JEFFERSON CITY – Missouri legislators took another step in changing the state’s tax policy Monday with two bills that aim to cap and phase out the corporate franchise tax by 2016.
Sen. Eric Schmitt, R-St. Louis County, spoke to his fellow senators about his belief that abolishing the franchise tax would convince businesses to move from states such as Illinois, which has recently raised its tax rates, and encourage corporate investment in Missouri.
“It is my hope that businesses in Illinois will say, ‘You know what, Missouri is a much friendlier place,’ and come here instead,” Schmitt said.
Together, the two bills propose ending the use of the franchise tax by freezing it at its current rate and slowly reducing the tax rate over the next five years. Staff estimate it would cost the state more than $80 million each year once the tax is fully phased out.
Eliminating the franchise tax would take a burden off of businesses, large and small, which currently have to pay the tax on any shares and assets that they own.
The Senate voted 29-3 to give first-round approval to the bills. Two Democratic senators from St. Louis County, Maria Chappell-Nadal and Tim Green, and one from Jackson County, Jolie Justus, voted against the bill.
No legislators spoke directly against the bills, but some concerns were raised about the potential effects of phasing out the franchise tax.
Justus discussed the problems that lost revenue would bring and said she was worried that passing the bills would suspend further discussion of economic development.
“My concern is that once this goes through, we won’t have the discussion about other pillars of economic development,” Justus said.
Fiscal conservatives question a tax cut at the time of a budget crisis, suggesting budget cuts instead.
Chairman of the Ways and Means Committee Chuck Purgason, R-Caulfield, joined Justus and others by stating concerns about cutting taxes while still providing tax relief.
“It’s a noble effort,” Purgason said. “I’m all for cutting taxes, but you can’t cut taxes and raise spending at the same time.”
Schmitt, who introduced the bills in the beginning of January, said the corporate franchise tax is a disincentive for businesses to invest and grow in Missouri.
“I do believe fundamentally that this is a disincentive for [businesses] to invest,” Schmitt said.
The Senate Jobs Committee first held a hearing on both bills in January and voted to pass the bills in committee earlier this month.
During the January hearing, state business owners and representatives showed their support for the elimination of the franchise tax, calling it “antiquated” and a “double tax.”
“If there is any way we can control, torture or kill this franchise tax, then we should do it,” Ray McCarty, president of Associated Industries of Missouri, said at the committee hearing.
Schmitt also altered one of the bills at the hearing to freeze the corporate franchise tax rate for a business at its 2010 level, or, if it’s a new business, at the level of its first fiscal year. Originally the bill capped the tax rate at $2 million.
Both bills face one more Senate vote before moving to the House.