Authorizes an income tax deduction for tipped income

EXPLANATION-Matter enclosed in bold-faced brackets [thus] in this bill is not enacted
and is intended to be omitted in the law.
SECOND REGULAR SESSION
SENATE BILL NO. 1241
103RD GENERAL ASSEMBLY
INTRODUCED BY SENATOR COLEMAN.
4964S.01I KRISTINA MARTIN, Secretary
AN ACT
To repeal section 143.121, RSMo, and to enact in lieu thereof one new section relating to an income
tax deduction for certain tipped income.
Be it enacted by the General Assembly of the State of Missouri, as follows:
Section A. Section 143.121, RSMo, is repealed and one new 1
section enacted in lieu thereof, to be known as section 143.121, 2
to read as follows:3
143.121. 1. The Missouri adjusted gross income of a 1
resident individual shall be the taxpayer's federal adjusted 2
gross income subject to the modifications in this section. 3
2. There shall be added to the taxpayer's federal 4
adjusted gross income: 5
(1) The amount of any federal income tax refund 6
received for a prior year which resulted in a Missouri 7
income tax benefit. The amount added pursuant to this 8
subdivision shall not include any amount of a federal income 9
tax refund attributable to a tax credit reducing a 10
taxpayer's federal tax liability pursuant to Public Law 116- 11
136 or 116-260, enacted by the 116th United States Congress, 12
for the tax year beginning on or after January 1, 2020, and 13
ending on or before December 31, 2020, and deducted from 14
Missouri adjusted gross income pursuant to section 143.171. 15
The amount added under this subdivision shall also not 16
include any amount of a federal income tax refund 17
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attributable to a tax credit reducing a taxpayer's federal 18
tax liability under any other federal law that provides 19
direct economic impact payments to taxpayers to mitigate 20
financial challenges related to the COVID-19 pandemic, and 21
deducted from Missouri adjusted gross income under section 22
143.171; 23
(2) Interest on certain governmental obligations 24
excluded from federal gross income by 26 U.S.C. Section 103 25
of the Internal Revenue Code, as amended. The previous 26
sentence shall not apply to interest on obligations of the 27
state of Missouri or any of its political subdivisions or 28
authorities and shall not apply to the interest described in 29
subdivision (1) of subsection 3 of this section. The amount 30
added pursuant to this subdivision shall be reduced by the 31
amounts applicable to such interest that would have been 32
deductible in computing the taxable income of the taxpayer 33
except only for the application of 26 U.S.C. Section 265 of 34
the Internal Revenue Code, as amended. The reduction shall 35
only be made if it is at least five hundred dollars; 36
(3) The amount of any deduction that is included in 37
the computation of federal taxable income pursuant to 26 38
U.S.C. Section 168 of the Internal Revenue Code as amended 39
by the Job Creation and Worker Assistance Act of 2002 to the 40
extent the amount deducted relates to property purchased on 41
or after July 1, 2002, but before July 1, 2003, and to the 42
extent the amount deducted exceeds the amount that would 43
have been deductible pursuant to 26 U.S.C. Section 168 of 44
the Internal Revenue Code of 1986 as in effect on January 1, 45
2002; 46
(4) The amount of any deduction that is included in 47
the computation of federal taxable income for net operating 48
loss allowed by 26 U.S.C. Section 172 of the Internal 49
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Revenue Code of 1986, as amended, other than the deduction 50
allowed by 26 U.S.C. Section 172(b)(1)(G) and 26 U.S.C. 51
Section 172(i) of the Internal Revenue Code of 1986, as 52
amended, for a net operating loss the taxpayer claims in the 53
tax year in which the net operating loss occurred or carries 54
forward for a period of more than twenty years and carries 55
backward for more than two years. Any amount of net 56
operating loss taken against federal taxable income but 57
disallowed for Missouri income tax purposes pursuant to this 58
subdivision after June 18, 2002, may be carried forward and 59
taken against any income on the Missouri income tax return 60
for a period of not more than twenty years from the year of 61
the initial loss; and 62
(5) For nonresident individuals in all taxable years 63
ending on or after December 31, 2006, the amount of any 64
property taxes paid to another state or a political 65
subdivision of another state for which a deduction was 66
allowed on such nonresident's federal return in the taxable 67
