By Paul Williams

Law360 (May 8, 2020, 4:39 PM EDT ) A Missouri bill that would prevent the state from taxing federal relief checks provided to residents in response to the novel coronavirus is heading to the governor after the state Senate gave the measure final passage Friday.

S.B. 676 excludes stimulus payments authorized under the Coronavirus Aid, Relief and Economic Security Act from being factored into Missouri residents' federal tax liabilities for state tax purposes. As a result, it is estimated the bill could potentially prevent the state from collecting about $36 million in tax from the federal payments. The bill received unanimous support from the state Senate, which concurred with the House of Representatives' amendments.

The tax exemption for the CARES Act checks had bipartisan support in the General Assembly, as lawmakers saw the measure as a fix to a so-called quirk in the state's tax deduction rules that could have unintentionally subjected the relief payments to state income tax.

Missouri is one of six states with a federal deductibility provision that could result in the relief payments being subject to state income tax. 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 is sending $1,200 to individuals and $2,400 to couples filing joint tax returns, plus $500 for each qualifying child. The payments are reduced for those with incomes above $75,000, or $150,000 for couples, and eliminated for those with incomes of more than $99,000, or $198,000 for couples.

The bill's primary sponsor, Sen. Tony Luetkemeyer, R-Parkville, said in a statement after the vote that the legislation would ensure that state residents can use all of the federal relief to help them weather the economic downturn caused by the virus.

"At a time when Missouri residents are struggling to recover from economic hardships, it's important that they keep every dollar possible," Luetkemeyer said.

The provision to exclude the CARES Act payments from tax was added to the bill on April 29 by the House Ways and Means Committee. The panel made a host of changes to the legislation, including adding provisions from the Multistate Tax Commission's model partnership audit statute that accounts for changes in federal partnership rules.

The bill's partnership provisions would streamline the state's treatment of partnerships by requiring them to report and pay any additional tax due as a result of a federal audit or an amended federal income tax return, according to a summary of the legislation. Partnerships would have 180 days after a final federal determination to pay any additional Missouri tax owed.

Before Friday's final vote, most of the debate on the measure centered on a provision the House removed from the legislation that would have extended the state's sales tax exemption for aviation jet fuel until 2033. The exemption is currently set to expire in 2023, and senators generally agreed to revisit extending the duration of the jet fuel tax break through other bills.

Most of S.B. 676's provisions are similar to those in another Senate bill, S.B. 704, that is currently pending in the House. Among the differences between the measures are provisions in S.B. 704 that would allow a handful of municipalities and districts to hold elections in 2022 asking voters to approve the levying of transient guest taxes and sales taxes.

Republican Gov. Mike Parson previously told Law360 that he supported the concept of ensuring the state wouldn't tax the CARES Act checks. A representative for the governor did not immediately respond to questions asking if he approved of S.B. 676 as a whole.

The bill would also require county assessors to conduct a physical inspection of real estate prior to increasing a property's assessment more than 15%, and would shift the burden of establishing higher property values to assessors, according to Luetkemeyer's statement.

--Additional reporting by Stephen Cooper. Editing by Robert Rudinger.

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