Corporation Income Tax Phaseout Approved by House Committee

HB 1551, a bill to phase-out the corporation income tax filed by Rep. Bryan Stevenson (R-128, Webb City), was approved by the House Special Committee on Tax Reform.

SB 380 in 1993 was the largest tax increase in Missouri’s history. The bill limited the deductibility of federal income taxes and increased the corporation income tax by 25% to 6.25%. This tax increase affects all businesses – large businesses through the increased corporation income tax and the reduction of deductibility of federal income taxes, and small businesses through limitation of the FIT deduction for individuals.

This bill would phase out the corporation income tax 20% per year for 5 years, beginning in tax year 2009 and completely eliminating the tax in tax year 2013. We support eliminating the tax and applaud Representative Stevenson's efforts to improve the business climate in Missouri.

In the hearing on this bill, we offered one word of caution: other states that have eliminated taxes have later re-established similar taxes but circumvented case law and federal protections that have evolved for the former taxes. For example, Ohio is phasing out their franchise tax (similar to our income tax) and instituting a “Commercial Activity Tax” (CAT) in its place. The CAT does not have the long case history of the former franchise tax. It also does not contain federal protections against inappropriate taxation of certain activities (such as P.L. 86-272 that prohibits states from imposing income taxes on activities that are solely solicitation of orders).

We cautioned against the replacement of our current tax with a new tax and support either phasing the tax out completely and not replacing it with another tax, or reducing the rate to a point that makes Missouri more competitive with other states and nations.

The bill will now be eligible for debate by the full House.