year unless such state, political subdivision of a state, or 68
the District of Columbia allows a subtraction from income 69
for property taxes paid to this state for purposes of 70
calculating income for the income tax for such state, 71
political subdivision of a state, or the District of 72
Columbia; 73
(6) For all tax years beginning on or after January 1, 74
2018, any interest expense paid or accrued in a previous 75
taxable year, but allowed as a deduction under 26 U.S.C. 76
Section 163, as amended, in the current taxable year by 77
reason of the carryforward of disallowed business interest 78
provisions of 26 U.S.C. Section 163(j), as amended. For the 79
purposes of this subdivision, an interest expense is 80
considered paid or accrued only in the first taxable year 81
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the deduction would have been allowable under 26 U.S.C. 82
Section 163, as amended, if the limitation under 26 U.S.C. 83
Section 163(j), as amended, did not exist. 84
3. There shall be subtracted from the taxpayer's 85
federal adjusted gross income the following amounts to the 86
extent included in federal adjusted gross income: 87
(1) Interest received on deposits held at a federal 88
reserve bank or interest or dividends on obligations of the 89
United States and its territories and possessions or of any 90
authority, commission or instrumentality of the United 91
States to the extent exempt from Missouri income taxes 92
pursuant to the laws of the United States. The amount 93
subtracted pursuant to this subdivision shall be reduced by 94
any interest on indebtedness incurred to carry the described 95
obligations or securities and by any expenses incurred in 96
the production of interest or dividend income described in 97
this subdivision. The reduction in the previous sentence 98
shall only apply to the extent that such expenses including 99
amortizable bond premiums are deducted in determining the 100
taxpayer's federal adjusted gross income or included in the 101
taxpayer's Missouri itemized deduction. The reduction shall 102
only be made if the expenses total at least five hundred 103
dollars; 104
(2) The portion of any gain, from the sale or other 105
disposition of property having a higher adjusted basis to 106
the taxpayer for Missouri income tax purposes than for 107
federal income tax purposes on December 31, 1972, that does 108
not exceed such difference in basis. If a gain is 109
considered a long-term capital gain for federal income tax 110
purposes, the modification shall be limited to one-half of 111
such portion of the gain; 112
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(3) The amount necessary to prevent the taxation 113
pursuant to this chapter of any annuity or other amount of 114
income or gain which was properly included in income or gain 115
and was taxed pursuant to the laws of Missouri for a taxable 116
year prior to January 1, 1973, to the taxpayer, or to a 117
decedent by reason of whose death the taxpayer acquired the 118
right to receive the income or gain, or to a trust or estate 119
from which the taxpayer received the income or gain; 120
(4) Accumulation distributions received by a taxpayer 121
as a beneficiary of a trust to the extent that the same are 122
included in federal adjusted gross income; 123
(5) The amount of any state income tax refund for a 124
prior year which was included in the federal adjusted gross 125
income; 126
(6) The portion of capital gain specified in section 127
135.357 that would otherwise be included in federal adjusted 128
gross income; 129
(7) The amount that would have been deducted in the 130
computation of federal taxable income pursuant to 26 U.S.C. 131
Section 168 of the Internal Revenue Code as in effect on 132
January 1, 2002, to the extent that amount relates to 133
property purchased on or after July 1, 2002, but before July 134
1, 2003, and to the extent that amount exceeds the amount 135
actually deducted pursuant to 26 U.S.C. Section 168 of the 136
Internal Revenue Code as amended by the Job Creation and 137
Worker Assistance Act of 2002; 138
(8) For all tax years beginning on or after January 1, 139
2005, the amount of any income received for military service 140
while the taxpayer serves in a combat zone which is included 141
in federal adjusted gross income and not otherwise excluded 142
therefrom. As used in this section, "combat zone" means any 143
area which the President of the United States by Executive 144
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Order designates as an area in which Armed Forces of the 145
United States are or have engaged in combat. Service is 146
