Missouri first in nation to fully eliminate capital gains tax for individuals; vehicle registration fees also set to rise

Missouri has made history by becoming the first state in the nation to fully exempt individual taxpayers from state capital gains taxes. Governor Mike Kehoe signed the legislation on Thursday, July 10th, hailing it as a move to keep more money in the hands of Missouri families and to stimulate economic growth.

The law, which was effective since January 1, 2025, allows individuals to deduct 100% of their capital gains- profits from the sale of investments such as stocks, real estate, and cryptocurrency- from their Missouri taxable income. It marks Missouri’s third major tax cut in as many years and positions the state at the forefront of tax reform efforts nationally.

“Conservative leadership is about keeping more money in the hands of Missouri families, and less in government coffers,” Kehoe said in a statement announcing the bill’s signing.

While state officials estimate the exemption will reduce revenue by approximately $110 million annually, some independent economists warn the loss could be significantly higher — potentially exceeding $600 million per year. Much of the benefit is expected to go to the state’s highest earners.

In 2022, just 0.8% of Missouri tax filers reported incomes over $500,000, yet that group accounted for 65% of the state’s reported capital gains income.

The bill includes a provision that could extend the exemption to C-corporations if the state’s top individual income tax rate falls to 4.5% or lower. That threshold is expected to be reached by 2027, which could make corporations eligible beginning in 2028.

The signing comes on the heels of Kehoe’s recent budget cuts and spending restrictions. Just days earlier, he vetoed over $300 million in appropriations and froze another $211 million in spending, citing concerns about slowing state revenue.

In a separate action on July 10, Kehoe also signed legislation raising the transaction fees for motor vehicle registrations and driver’s licenses by 50%. The fee hikes aim to help retain contractors who operate the state’s 175 license offices, many of which have struggled financially under the current pay structure.

The increase will raise the fee for a short-term driver’s license or vehicle registration from $6 to $9, and from $12 to $18 for longer terms – six years for a license and two years for registration.

The bill was sponsored by Sen. Sandy Crawford, a Republican from Buffalo, who said the change is necessary to keep license offices open, especially in rural counties. “I live in a small town, and if my license bureau were to close, I would likely have to drive 45 minutes and take off half a day just to renew my license,” Crawford said during a legislative hearing earlier this year. “I’d much rather pay $3 more than spend hours on the road.”

As of this spring, at least five counties had no functioning license office due to a lack of interested contractors. In fiscal year 2024, Missouri license offices processed nearly 9 million transactions, generating over $58 million in fees.

With implementation of the capital gains exemption and vehicle fee increase in 2025, the long-term financial impact on the state budget remains a key issue of debate.

Revised with ChatGPT