Republicans push forward with proposal to replace Missouri income tax with sales tax

By Rudi Keller

Missouri Independent

The proposal to eliminate the state income tax is moving to the Missouri House floor following a party-line committee vote Wednesday.

The 7-3 vote on Republican Gov. Mike Kehoe’s top priority followed a heated discussion where Democrats on the House Commerce Committee accused Republicans of steering the state into a fiscally dangerous future.

“You don’t turn an economy around on a dime,” said state Rep. Steve Butz, a St. Louis Democrat. “If there is a mistake made, either by the public or by this legislature — and surely we have enough examples of the legislature making plenty of mistakes — we’re not going to be able to react quickly enough to offset that.”

Republicans, in response, said Missouri is losing out to states like Tennessee and Florida that have no income tax. Eliminating the tax would put each taxpayer in charge of whether they want to spend their money on taxable goods and services or use it elsewhere, they said.

“We can see what’s happened to other states,” said state Rep. Brian Seitz, a Republican from Branson. “It’s affected them in a very positive manner. People are staying. The states are being built and rebuilt. Industries are coming in, and we want to have a piece of that pie.”

As originally filed, the proposed constitutional amendment would ask voters to give lawmakers broad authority to set up a new expanded sales tax system and use the revenue to reduce and then eliminate the state income tax. The committee passed a revised version Wednesday morning that sets revenue growth goals for reducing the top income rate, which is currently 4.7%.

For each additional $20 million in revenue over the base year of fiscal year 2025, the top rate would be cut by 0.01 percentage points, with a cap of a 1.6 percentage point reduction in the top rate in any given year.

To achieve the maximum reduction in a single year, revenue would have to grow by $3.2 billion from the expanded sales tax base.

The tax would be eliminated when those reductions combine to lower the top rate to 1.4%.

Missouri’s personal income tax is almost flat, with the top rate applying to taxable incomes greater than $9,436. There are significant exemptions from the tax, including all Social Security payments, a share of retirement income and capital gains, which are the profits from the sale of property or other assets.

The income tax generated about 65% of the state’s annual general revenue receipts in fiscal year 2025, which were $13.4 billion in the year that ended June 30.

The proposal, if passed by the General Assembly, would go on the ballot in August or November. It would give lawmakers three years to expand the sales tax to “all goods and services” and eliminate exemptions to raise enough revenue to replace the income tax without having to seek another statewide vote.

The current state sales tax is 3% for general revenue, plus 1.225% earmarked for public schools, conservation, state parks and soil conservation. Local option sales taxes add to the 4.225% total, and there are more than 50 locations in the state where the total sales tax is 11% or higher.

Matching the current revenue from the individual income tax without expanding the transactions that are taxed would require raising the state sales tax to nearly 13%.

The proposal would allow sales tax on motor fuel for the first time. It would also exempt revenue from sales tax on fuel from a constitutional provision dedicating all taxes on gasoline and diesel to highway needs.

Missourians will reject the plan, Democrats said during committee debate.

“They’re already worried about the current budget and the cost of living,” state Rep. Pattie Mansur, a Kansas City Democrat. “They’re concerned about essential programs that are being cut now. The building has been full of people the last couple of weeks worrying about this. No one is asking for the elimination of state income tax.”

Republicans responded by saying the proposal will test what voters want and make the legislature conform to that.

“This really does nothing but go to the voters and say, ‘Do you want to change the system and try a new approach’,” said House Speaker Jon Patterson, a Republican from Lee’s Summit who is sponsoring the proposal.

And there are plenty of people, he said, asking to eliminate the income tax.

“A lot of times they ask with their feet,” Patterson said. “They move, they go to different places. They might not ask, but they’ve told us what their answers are.”