Consider, for a moment, this hypothetical situation: You’re standing in front of your home, when your boss pulls up in a brand new sports car. He gets out and tells you that this new, shiny vehicle is yours, compensation for all your hard work. But, he says, there’s a catch. The car must remain parked outside your house, but you can’t drive, touch or use it. In addition, you have to pay property taxes on the car, which, once again, you’re never allowed to actually drive.

It’s an outrageous, ridiculous scenario, yet something just like this plays out every year as millions of Missourians file their state income taxes.

In 1992, the General Assembly passed Senate Bill 380, which, among other provisions, created the federal income tax deduction for Missouri income taxes. Under the bill, individuals could deduct up to $5,000, and couples up to $10,000, of what they paid in federal income taxes. The insidious part of this measure, though, was what was unspecified.

If an individual pays more than $5,000 in federal taxes, everything above that cap is considered taxable income, even though it’s money that was paid to the federal government. For example, if you paid $6,000 in federal income taxes, you can deduct up to $5,000 of it, which means Missouri won’t try to tax you on that money. What about that remaining $1,000, though? Well, it’s taxed as income by the state, regardless of the fact that you never even saw that money.

This is obviously not fair. Our tax policy has become so oppressive, we’re literally taxing people’s taxes. From a tax fairness standpoint, I believe this is ridiculous.  

That is why I filed Senate Bill 407, a simple bill that rights this inherent unfairness in our current tax system. The legislation makes all of an individual’s federal income tax liability deductible on their state taxes, removing the hidden tax imposed on our citizens. The bill was heard in the Ways and Means Committee last week and awaits a vote to go to the Senate floor for possible debate.

I also sponsored legislation this year to fix a part of our tax code that acts as a disincentive for Missouri businesses to produce and manufacture goods in state. There are currently two formulas the Department of Revenue uses to determine how much a business’s income is taxable and the rate and competitiveness of the tax. The first is the three-factor formula, which figures this amount based on a business’s sales, property and payroll.

The other is known as the single-factor formula, and is based solely on sales. Under the formula, 100 percent of intrastate sales and 50 percent of interstate sales are combined. However, this method penalizes businesses for producing goods in Missouri but sold out of state. Businesses that use the single-factor formula are taxed on 50 percent of the goods made in Missouri, but sold out of state. This is a huge deterrent to distributing goods outside of Missouri, which is a critical part of expanding one’s business.

Senate Bill 461 creates a third formula based solely on a business’s intrastate sales, also known as a pure single sales apportionment factor. By giving Missouri companies this option, we create an economic development incentive for companies to invest in Missouri property or to hire more employees to sell products outside of the state. To be clear, the bill still allows companies to have their taxable income figured using the first two formulas. My bill simply creates a third option that doesn’t penalize companies for producing goods here in Missouri and selling them out of state.

Contact Me

I always appreciate hearing your comments, opinions, and concerns. Please feel free to contact me in Jefferson City at (573) 751-2459. You may write me at Wayne Wallingford; Missouri Senate; State Capitol; Jefferson City, Mo. 65101, or email at wayne.wallingford@senate.mo.gov or www.senate.mo.gov/wallingford.

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