JEFFERSON CITY | The Missouri House gave first-round approval Wednesday to legislation eliminating a tax on assets of small corporations.
Since 1917, Missouri has charged a franchise tax on corporations' assets, inventory and property, although the state has been gradually reducing the tax rate and exempting smaller businesses.
The franchise tax is levied on any corporation worth at least $1 million. The House measure would exempt corporations worth $10 million or less.
Proponents say lowering the tax burden could help spur the economy. At least one lawmaker said that simply cutting the franchise tax is bad policy but that she would support it this year because of the dire economic times.
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The franchise tax is one of the state's oldest levies and was enacted less than a month before the corporate income tax and two years before an individual income tax.
Sponsoring Rep. Mike Sutherland, who has proposed a similar repeal in the past, described the franchise tax as an unfair "double tax" because companies also pay an income tax on their earnings.
Sutherland, R-Warrenton, called it "a tax just for the privilege of paying more taxes."
But critics argued the legislation was little more than a giveaway to businesses and questioned the potential economic impact of reducing the tax.
Rep. J.C. Kuessner said some corporations avoid paying incomes taxes, leaving the franchise tax as the only one those businesses must pay. He said eliminating the tax would reduce the state's revenues, potentially creating a hardship for Missourians.
"Someone else is going to have to pick up the slack," said Kuessner, D-Eminence.
The House legislation was endorsed 143-17 and takes another vote before moving to the Senate. The only members voting against the measure were Democrats.
Legislative staff estimated that excusing some corporations from the franchise tax would cost the state $7.2 million to $12.2 million per year. That estimate uses corporate tax data from 2006 to calculate that Missouri would collect $79 million from the franchise levy in 2009. That would drop to $72 million in 2010 if the legislation passes.