The new year is starting out with competing proposals to eliminate the state Income Tax. The state House has introduced House Bill 4001, sponsored by Representative Lee Chatfield, that would begin rolling back the state Income Tax rate until it reaches zero. The bill would cut the current 4.25 percent Income Tax rate to 3.9 percent and then decrease the rate by a 10th of a percent per year until it is eliminated in 40 years. However, under legislation introduced in the state Senate the state Income Tax would be phased out over a five-year period. Senate Bill 4, Introduced by Senate Finance Committee Chair, Jack Brandenburg, would cut the rate by.25 percent the first year and 1 percent each of the following four years.
Cutting or eliminating the income tax translates to a business tax cut for many non-corporate small businesses that pay their business tax via the personal income tax. These businesses are sole proprietors, partnerships, LLC, or Sub S corporate entities that do not pay their taxes via the state’s Corporate Income Tax.
However, in the past, efforts to eliminate the income tax have been tied to increases in other taxes to make up for the decrease in revenue to the state. Currently, the state Income Tax brings in about $9 billion in revenue. While the current proposals are not linked to any such plan, it is possible that as the proposals move forward there will be efforts to raise existing taxes or create a new tax to replace some or all of the revenue. Some of those past proposals have included an increase in the sales tax or expanding the sales tax to services to make up the revenue difference. In fact, suggestions of considering expanding the sales tax to services was brought up during the recent legislative Consensus Revenue Estimating Conference by the Governors new Budget Director.
NFIB small business members have not been receptive to past proposals to eliminate or lower taxes in return for an increase in the sales tax or expanding sales tax to services to make up the difference and our members will have the final say in any proposal as the group will place the issue before its members for a vote. Look for a member ballot / survey in the next few weeks on this issue and be sure to vote so your voice is heard!