performed in a combat zone only if performed on or after the 147
date designated by the President by Executive Order as the 148
date of the commencing of combat activities in such zone, 149
and on or before the date designated by the President by 150
Executive Order as the date of the termination of combatant 151
activities in such zone; 152
(9) For all tax years ending on or after July 1, 2002, 153
with respect to qualified property that is sold or otherwise 154
disposed of during a taxable year by a taxpayer and for 155
which an additional modification was made under subdivision 156
(3) of subsection 2 of this section, the amount by which 157
additional modification made under subdivision (3) of 158
subsection 2 of this section on qualified property has not 159
been recovered through the additional subtractions provided 160
in subdivision (7) of this subsection; 161
(10) For all tax years beginning on or after January 162
1, 2014, the amount of any income received as payment from 163
any program which provides compensation to agricultural 164
producers who have suffered a loss as the result of a 165
disaster or emergency, including the: 166
(a) Livestock Forage Disaster Program; 167
(b) Livestock Indemnity Program; 168
(c) Emergency Assistance for Livestock, Honeybees, and 169
Farm-Raised Fish; 170
(d) Emergency Conservation Program; 171
(e) Noninsured Crop Disaster Assistance Program; 172
(f) Pasture, Rangeland, Forage Pilot Insurance Program; 173
(g) Annual Forage Pilot Program; 174
(h) Livestock Risk Protection Insurance Plan; 175
(i) Livestock Gross Margin Insurance Plan; 176
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(11) For all tax years beginning on or after January 177
1, 2018, any interest expense paid or accrued in the current 178
taxable year, but not deducted as a result of the limitation 179
imposed under 26 U.S.C. Section 163(j), as amended. For the 180
purposes of this subdivision, an interest expense is 181
considered paid or accrued only in the first taxable year 182
the deduction would have been allowable under 26 U.S.C. 183
Section 163, as amended, if the limitation under 26 U.S.C. 184
Section 163(j), as amended, did not exist; 185
(12) One hundred percent of any retirement benefits 186
received by any taxpayer as a result of the taxpayer's 187
service in the Armed Forces of the United States, including 188
reserve components and the National Guard of this state, as 189
defined in 32 U.S.C. Sections 101(3) and 109, and any other 190
military force organized under the laws of this state; 191
(13) For all tax years beginning on or after January 192
1, 2022, one hundred percent of any federal, state, or local 193
grant moneys received by the taxpayer if the grant money was 194
disbursed for the express purpose of providing or expanding 195
access to broadband internet to areas of the state deemed to 196
be lacking such access; 197
(14) (a) For all tax years beginning on or after 198
January 1, 2025, one hundred percent of all income reported 199
as a capital gain for federal income tax purposes by an 200
individual subject to tax pursuant to section 143.011; and 201
(b) For all tax years beginning on or after January 202
first of the tax year following the tax year in which the 203
top rate of tax imposed pursuant to section 143.011 is equal 204
to or less than four and one-half percent, one hundred 205
percent of all income reported as a capital gain for federal 206
income tax purposes by an entity subject to tax pursuant to 207
section 143.071; [and] 208
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(15) For all tax years beginning on or after January 209
1, 2026, the portion of capital gain on the sale or exchange 210
of specie, as that term is defined in section 408.010, that 211
are otherwise included in the taxpayer's federal adjusted 212
gross income; and 213
(16) For all tax years beginning on or after January 214
1, 2026, the first twenty-five thousand dollars received as 215
tipped income. For the purposes of this subdivision, 216
"tipped income" shall mean any cash gratuity received by an 217
individual in the course of such individual's employment in 218
an occupation that customarily receives tips. The 219
department of revenue shall publish a list of such 220
occupations for which tipped income may be deducted pursuant 221
to this subdivision. 222
4. There shall be added to or subtracted from the 223
taxpayer's federal adjusted gross income the taxpayer's 224
share of the Missouri fiduciary adjustment provided in 225
section 143.351. 226
5. There shall be added to or subtracted from the 227
taxpayer's federal adjusted gross income the modifications 228
