HB 3405: Relating to the taxation of pass-through entities
Sponsor: Terry Thompson
WATCH/MIXED
Support is not warranted because necessity is weak and it reduces public transparency.
HB 3405 is a technical rewrite of the "SALT Parity Act" governing pass-through entity taxation in Missouri. While it simplifies calculations and opt-out procedures, its primary substantive change is converting the member-side tax offset from a visible credit to a less-visible deduction beginning in 2027. This change is explicitly intended to remove the program from standard tax-credit budget reporting, which reduces public transparency and legislative oversight of a significant state tax preference.
What Does This Bill Do?
- Recalculated Tax Base: For tax years ending on or after December 31, 2026, the tax base for partnerships and S corporations is recalculated by decreasing income by 20% of ordinary business income reported on the federal return.
- Credit-to-Deduction Shift: Beginning in 2027, the owner-side relief moves from a credit model to a deduction model. This change is intended to bypass standard budget reporting requirements for tax-credit programs.
- Procedural Centralization: Tightens opt-out rules for entity members and requires entities to designate a representative whose actions in tax disputes bind all members.
Constitutional or Critical Context
The core concern with HB 3405 is the "transparency downgrade." By shifting the tax benefit from a credit to a deduction, the program will no longer be reported alongside other statutory tax credits during budget updates. This hiding of a state tax preference from the public eye reduces the ability of citizens and lawmakers to track its fiscal impact. Furthermore, the bill lacks a demonstrated urgent necessity, being framed primarily as a administrative cleanup rather than a solution to a documented harm.
Red Flags & Recommended Amendments
Transparency Downgrade
Switching from a credit to a deduction removes the benefit from statutory tax-credit reporting, making it harder for citizens and lawmakers to track the fiscal impact of this tax preference.
Weak Necessity
The bill is framed as a simplification rather than a response to an urgent harm. Under Act for Missouri's standards, government action requires a clearly documented need.
Act for Missouri Recommendation:
Act for Missouri rates HB 3405 as WATCH/MIXED. While not a direct attack on liberty, it reduces government transparency by hiding a tax preference from public budget reports and lacks a demonstrated necessity for such a substantive rewrite of the tax code.