Corporate tax reform in Missouri


lcmm@melchionnalaw.com
Corporate tax reform in Missouri

Missouri’s Senate Bill 884 of 2018 (the “Act”), which lowered the corporate rate from 6.25% to 4%, became effective on January 1st this year, making the state one of the lowest corporate tax states in the U.S. The Act eliminates also the option for businesses to calculate their corporate tax liability by averaging the percentage of total sales, payroll, and property in Missouri when calculating their tax – a method that favored sellers with no physical presence in the state. Instead, corporate income taxes will be calculated based on total sales in Missouri. The latter change brings Missouri in line with most other states but has made it difficult to estimate whether the bill will increase or decrease tax revenues. Projections have ranged from a tax cut of several million dollars to a net tax increase of up to $10 million.

In addition, the state tax reform eliminates, for apportionment purposes, transactions between businesses filing a consolidated tax return in Missouri.

The Act also reduces the top personal income tax rate to 5.4% and the state’s maximum deduction for taxes paid to the federal government.

Together, these policy changes have helped Missouri become a more desirable business location. The Tax Foundation’s 2020 State Business Tax Climate Index ranks Missouri number 14 in the country and ahead of all neighboring states. Seek Business Capital, a small business and startup consulting service, ranked Missouri number 30in the US in its 2020 Best States to Start Business List. The MO Department of State reports that corporations can be set up online. However, an in-state agent is required for Missouri-registered corporations.