provided in section 143.411. 229
6. In addition to the modifications to a taxpayer's 230
federal adjusted gross income in this section, to calculate 231
Missouri adjusted gross income there shall be subtracted 232
from the taxpayer's federal adjusted gross income any gain 233
recognized pursuant to 26 U.S.C. Section 1033 of the 234
Internal Revenue Code of 1986, as amended, arising from 235
compulsory or involuntary conversion of property as a result 236
of condemnation or the imminence thereof. 237
7. (1) As used in this subsection, "qualified health 238
insurance premium" means the amount paid during the tax year 239
by such taxpayer for any insurance policy primarily 240
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providing health care coverage for the taxpayer, the 241
taxpayer's spouse, or the taxpayer's dependents. 242
(2) In addition to the subtractions in subsection 3 of 243
this section, one hundred percent of the amount of qualified 244
health insurance premiums shall be subtracted from the 245
taxpayer's federal adjusted gross income to the extent the 246
amount paid for such premiums is included in federal taxable 247
income. The taxpayer shall provide the department of 248
revenue with proof of the amount of qualified health 249
insurance premiums paid. 250
8. (1) Beginning January 1, 2014, in addition to the 251
subtractions provided in this section, one hundred percent 252
of the cost incurred by a taxpayer for a home energy audit 253
conducted by an entity certified by the department of 254
natural resources under section 640.153 or the 255
implementation of any energy efficiency recommendations made 256
in such an audit shall be subtracted from the taxpayer's 257
federal adjusted gross income to the extent the amount paid 258
for any such activity is included in federal taxable 259
income. The taxpayer shall provide the department of 260
revenue with a summary of any recommendations made in a 261
qualified home energy audit, the name and certification 262
number of the qualified home energy auditor who conducted 263
the audit, and proof of the amount paid for any activities 264
under this subsection for which a deduction is claimed. The 265
taxpayer shall also provide a copy of the summary of any 266
recommendations made in a qualified home energy audit to the 267
department of natural resources. 268
(2) At no time shall a deduction claimed under this 269
subsection by an individual taxpayer or taxpayers filing 270
combined returns exceed one thousand dollars per year for 271
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individual taxpayers or cumulatively exceed two thousand 272
dollars per year for taxpayers filing combined returns. 273
(3) Any deduction claimed under this subsection shall 274
be claimed for the tax year in which the qualified home 275
energy audit was conducted or in which the implementation of 276
the energy efficiency recommendations occurred. If 277
implementation of the energy efficiency recommendations 278
occurred during more than one year, the deduction may be 279
claimed in more than one year, subject to the limitations 280
provided under subdivision (2) of this subsection. 281
(4) A deduction shall not be claimed for any otherwise 282
eligible activity under this subsection if such activity 283
qualified for and received any rebate or other incentive 284
through a state-sponsored energy program or through an 285
electric corporation, gas corporation, electric cooperative, 286
or municipally owned utility. 287
9. The provisions of subsection 8 of this section 288
shall expire on December 31, 2020. 289
10. (1) As used in this subsection, the following 290
terms mean: 291
(a) "Beginning farmer", a taxpayer who: 292
a. Has filed at least one but not more than ten 293
Internal Revenue Service Schedule F (Form 1040) Profit or 294
Loss From Farming forms since turning eighteen years of age; 295
b. Is approved for a beginning farmer loan through the 296
USDA Farm Service Agency Beginning Farmer direct or 297
guaranteed loan program; 298
c. Has a farming operation that is determined by the 299
department of agriculture to be new production agriculture 300
but is the principal operator of a farm and has substantial 301
farming knowledge; or 302
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d. Has been determined by the department of 303
agriculture to be a qualified family member; 304
(b) "Farm owner", an individual who owns farmland and 305
disposes of or relinquishes use of all or some portion of 306
such farmland as follows: 307
a. A sale to a beginning farmer; 308
