Missouri House approves tax break for small businesses

Wednesday, January 19, 2011 | 5:59 p.m. CST

JEFFERSON CITY — The Missouri House gave first-round approval on Wednesday to a tax break for small businesses, a priority for the chamber's Republican leaders.

The legislation, the first bill to be debated on the House floor, would allow businesses to claim a $10,000 state income tax deduction for each new full-time job created that at least matches the county's average wage. The tax deduction doubles if the business also pays half of the new workers' health insurance premiums. It could be claimed starting in the current tax year.

Legislative staff estimate the deductions would translate into a tax break of $600 to $1,200 per job. The bill is estimated to cost state general revenue $224,000 next year and $301,000 the following year.

Supporters said the measure is designed to help small businesses, though they acknowledge it might not be the deciding factor in whether to add new jobs. They contend that Missouri needs to explore a variety of ideas for boosting economic development.

"We should leave no stone unturned," said House Small Business Committee Chairman Dwight Scharnhorst, R-St. Louis.

Besides tax breaks, the legislation also extends a ban on raising fees unless approved by the Legislature or needed for a federal program. Existing restrictions on new state regulations affecting businesses also would be expanded to cover firms with more employees.

Another provision in the legislation would require state lawmakers to approve federal mandates before the rules are implemented in Missouri. Sponsoring Rep. Denny Hoskins, R-Warrensburg, said the federal mandates can be a problem for employers.

The legislation picked up bipartisan support and was approved 142-17. It needs another vote before moving to the Senate.

Rep. Stacey Newman said there are no guarantees the legislation will boost employment but that the bill is a legitimate attempt.

"This is hard, really hard. But this is something," said Newman, D-St. Louis.

Nonetheless, some Democrats objected to the federal mandate portions while others questioned whether the proposed tax deduction was large enough to persuade businesses to resume hiring.

Rep. Jill Schupp, D-St. Louis, said the proposal was "sprinkling fairy dust" and designed more to attract attention. She said the attempt to allow state lawmakers to block federal rules sounded "secessionist."

House Speaker Steven Tilley acknowledged to reporters that there are constitutional concerns about whether a state legislature could actually nullify a law passed by Congress.

"Our effort is to make sure that we at least, at minimum, send a message that enough is enough," said Tilley, R-Perryville.

Brad Jones, state director of the National Federation of Independent Business, said the tax incentives and restrictions on state fees and regulations would be a boost for small businesses. Jones said it was a reasonable step lawmakers could take while facing a difficult budget.

"Anything that happens that is a positive for small businesses that is any kind of incentive is better than what's being done now, which is absolutely nothing," Jones said.

A Republican state senator filed his own legislation Wednesday designed to help businesses by eventually allowing a tax deduction for half the firm's income. Starting in the current tax year, taxpayers would be allowed to deduct 10 percent of their business income. The size of the deduction would increase over time to 50 percent in 2015.

Sponsoring Sen. Eric Schmitt said the tax deductions would help all of Missouri's businesses and be a potent economic development tool.

"While states throughout the nation are raising their taxes, Missouri will be encouraging business growth and expansion by offering responsible tax relief to companies throughout Missouri," said Schmitt, R-Glendale.

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