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Law360 (April 29, 2020, 7:08 PM EDT ) A Missouri House tax-writing committee approved legislation Wednesday designed to ensure that the state won't tax federal relief checks provided to residents in response to the novel coronavirus pandemic, one day after the state Senate took similar action.
The House Ways and Means Committee passed S.B. 676 by a 9-0 vote after adding a provision to the bill that would not factor stimulus payments authorized under the Coronavirus Aid, Relief and Economic Security Act
into a Missouri resident's state tax liability. That provision was similar to an amendment to S.B. 704, approved Tuesday by the Senate, that would also create a state tax carveout for the federal aid.S.B. 676 still needs to pass the full state House of Representatives, and the state Senate would need to concur with the House amendments, before the bill could be sent to Republican Gov. Mike Parson. The state Senate has yet to hold a floor vote on S.B. 704.
Missouri is one of six states with a federal taxes-paid deduction that could result in the relief checks being taxed because the federal payments are structured as refundable tax credits. Missouri's deduction applies to those with $125,000 or less in state gross income and is capped at $5,000, or $10,000 for joint filers. If the relief checks reduce a qualifying taxpayer's federal liability below those thresholds, the taxpayer's state tax liability could increase.
Under the CARES Act, the Internal Revenue Service will send $1,200 to individuals and $2,400 to couples filing joint tax returns, plus $500 for each qualifying child. The payments will be reduced for those with incomes above $75,000, or $150,000 for couples, and they will be eliminated for those with incomes of more than $99,000, or $198,000 for couples.
The more recent state bill's sponsor, Sen. Tony Luetkemeyer, R-Parkville, who also offered the Tuesday amendment to S.B. 704, asked the committee to consider inserting the federal payment exemption into the underlying bill that would alter deadlines for property tax assessments and appeals.
Technically, the committee added the CARES Act relief and other elements into S.B. 676 through a substitute bill that also incorporated other provisions from S.B. 704, including the Multistate Tax Commission's model partnership audit statute that accounts for changes in federal partnership rules.
During the committee hearing, Rep. Phil Christofanelli, R-St. Peters, said the revised bill's partnership provisions would allow the state to "automatically capture" a partnership's tax liability that changes after an IRS audit instead of requiring each partner to file an amended return.
It is uncertain when either chamber might vote on the bills that would exclude the CARES Act payments from state tax. The General Assembly is expected to finalize its budget in the coming days, and lawmakers have said they expect to keep nonbudget items to a minimum. However, ensuring that the state won't tax the federal relief checks has bipartisan support in the General Assembly, and the governor backs the proposal.
"In this time of great economic uncertainty, Missouri citizens should not have to worry about their stimulus checks being taxed by the government," Parson said in a statement to Law360 on Wednesday.
Luetkemeyer said on the Senate floor Tuesday that the state Department of Revenue had estimated that some residents could pay up to $56 in state income taxes on their federal stimulus payments if lawmakers don't exempt the checks from tax.
"People are struggling right now, and these federal checks are a lifeline," Luetkemeyer said in a statement Tuesday after the Senate added the amendment to S.B. 704. "I don't think government should be making money off of these checks just because of a quirk in Missouri's tax code. That money should go directly into people's pockets."
Luetkemeyer did not respond to a request for comment Wednesday.
A department representative did not respond to Law360's request for a fiscal note on the proposal.
--Additional reporting by Stephen Cooper. Editing by Neil Cohen.
For a reprint of this article, please contact reprints@law360.com.
