JEFFERSON CITY - In a continual effort to alter Missouri's tax policy, lawmakers in the House followed the Senate's example Monday by giving first-round approval to a proposal to eliminate the corporate franchise tax.

Rep. Jerry Nolte, R-Gladstone, who sponsored the bill, said removing the corporate franchise tax would foster corporate growth and business' interest in the state.

"This puts us in a bad competitive situation with other and in fact the state of Kansas has just eliminated their franchise tax," Nolte said. "For those of us living on the west side of the state, we know how competitive [business] is."

House Democrats, such as Rep. Stephen Webber, D-Columbia, spoke against the proposal, saying that Missouri could not afford the loss in revenue that abolishing the corporate franchise tax would cause. Webber said the loss in revenue would have to be made up for by making cuts to the budget.

"The folks we really do hurt by voting for this are kids because that money has to come from somewhere and as we look at the budget there is no place to take $80 million out of the next couple of years' budgets besides programs that affect kids," Webber said.

Neither Nolte nor Schmitt commented on how revenue loss from a repeal of the tax, which brought in about $87.5 million last year according to Department of Revenue officials, would be recouped.

Nolte said his proposal is almost the same to a Senate bill that passed earlier this month and is currently being examined in the House.

"As far as I can tell the bills are nearly identical," Nolte said. "[The other] bill is in the House now so I think it's a good time to mirror them."

Sen. Eric Schmitt, R-St. Louis County, sponsored a similar bill that would effectively eliminate the corporate franchise tax from Missouri's tax policy. The House received Schmitt's bill two weeks ago, but no more hearings are scheduled.

After being amended in the House, Nolte's bill proposes the same procedures as Schmitt's: 

• A phase out of the tax over five years. If passed the proposal will slowly phase out the corporate franchise tax beginning in August 2011, with entire removal of the tax completed by January 2016.
• Freezing the tax rate at 2010 levels. Corporations that hold assets worth more than $10 million will only be taxed the amount they paid during the 2010 fiscal year, instead of an increased amount for growth in assets.

Despite these similarities, Nolte's bill differs from Schmitt's after the House passed an amendment without debate that prescribes the same tax break for LLCs. Nolte said it was important to include the LLCs in the proposal's language because they are recognized under a different chapter of Missouri's tax law.  

Nolte's bill awaits a final vote by the House before it moves on to the Senate.