Missouri’s tax code may never be anyone’s idea of light reading, but Constitutional Amendment 5 gives voters and small business owners a good reason to pay attention. On the November 2026 ballot, the proposal would require the General Assembly to reduce and eventually eliminate the state individual income tax based on revenue growth. The proposed amendment would also authorize lawmakers to expand sales and use taxes as part of that process.
We do not argue for or against the amendment; this article simply considers the potential benefits, costs, and unanswered questions for Missouri residents and small business owners.
Practical Implications
For the fiscal year ended June 30, 2026, the Missouri Office of Administration reported approximately $9.14 billion in gross individual income tax collections and another $576 million in Pass-Through Entity Tax collections. Gross sales and use tax collections were approximately $3.4 billion.
These figures show why any transition would need to be gradual. Amendment 5 would not eliminate the income tax immediately or automatically impose a particular sales tax rate. It would direct the General Assembly to reduce the top individual income tax rate based on revenue growth and develop implementing legislation. Any sales tax expansion or rate increase for this purpose would have to be paired with a substantially equal reduction in individual income tax revenue. Once the income tax is eliminated, the state could not reinstate it.
Potential Benefits
Eliminating the state income tax would increase take-home income. The change could be especially meaningful to owners of partnerships, S corporations, and other pass-through businesses because their business earnings generally appear on individual income tax returns.
Supporters argue that joining states without an individual income tax could make Missouri more attractive to entrepreneurs, workers, and investors. A lower income tax burden may encourage business formation, expansion, and capital investment. It also could simplify state tax planning for some taxpayers, although federal taxes and other filing requirements would remain.
A broader sales tax base also may reduce reliance on a single revenue source and create more equal treatment between businesses selling goods and those selling services, depending on how the law is written.
Potential Tradeoffs
The central challenge is replacing a major source of state revenue. Lawmakers could rely on economic growth, spending reductions, a broader sales tax base, higher sales tax rates, or some combination of these approaches. Each choice would affect businesses and households differently.
Sales taxes generally place a larger relative burden on households that spend most of their income. Seniors, lower-income residents, and people temporarily out of work could pay more unless lawmakers preserve exemptions for necessities or provide other protections. Taxpayers who now pay substantial income tax, however, could see an overall reduction in their state tax burden.
Small businesses also could experience mixed effects. Accountants, attorneys, repair shops, consultants, and other service providers could be required to collect and remit sales tax if their services are added to the tax base. That would increase administrative work and could affect customer demand. Businesses already collecting sales tax may view a broader base as a more level competitive structure.
Local taxes are another consideration. When the sales tax base is expanded, the amendment would require affected local governments to make one-time rate reductions equal to approximately 97% of the additional local revenue, while protecting public school funding. The details would depend on future legislation and calculations.
Conclusion
Amendment 5 presents Missouri with a choice about how the state raises revenue, not simply whether residents should pay an income tax. Potential advantages include higher take-home income, possible improvements in business competitiveness, and a broader consumption-based tax system. Risks include higher costs on taxable purchases, new compliance duties for service businesses, shifting the tax burden to lower-income families, and uncertainty about funding state services.
For voters and small business owners, the key questions are how quickly the income tax would be reduced, which goods and services would become taxable, what protections would apply to essential purchases, and how lawmakers would respond if revenue growth falls short. A balanced evaluation should consider both the opportunity created by lower income taxes and the practical consequences of replacing the revenue.
Alan Dierker, CPA, (adierker@stcpa.com) is a Tax Manager at Schmersahl Treloar. Angela Piñon (apinon@stcpa.com) is the Outsourced CFO & Advisory Services Manager at Schmersahl Treloar. Contact them at 314.966.2727.