Missouri has consistently proven to be one of the most tax-friendly states in the U.S. for both individuals and corporations. That is good news for businesses of all types that are considering a move to Missouri or an in-state expansion.
Missouri has one of the lowest tax burdens in the nation, boasting the 48th lowest business tax burden per worker, according to data from the U.S. Census Bureau. In addition, Missouri's state and local taxes, as a percentage of personal income, rank an impressive 38th in the nation. And in Missouri, voters must approve any increase in state and local taxes. In addition, your company may be eligible for one or more of a variety of tax credits and incentive programs offered to corporations in the state.
Missouri's tax structure provides corporations with one of the most favorable situations in the nation. Our tax requirements are responsibly based and competitive. Yet, because Missouri government is efficiently managed (deficit spending is unconstitutional) it can still maintain a high level of services and facilities through its sound fiscal practices.
Corporate Income Tax
In most cases, a company located in Missouri will have a lower corporate tax bill than in other states. State law sets the corporate income tax rate at 6.25 percent of net taxable income earned by a business in Missouri. In addition, Missouri allows 50 percent of federal income tax payments to be deducted before computing taxable income. Using this deduction, a corporation with a taxable income of $1,000,000 would have a Missouri effective tax rate of only 5.2 percent.
Missouri Taxable Income
An important tax advantage for Missouri businesses is the amount of income considered taxable -- only income earned in Missouri is taxed. Two allocation options are offered for calculating this income: (1) the three-factor formula, based on sales, property and payroll, or (2) the single-factor formula, based only on sales. Missouri is the only state that permits companies to choose the formula that results in the lesser corporate income tax liability. This means that companies are not penalized for locating property and jobs in Missouri as they are in the other states. In addition, it is important to note that Missouri has not adopted worldwide or nationwide unitary tax assessment in computing multinational corporate income tax liability.
A single state operation determines its intrastate sales and sales to non-nexus states to find the proportion of total or gross sales. A multi-state company computes these same two types of sales, and in addition, sales originating in another state and terminating in Missouri, to determine Missouri's proportion of gross sales. Using this percentage of sales and percentages of property and payroll in Missouri, an average results in a ratio that is applied to taxable income.
The single-factor formula is based only on sales. Fifty percent of interstate sales and 100 percent of Missouri intrastate sales are combined. This total is then divided by gross sales to determine the apportionment percentage.
The 4.225% state sales/use tax rate in Missouri is lower than the rates in 35 other states. Missouri communities have the option of adopting a local sales/use tax, generally ranging from 1/2 to 1%.
Counties may also adopt a sales/use tax generally ranging from 1/4 to 1%. Use tax is similar to sales tax, but is imposed when tangible personal property comes into the state and is stored, used or consumed in Missouri. Missouri has responded to the needs of business and industry by providing eleven major exemptions from sales/use taxes:
- Machinery and equipment used to establish a new, or expand an existing manufacturing facility, provided such machinery/equipment is used directly to manufacture a product ultimately intended for sale.
- Replacement machinery and equipment used directly in manufacturing a product ultimately intended for sale, provided their acquisition has been necessitated by reason of change in design or product, as opposed to obsolescence.
- Machinery, equipment and devices which abate air pollution. To qualify for this exemption, a company need only have the appropriate state governmental agency certify that the equipment is pollution control equipment.
- Machinery, equipment and devices which abate water pollution. To qualify for this exemption, a company need only have the appropriate state governmental agency certify that the equipment is pollution control equipment.
- Machinery and equipment used to establish a new, or replace or expand an existing material recovery processing plant. The plant must convert recovered materials into a new product or different form.
- All materials and supplies used to install tax-exempt machinery and equipment.
- Electricity consumed in the manufacturing process provided the cost of the electricity exceeds 10% of total production costs. The cost of electrical energy consumed in the manufacturing process cannot be included in total production costs to qualify for the exemption. Electricity used for non-manufacturing purposes, such as lighting and heating, is taxable.
- Electricity or gas, whether natural, artificial or propane when used in connection with basic steelmaking.