b. A lease or rental agreement not exceeding ten years 309
with a beginning farmer; or 310
c. A crop-share arrangement not exceeding ten years 311
with a beginning farmer; 312
(c) "Qualified family member", an individual who is 313
related to a farm owner within the fourth degree by blood, 314
marriage, or adoption and who is purchasing or leasing or is 315
in a crop-share arrangement for land from all or a portion 316
of such farm owner's farming operation. 317
(2) (a) In addition to all other subtractions 318
authorized in this section, a taxpayer who is a farm owner 319
who sells all or a portion of such farmland to a beginning 320
farmer may subtract from such taxpayer's Missouri adjusted 321
gross income an amount to the extent included in federal 322
adjusted gross income as provided in this subdivision. 323
(b) Subject to the limitations in paragraph (c) of 324
this subdivision, the amount that may be subtracted shall be 325
equal to the portion of capital gains received from the sale 326
of such farmland that such taxpayer receives in the tax year 327
for which such taxpayer subtracts such capital gain. 328
(c) A taxpayer may subtract the following amounts and 329
percentages per tax year in total capital gains received 330
from the sale of such farmland under this subdivision: 331
a. For the first two million dollars received, one 332
hundred percent; 333
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b. For the next one million dollars received, eighty 334
percent; 335
c. For the next one million dollars received, sixty 336
percent; 337
d. For the next one million dollars received, forty 338
percent; and 339
e. For the next one million dollars received, twenty 340
percent. 341
(d) The department of revenue shall prepare an annual 342
report reviewing the costs and benefits and containing 343
statistical information regarding the subtraction of capital 344
gains authorized under this subdivision for the previous tax 345
year including, but not limited to, the total amount of all 346
capital gains subtracted and the number of taxpayers 347
subtracting such capital gains. Such report shall be 348
submitted before February first of each year to the 349
committee on agriculture policy of the Missouri house of 350
representatives and the committee on agriculture, food 351
production and outdoor resources of the Missouri senate, or 352
the successor committees. 353
(3) (a) In addition to all other subtractions 354
authorized in this section, a taxpayer who is a farm owner 355
who enters a lease or rental agreement for all or a portion 356
of such farmland with a beginning farmer may subtract from 357
such taxpayer's Missouri adjusted gross income an amount to 358
the extent included in federal adjusted gross income as 359
provided in this subdivision. 360
(b) Subject to the limitation in paragraph (c) of this 361
subdivision, the amount that may be subtracted shall be 362
equal to the portion of cash rent income received from the 363
lease or rental of such farmland that such taxpayer receives 364
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in the tax year for which such taxpayer subtracts such 365
income. 366
(c) No taxpayer shall subtract more than twenty-five 367
thousand dollars per tax year in total cash rent income 368
received from the lease or rental of such farmland under 369
this subdivision. 370
(4) (a) In addition to all other subtractions 371
authorized in this section, a taxpayer who is a farm owner 372
who enters a crop-share arrangement on all or a portion of 373
such farmland with a beginning farmer may subtract from such 374
taxpayer's Missouri adjusted gross income an amount to the 375
extent included in federal adjusted gross income as provided 376
in this subdivision. 377
(b) Subject to the limitation in paragraph (c) of this 378
subdivision, the amount that may be subtracted shall be 379
equal to the portion of income received from the crop-share 380
arrangement on such farmland that such taxpayer receives in 381
the tax year for which such taxpayer subtracts such income. 382
(c) No taxpayer shall subtract more than twenty-five 383
thousand dollars per tax year in total income received from 384
the lease or rental of such farmland under this subdivision. 385
(5) The department of agriculture shall, by rule, 386
establish a process to verify that a taxpayer is a beginning 387
farmer for purposes of this section and shall provide 388
verification to the beginning farmer and farm seller of such 389
farmer's and seller's certification and qualification for 390
the exemption provided in this subsection. 391
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