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Huge changes to Missouri’s tax system are being debated, ranging from terrible ideas (repeal of the main business tax and replacing the income tax with an enormous sales tax) to excellent (making the state’s tax structure more progressive than it is now).

In bad news, the state Senate has voted to gradually phase out the state’s corporate franchise tax. This is a tax that was established in 1917 and is levied on the greater of either the total assets of a corporation or the value of its paid up capital stock.  Now it’s up to the House of Representatives to see if it will follow suit and eliminate this tax, which in fiscal year 2009 brought in $83 million for the state. In even worse news, the so-called “Fair Tax” continues to move forward. This proposal would eliminate the state’s income tax and replace the revenue with a broader sales tax. The latest news we reported was that the State Auditor couldn’t estimate what the sales tax rate would need to be to make the proposal revenue-neutral.

Despite the lack of such basic information, the legislature approved the various versions of the ballot initiative (which would all basically do the same thing) for the 2012 ballot. Meanwhile, efforts are still underway to enact the “Fair Tax” through the legislature, without a ballot measure.

On a much brighter note, Representative Jeanette Mott Oxford (D-St. Louis) and 23 co-sponsors have filed HB 637, which would modernize the state’s income tax rates and brackets, eliminate the state’s deduction for federal income taxes paid, and introduce a per-person refundable credit.  The bill would make the state’s tax structure more progressive while also providing much needed revenue. This legislation is a bright light in the darkness of Missouri’s tax debate.