- Electricity that is converted to stored chemical energy for providing an initial charge in lead-acid storage batteries during the manufacturing process, if this electricity is separately metered. This exemption does NOT apply to any local sales taxes.
- Anodes used in manufacturing or other types of production, with a useful life of less than one year.
- Computers, computer software, and computer security systems purchased for use by architectural, engineering, or accounting firms headquartered in Missouri.
NOTE: Building materials used to construct a new or expand an existing facility are normally taxable. However if a Missouri city or county retains title to financed properties, the building materials can be acquired by the local government tax-exempt.
Property tax is often a major tax expense for a company. Yet because it is set and administered locally, property tax is seldom comparable from state to state. Not only do tax levies vary widely from one city to another, but the assessment ratio for determining property value differs significantly among the 50 states.
Even within one state, assuring a uniform assessment practice is very difficult.
Missouri law sets the assessment ratio for personal property at one-third of true value throughout the state. Real properties (land and buildings) classified as commercial and industrial, are assessed at 32%; residential, 19%; and agricultural, 12% of true or fair market value. The local property tax rate is an aggregate of school, city, county, and state levies expressed in tax per $100 assessed valuation. Commercial and industrial real property is assessed an additional county surcharge designed to replace revenues lost by the tax exemption of business inventories. The average county surcharge is about $1.02 per $100 assessed valuation, for a total commercial/industrial real property average tax rate of about $6.89 per $100. The average total personal property tax rate is about $5.87 per $100 valuation.
|For example, at a particular Missouri
Site the commercial and industrial
Property tax rates might be as follows:
Surtax (real property).....$1.02
Total rates per $100:
|Thus a company would pay $5.87 per $100 on 1/3 of its total personal property, and $6.89 per $100 on 32%of its total real property value.
Missouri's franchise tax is based on capital employed in a company. The rate is 1/30 of 1%, or $0.33 per $1,000 of par value of outstanding shares and surplus or total assets. Corporations with less than $1,000,000 outstanding shares and surplus are not taxed. However, the corporation must still file and state that their assets do not exceed $1,000,000.
A corporation having assets both within and without Missouri apportions its total assets based on the amount of accounts receivable, inventory, land and fixed assets allocated to Missouri.
Initial Fees and Taxes
A new corporation must pay an incorporation fee of $50 for the first $30,000 or less of shares and $5 for each additional $10,000 or portion thereof. A foreign corporation pays $150 for certification. Annual corporate registration fees must also be paid by domestic and foreign corporations doing business in Missouri. The rate is $40 annually for registration with the Secretary of State's Office.
Manufacturers' inventories (raw materials, goods in process and finished goods), as well as goods and wares of retailers, distributors and wholesalers are exempt from property taxes in Missouri.
Most companies doing business in Missouri are required to pay unemployment insurance to protect their workers during unemployment. This applies to most businesses having one or more workers on the payroll for 20 weeks during the calendar year, and to businesses paying $1,500 in total wages in a given quarter.
Rates for 2005, 2006 and 2007 are based on the first $11,000 of each employee's annual salary.
In 2008 the taxable wage limitation rises to $12,000 and to $12,500 in 2009. After 2009, the taxable wage base could be increased by $1,000 or decreased by $500 for any year depending on the balance in the Unemployment Compensation Fund. In no event shall the taxable wage base increase beyond $13,000 or decrease to less than $7,000. For more information, contact the Missouri Division of Employment Security at (573) 751-3215.
If the unemployment fund balance is less than $400 million, employers must pay a surcharge of
10 percent when the balance is $350-$400 million; 20 percent when the balance is $300-$350 million; and 30 percent when the balance is below $300 million. If the balance is over $400 million, however, there will be no surcharge, and if the balance is over $500 million, the employer will receive a 7 percent credit, which will increase to 12 percent if the fund is over $600 million.
With the 30 percent surcharge currently in effect, the employer with a credit balance will contribute at a rate of 0.0 percent to 3.510 percent. The employer with a deficit account will pay up to a maximum of 7.80 percent; and a new Missouri company with no experience rating, will pay the current entry rate of 3.510 percent for two years. Thus, a new company's cost per employee would be 3.510 percent times $8,000, or $280.80.