MO Considering Replacing Income Tax with Increased Sales Tax

Comments (0) Finance and Money

The Missouri Jobs and Prosperity Act targets removal of corporate and bank franchise taxes, elimination of income tax and greater flexibility for increases in sales tax to make up the difference.

Stalled for the moment, the “…Missouri Jobs and Prosperity Act…phases out the state individual income tax and replaces the corporate income tax, corporation franchise and bank franchise taxes, and state sales and use tax with a sales tax of up to 7% on retail sales of new tangible personal property and taxable services,” according to the Summary of the Committee Version of the Bill.

Adding to an already complex system of sales tax calculation and consideration, Missouri proposes to modify the state sales tax on *new* tangible personal property and taxable services to 4% starting in 2015. This is a reduction from the current 4.225% rate but is intended to gradually increase over the following 4 years.

If you check out the county by county tax rates provided by the state, you will find most counties sales tax rates to be over 5% already, many well over 7% once local and special tax rates are added to the state base tax rate. Calculation of taxes due becomes even more complex when you realize the use tax rates differ from the sales tax rates by more than 2% sometimes.

If the state sales tax rate increases to 7%, some counties could be paying over 10% in sales and use taxes should the state require the increase.

According to both and the bill, the “goal is tax neutrality between old and new tax system” meaning that the shift moves from income tax based government revenue to sales tax based government revenue. To accomodate the shift, the bill states that “the conservation sales tax, the soil and parks sales tax, Proposition C sales tax, and local sales taxes will be recalculated to produce substantially the same amount of revenue.”

Proponents of the bill state “…the bill authorizes a tax on consumption, not prosperity, is revenue-neutral, creates jobs through a business-friendly environment, and lowers the cost of doing business in Missouri.” It also reduces and eliminates income taxes, corporate and bank franchise taxes and taxes on used property.

Opponents argue that this has not been tried anywhere else and could have unintended consequences, such as shifting the tax burden to the poor and middle class and not provide adequate or sustainable revenues for education. They remind the readers of the bill that “The fair tax adds a tax to food, rent, utilities, child care, beauty care, attorney fees, and healthcare.” They also argue that “sales tax is not a consistent source of revenue.”

About the Author: Susan McLain has over 15 years experience in technical and marketing writing, graphic design, business development and marketing management. She currently works for Avalara, Inc., a Software-as-a-Service (SaaS) company providing automated solutions for sales and use tax compliance for businesses of all sizes. The AvaTax family of products provide accurate, to the rooftop sales tax calculation, automated exemption certificate management and seamless filing, reporting and remittance of sales tax liability.

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