(The Center Square) – The $1.9 trillion American Rescue COVID-19 relief bill will deliver more than $5.48 billion in stimulus funds to Missouri, including $2.8 billion for state coffers, $1.2 billion for counties, $1.2 billion for cities and $195 million for capital projects.
But a provision in the American Rescue plan bars states and local governments from using the assistance monies to offset tax cuts or adopt new ones.
Missouri Attorney General Eric Schmitt is one of 21 Republican state attorneys general questioning that provision in a seven-page letter to U.S. Treasury Secretary Janet Yellen.
The prohibition is “unclear,” they write, noting it is “potentially breathtaking” that federal aid cannot be used for tax relief.
Regardless what the determination is, proposed tax cuts included in competing House and Senate bills seeking to require online retailers remit sales taxes will not be affected by the provision, sponsors say.
House Bill 554, sponsored by Rep. John Eggleston, R-Mayville, and Senate Bill 153, filed by Sen. Andrew Koenig, R-Manchester, both include “revenue neutral” components that lower tax rates in tandem with rising revenues from sales taxes on remote purchases.
Before adjourning for spring recess last week – the Legislature re-convenes Monday – the Missouri House passed Eggleston’s HB 554 in a 115-44 vote.
HB 554 would require remote retailers to charge sales tax when people shop online. Only Missouri and Florida have not adjusted tax laws to collect sales taxes from online retailers in the wake of 2018’s South Dakota v. Wayfair Supreme Court ruling.
Eggleston’s bill features a “revenue neutral” component that reduces the top state income tax rate from 5.4 percent to 5.1 percent and then by .1 percent a year and requires the Department of Revenue (DOR) to maintain a taxing jurisdiction database.
Eggleston told the Missouri Independent the tax rate cut will reduce state general revenues by an estimated $44 million in the coming fiscal year that begins July 1.
Overall, however, by levying the state’s 4-percent sales tax on remote purchases, sales tax revenues are projected to grow between $37 million and $58 million while also raising $15 million to $23 million for schools, conservation and state parks.
According to a 2019 estimate by state economists, remitting sales tax on digital purchases could generate $142.5 million for the state and $138.6 million for local governments annually. HB 554’s fiscal note estimates over the first three fiscal years, annual revenues for state operations could range from $22 million to $168 million.
“We are looking at reducing income tax in our state because we are getting Wayfair money,” Eggleston said. “Our bill was filed well before the recovery act.”
Also on March 11, the Senate passed Koenig’s SB 153 in a 28-4 vote. Instead of a high-end income tax cut, SB 153 trims income taxes for lower-income families by establishing a new Missouri Working Family Tax Credit, equal to 10 percent of the federal Earned Income Tax Credit.
The credit would be implemented at the same time as the online tax collections, which under SB 153 would begin Jan. 1, 2023. Under HB 554, it would go into effect Jan. 1, 2022.
SB 153’s fiscal note estimates collecting taxes on digital sales would add $147 million to $255 million to state coffers over the first three fiscal years after passage.
One provision, which changes the due date for monthly sales tax reports, is estimated to reduce state general revenue by $42 million to $48 million by June 30, 2022.
That should not run afoul of the ‘American Rescue’ provision, Koenig told the Missouri Independent, because, “We’re still going to collect the same amount of money.”