On June 1, 2018, Missouri Governor Greitens signed Senate Bill No. 884 reducing individual and corporate income tax rates and updating other corporate regulations.
The top Missouri tax rate for individuals is 5.9% for 2018. Under the new bill, the top rate will be reduced to 5.5% starting in 2019 and gradually decrease to 5.1% if the State meets certain target revenue growth. To offset the expected loss in revenue, the federal income tax deduction will be phased-out.
The tax rate for corporations for 2018 is 6.25%. Additionally, Missouri currently allows corporations to utilize the three-factor method of apportionment, whereby a company’s property, payroll, and sales are used to calculate a blended apportionment factor to apply to its taxable income. Further, the State allowed companies to use the “cost of performance plurality” method to source sales other than sales of tangible personal property. This means that if more than 50% of the work on a job is performed in Missouri, the entire amount of revenue from that job is sourced to Missouri.
Under the new bill, the tax rate will be reduced to 4% starting in 2020. Furthermore, the State has changed from the three-factor method of apportionment to the single-sales method of apportionment, as well as sourcing sales (other than sales of tangible personal property) using the “market-based” sourcing method rather than the cost of performance plurality sourcing method. Moving to the market-based sourcing method means that if the ultimate user of a service is located in Missouri the sale would be sourced to Missouri; it no longer matters where the service was performed.
Sales of tangible personal property would be apportioned to Missouri if the property is received in Missouri by the purchaser. The change in the calculation of the apportionment percentage and the sourcing of sales brings Missouri in line with many other states who have already shifted to the single-sales factor apportionment method and/or the market-based sourcing rules.
Please contact your MarksNelson advisor at (816) 743-7700 should you have any questions regarding this new law or how it may impact you.