,715,821)FY 20x11($2,333,363,360)$91,658,598 ($2,241,704,763)FY 20x12($2,476,057,143)$91,658,598 ($2,384,398,545)FY 20x13($2,619,660,683)$91,658,598 ($2,528,002,085)FY 20x14($2,761,637,513)$91,658,598 ($2,669,978,915)FY 20x15($2,902,702,331)$91,658,598 ($2,811,043,733)FY 20x16($3,045,826,865)$91,658,598 ($2,954,168,268)FY 20x17($3,187,791,556)$91,658,598 ($3,096,132,959)FY 20x18($3,327,334,198)$91,658,598 ($3,235,675,601) L.R. No. 1286S.02I
Bill No. SB 138
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FY 20x19($3,467,579,440)$91,658,598 ($3,375,920,842)FY 20x20($3,607,518,198)$91,658,598 ($3,515,859,601)FY 20x21($3,747,942,660)$91,658,598 ($3,656,284,062)FY 20x22($3,888,009,046)$91,658,598 ($3,796,350,449)FY 20x23($4,028,155,270)$91,658,598 ($3,936,496,672)FY 20x24($4,168,522,500)$91,658,598 ($4,076,863,902)FY 20x25($4,305,509,682)$91,658,598 ($4,213,851,085)FY 20x26($4,444,853,783)$91,658,598 ($4,353,195,186)FY 20x27($4,585,692,717)$91,658,598 ($4,494,034,120)FY 20x28($4,723,037,543)$91,658,598 ($4,631,378,945)FY 20x29($4,859,712,128)$91,658,598 ($4,768,053,530)FY 20x30($4,997,664,944)$91,658,598 ($4,906,006,347)FY 20x31($5,135,660,893)$91,658,598 ($5,044,002,296)FY 20x32($5,271,071,615)$91,658,598 ($5,179,413,017)FY 20x33($5,408,933,977)$91,658,598 ($5,317,275,379)FY 20x34($5,545,583,201)$91,658,598 ($5,453,924,604)FY 20x35($5,678,145,133)$91,658,598 ($5,586,486,535)FY 20x36($5,811,722,628)$91,658,598 ($5,720,064,030)FY 20x37($6,992,266,358)$91,658,598 ($6,900,607,760)FY 20x38($8,515,185,571)$91,658,598 ($8,423,526,973)
Oversight notes both DOR and B&P’s estimates include data from DOR and B&P’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 B&P and DOR. For the purpose of this fiscal note, Oversight will utilize DOR’s
estimated impact for this proposal
FISCAL IMPACT –
State Government
FY 2026
(10 Mo.)
FY 2027FY 2028Fully
Implemented
(FY Unknown)
GENERAL
REVENUE FUND
Revenue Loss -
§143.011 - Changes
to Individual Income ($170,563,988)($661,116,957)($598,999,354)($381,995,306) L.R. No. 1286S.02I
Bill No. SB 138
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FISCAL IMPACT –
State Government
FY 2026
(10 Mo.)
FY 2027FY 2028Fully
Implemented
(FY Unknown)
Tax Rate (Flat Rate) -
p. (5)
Revenue Loss -
§143.171 -
Elimination of
Federal Income Tax
Deduction for
Corporations - p. (5)$0$91,658,598$91,658,598$91,658,598
Potential Revenue
Loss - §143.011 -
Additional Individual
Income Tax Rate
Reductions, if
approved by voters
and revenue
dependent triggers are
met - pp. (5-10)$0$0
$0 or
($64,339,786)
$0 or
($8,133,190,265)
Cost - DOR -
§143.011 - Form &
Computer Upgrades($23,818)$0$0$0
ESTIMATED NET
EFFECT ON
GENERAL
REVENUE FUND($170,587,806)($569,458,359)
($507,340,756
to
$571,680,542)
($290,336,708
to
$8,423,526,973)
FISCAL IMPACT
– Local
Government
FY 2026
(10 Mo.)
FY 2027FY 2028Fully
Implemented
(FY Unknown)
$0$0$0 L.R. No. 1286S.02I
Bill No. SB 138
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January 9, 2025
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FISCAL IMPACT – Small Business
Small businesses’ taxation could be impacted by this proposal.
FISCAL DESCRIPTION
Current law imposes a graduated income tax rate and authorizes reductions in the top rate of
income tax contingent on certain state revenue collections, with an eventual top rate of 4.5%.
This act provides that, for all tax years beginning on or after January 1, 2026, there shall be a flat
income tax rate of 4% on all taxable income.
This act also provides for additional reductions in the rate of tax until the income tax is
eliminated, provided that a constitutional amendment authorizing such reductions has been
adopted. The reductions shall be equal to 0.1% when the balance in the Tax Reform Fund
reaches $120 million, with an additional 0.05% reduction for each $60 million in excess of the
$120 million minimum balance. (Section 143.011)
Current law also authorizes an income tax deduction for a portion of federal income taxes paid.
This act eliminates such deduction beginning with the 2026 tax year. (Section 143.171)
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
Office of Administration - Budget and Planning
Department of Revenue
Julie MorffJessica HarrisDirectorAssistant DirectorJanuary 9, 2025January 9, 2025