Proposal to end corporate income tax receives mixed reviews at Missouri Senate hearing

JEFFERSON CITY — Members of the Senate Ways and Means Committee on Wednesday heard testimony on a bill to end Missouri's corporate income tax.

Sen. Will Kraus, a Lee's Summit Republican who sponsored the bill and chairs the committee, referenced President-elect Donald Trump's remarks about cutting taxes across the board when introducing the bill, which Kraus characterized as an economic development tool.

"I watch a lot of CNBC, and there's a lot of excitement in the business community about that talk," Kraus said. "I think there's also a push to bring more jobs back to the United States. I think this is an opportunity for us to let the people know that Missouri's open for business."

Missouri's corporate income tax revenue has been declining, including a 27 percent drop from $244.9 million in December 2015 to $179.9 million in December 2016. A fiscal note prepared for the bill estimated substantial decreases in net general revenue over the next three fiscal years including a loss of $516 million in fiscal 2020.

Missouri's corporate income tax rate currently is at 6.25 percent. Kraus' plan is to reduce it to 4 percent, then drop it to 2 percent and then eliminate it over three years.

While making his case, Kraus also cited the START-UP NY program in New York, where certain new or expanding businesses that partner with a state college or university can operate without paying taxes for 10 years. According to a New York state website, companies in the restaurant, retail, legal, hospitality and medical industries are typically not eligible for these benefits.

More support came from Ray McCarty, president of Associated Industries of Missouri, a business advocacy group. McCarty said his group's only reservation with eliminating corporate income tax is that the state might later enact a new "hybrid" tax to compensate, such as the commercial activity tax Ohio imposed.

Sen. John Rizzo, a Kansas City Democrat and committee member, asked Kraus about the looming budget difficulties Missouri faces and whether the bill wouldn't make Missouri look more like Kansas, which has suffered from declining revenues in the few years since it enacted sweeping tax reforms. Rizzo acknowledged Kraus' method of phasing out the corporate income tax over three years was better than doing away with the revenue source cold turkey.

"This is a starting point," Kraus responded, adding, "It's not a huge amount of money for us to be able to adjust."

Mike Sutherland, policy director for the independent Missouri Budget Project, said he understood how lower taxes could make Missouri look more appealing to new or relocating businesses. But he pointed out that Missouri's corporate tax rates are already quite low compared to other states. According to the nonpartisan Tax Foundation, Missouri has the fifth-lowest corporate tax rate in the nation.

Otto Fagen, a lobbyist for the Missouri National Education Association, urged the senators on the committee to not move forward with the bill, which he said could "seriously impair" the legislature's ability to fund public schools.

Sen. Bob Dixon, a Springfield Republican and committee member, said the committee's next task would be to "drill down into the facts" and "find out what holds water, what doesn't." Dixon, who chairs the joint committee that oversees fiscal notes, wasn't surprised by Kraus' stated belief that the estimated price tag placed on his bill was too high.

"I certainly don't want to disregard the concern, but it's natural for a member to not like the fiscal note if it's not favorable to the bill," Dixon said.

The committee also heard testimony on a bill, also sponsored by Kraus, that would exempt delivery fees from sales and use tax. A fiscal note prepared for the bill estimates no impact on state general revenue.

Nobody testified against this bill. It was supported by McCarty, Sutherland and others who testified on behalf of restaurant, trucking and retail associates, among others. The restaurant industry, for example, might be affected if the Department of Revenue collected taxes on charges related to catered food deliveries.

More information about the bills, including their full texts, is available online at bit.ly/MoSenate.