Missouri Lawmakers Approve Rate Cut, Apportionment Changes

The Missouri corporate tax rate may decrease from 6.25% to 4.0% beginning in 2020. State lawmakers approved a bill containing the tax cut.

The bill also mandates single-sales factor apportionment and market-based sourcing beginning in 2020. Many of the bill’s provisions are similar to provisions in S.B. 674, which the Senate previously approved.

End Three-Factor Apportionment Method

The bill removes the option to use the Multistate Tax Compact’s three-factor apportionment method. Under the single-sales factor apportionment method, Missouri taxable income is based only on the percentage of sales in Missouri. The location of property or employees do not factor into the formula.

The bill also provides a five-year expiration period for elections to use separate accounting to show income attributable to Missouri.

Market-Based Sourcing Rules

Under market-based sourcing, sales of services or intangibles are sourced to the state if the taxpayer’s market for the sales is in the state. Missouri currently uses cost-of-performance sourcing for those sales, but allows market-based elections. The bill requires market-based sourcing for all of those sales.

Consolidated Returns

The bill removes the requirement that an affiliated group have 50% or more of its income from Missouri sources to file a Missouri consolidated return. It also eliminates transactions between affiliated group members from the Missouri consolidated return.

Individual Income Taxes

Finally, the bill provides instructions for when an income bracket is eliminated from the individual income tax table. The top remaining tax rate will apply to all income over the second highest remaining income bracket.

S.B. 884, as passed by the Missouri General Assembly on May 18, 2018

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