Mo. Exempts Fed. Virus Relief Checks From State Income Tax

By Paul Williams
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Law360 (July 14, 2020, 8:37 PM EDT) -- Missouri will exempt from state income tax federal relief payments provided to residents in response to the novel coronavirus pandemic under a bill that the governor signed Tuesday.

Republican Gov. Mike Parson signed S.B. 676, an omnibus tax bill that excludes stimulus payments authorized under the Coronavirus Aid, Relief and Economic Security Act from being factored into Missouri residents' federal tax liabilities for state tax purposes. The law is estimated to prevent the state from imposing $36 million in tax on the federal payments, according to a fiscal note on the bill.

The state Senate gave unanimous final approval to the bill on May 8. The legislation passed with bipartisan support, as lawmakers saw the measure as a fix to a so-called quirk in the state's deduction rules for federal taxes paid that could have unintentionally subjected the relief payments to state income tax.

Missouri's deduction applies to those with $125,000 or less in annual state gross income and is capped at $5,000, or $10,000 for joint filers. If the relief payments, which were refundable tax credits, reduced a qualifying resident's federal liability below those thresholds, their state tax liability could have increased if the state law wasn't changed.

"At a time when Missouri residents are struggling to recover from economic hardships, it's important that they keep every dollar possible," the bill's primary sponsor, Sen. Tony Luetkemeyer, R-Parkville, said in a statement.

Luetkemeyer told Law360 that the fiscal note on the bill "was significant" but that lawmakers wanted to ensure that that the state wouldn't benefit from federal checks that aimed to assist residents who were suffering financially because of COVID-19, the respiratory illness caused by the virus.

"There was a realization by myself and the Legislature that the state shouldn't be receiving windfall from the payments that were intended to help struggling Missourians," Luetkemeyer said.

Under the CARES Act, the Internal Revenue Service sent $1,200 to individuals and $2,400 to couples filing joint tax returns, plus $500 for each qualifying child. The payments were reduced for those with incomes above $75,000, or $150,000 for couples and eliminated for those with incomes of more than $99,000, or $198,000 for couples.

In enacting S.B. 676, Missouri also becomes the latest state to adopt the Multistate Tax Commission's model partnership audit statute that accounts for changes in federal partnership rules. Under the new, centralized regime, when the IRS audits a partnership, the assessed tax liabilities accrue to the partnership itself instead of the individual partners.

The bill's partnership provisions streamline the state's treatment of partnerships and require them to report and pay any additional tax due as a result of a federal audit or an amended federal income tax return, according to a summary of the legislation. Partnerships will have 180 days after a final federal determination to pay any additional Missouri tax owed.

Lawmakers had said during debate on the bill that the legislation would no longer require each partner of a partnership to file an amended return after a federal audit. Luetkemeyer told Law360 that the bill will simplify the state's taxation of partnerships and "cut down on unnecessary paperwork."

The bill's new partnership provisions will apply to adjustments to a taxpayer's federal taxable income or federal adjusted gross income with a final determination date of Jan. 1, 2021, or later.

Parson did not comment on S.B. 676 directly, as he announced he signed the legislation along with eight other measures in wrapping up his action on bills from the regular session, which adjourned May 15. A representative of Parson did not immediately respond to questions about S.B. 676.

The new law will also require county assessors to conduct a physical inspection of real estate before increasing a property's assessment more than 15% and will shift the burden of establishing higher property values to assessors, according to Luetkemeyer's statement.

--Additional reporting by Stephen Cooper and Maria Koklanaris. Editing by Joyce Laskowski.

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