Corporate Close-Up: Missouri Tax Reform Promises Big Changes for Corporate Taxpayers

On his last morning in office, June 1, 2018, Missouri Gov. Eric Greitens (R) signed 77 bills into law. Included in this flurry of signatures was S.B. 884, Missouri’s tax overhaul bill, which makes a number of impactful changes to corporate taxation in the state.

The New Corporate Tax Rate

S.B. 884 reduces the Missouri corporate income tax rate to 4 percent for tax years beginning after Jan. 1, 2020. The rate cut, down from 6.25 percent, is estimated to cost $99.4 million annually when fully implemented.

Compulsory Single-Sales Factor Apportionment and Market-Based Sourcing

Another key provision of the bill institutes compulsory single-sales factor apportionment and market-based sourcing of corporate income, for tax years beginning after Jan. 1, 2020. Missouri made the initial switch over to optional single-sales factor apportionment in 2013, with elaborated guidance on proper apportionment and sourcing methods for intangibles in 2015.  Prior to the switch, taxpayers primarily utilized a business transaction single factor (sales) or a three-factor (property, payroll, sales) apportionment method with cost of performance sourcing.

The single-sales factor formula effective in 2020 requires all business income to be apportioned to Missouri by multiplying total income by a fraction, the numerator of which is the taxpayer’s total receipts in Missouri during the taxable year, and the denominator of which is the taxpayer’s receipts everywhere during the taxable year, unless Missouri provides a special apportionment formula for the taxpayer’s industry.

Missouri’s market-based sourcing method effective in 2020 requires all receipts from the sale of tangible personal property to be sourced to the state if the purchaser receives the property in Missouri. Services or intangibles, on the other hand, are sourced to Missouri if the market for the sale is in the state.

For taxpayers who feel that mandated single-sales factor apportionment unfairly represents their activities in the state, the director of revenue has the power to provide for more equitable division. However, regardless of the method of allocation and apportionment utilized, there is a five-year expiry date affixed, which may be truncated should the taxpayer’s activities within the state no longer be fairly represented by the elected method.

Missouri’s mandatory single-sales factor apportionment and market based sourcing could drum up to an estimated $141.6 million in revenue when fully implemented.

Consolidated Returns and Affiliated Groups

The 50 percent threshold for filing consolidated returns has been eliminated. Which means affiliated groups filing a federal consolidated return with less than 50 percent Missouri based income may still elect to file a consolidated return in Missouri.

Missouri also eliminates all intercompany transactions between affiliated members on a consolidated return.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should property and payroll play a role in multistate sales apportion in Missouri?

For more information on the impact of Pub. L. No. 115-97, examine Bloomberg Tax’s Tax Reform Roadmap, showing detailed comparisons between pre-reform law and impending changes, with pertinent cites attached.

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