Missouri Legislature Approves Ballot Measure to Eliminate State Income Tax

JEFFERSON CITY, MO – The Missouri General Assembly gave its final approval on April 21, 2026, to a resolution that will ask voters to amend the state constitution to eliminate the individual income tax. The state House of Representatives passed the measure, HJR 173, in a 95-59 vote, following the Senate's 18-11 approval on April 15. The proposal, if passed by a statewide popular vote, would initiate a five-year phase-out of the income tax, offset by allowing the legislature to implement a broader sales tax on goods and services. This marks the first time since 1917 that Missourians will have the opportunity to vote the state income tax out of existence. The tax currently accounts for approximately two-thirds of the state's general revenue funds, making the proposed shift a fundamental overhaul of Missouri's fiscal structure. The measure was a top legislative priority for Governor Mike Kehoe, who called for the elimination in his January 13 State of the State address. While the prospect of eliminating the state income tax is appealing on its surface, business owners should view this as a significant tax shift, not a simple tax cut. The proposal grants state lawmakers broad authority to tax all goods and services to replace the lost revenue, creating considerable uncertainty. For many small and mid-sized companies, particularly those in the service sector, this could mean new taxes on previously untaxed revenue streams. Business-to-business services, consulting, and professional fees could all become subject to sales tax, introducing complex compliance burdens and potentially increasing the cost of doing business. In our experience, major structural tax changes create both opportunities and risks. Businesses that rely heavily on purchasing services or have intricate supply chains may find their operational costs rise unexpectedly. The key will be navigating the specifics of which services and goods become taxable and at what rates, a process that will unfold over the next five years if the amendment passes. This level of uncertainty requires proactive financial modeling and strategic planning. C&S Finance Group LLC specializes in tax preparation and compliance for businesses facing exactly these kinds of evolving regulatory landscapes. We help clients understand the bottom-line impact of tax code changes and adapt their strategies accordingly, and you can learn more at csfinancegroup.com. The approved resolution stipulates that any reduction in the income tax must be matched by a proportional increase in revenue from the new sales taxes. This mechanism has led members of both political parties to label the plan a “tax shift.” Proponents, however, argue the change is necessary to modernize an antiquated tax code that has not been significantly updated since 1931. Under the current system, any individual earning more than approximately $9,000 per year is placed in the state's highest income tax bracket. The legislative process began with a hearing in the Missouri House of Representatives Commerce Committee on January 28, 2026. Supporters, including Governor Kehoe and advocacy groups like the Council for Citizens Against Government Waste, championed the bill as a way to make Missouri more economically competitive. They argue that eliminating the income tax will attract new businesses, investment, and high-income residents to the state, citing a Council of Economic Advisers report that found states without an income tax experience a 16 to 19 percent increase in business startups and an average wage increase of $4,000. This move follows Missouri's elimination of the state capital gains tax in 2025. If voters approve the income tax phase-out, Missouri would become the only state in the nation to have neither an income tax nor a capital gains tax. The regional economic pressure is also a factor, as six of the eight states bordering Missouri have already eliminated or begun phasing out their own income taxes. Republicans in the legislature have framed the proposal as the largest middle-class tax cut in the state's history, positioning it as a win for working families and young professionals. They contend it will make Missouri a more attractive place to build a career and a business. However, the exact details of which goods and services would be subjected to the new sales tax, and at what rates, would be determined by future legislative sessions over the five-year implementation period, leaving a critical question mark for businesses and consumers planning for the future. The resolution now goes to Governor Kehoe, who will decide whether to place the constitutional amendment on the August or November 2026 ballot. With the governor's endorsement secured, the focus will shift from the statehouse to a statewide campaign as voters prepare to make a final decision on the future of Missouri's tax system.