Missouri is focused on attracting and retaining businesses by creating a positive economic environment. One way the state has worked to enhance its economic position is by implementing tax laws that benefit the business community. For instance, during 2012, three bills were passed by the state legislature that expand current exemptions and deduction opportunities for businesses that meet certain criteria.
“Missouri is attempting to assist businesses during this time of economic recovery,” says Susan Nunez, the state and local tax principal in the Tax Services Group at Brown Smith Wallace LLC, St. Louis, Mo. “The state is looking for ways to enhance business and the passing of these tax laws demonstrates those efforts.”
As a result of the recently passed bills, purchasers now have a more direct avenue for obtaining refunds of overpaid taxes, more businesses may take advantage of expanded transportation asset exemptions, and partnerships and S corporations now can claim a job creation deduction that was previously only available to corporations.
Smart Business spoke with Nunez about the bills that were passed and what opportunities these tax laws may introduce for businesses.
How is Missouri streamlining the process for obtaining refunds for overpaid taxes?
House Bill 1504 (HB1504) creates an avenue for a purchaser to obtain overpaid sales and use tax directly from the Department of Revenue and sets forth steps on how to obtain refund claims. Prior to the passing of HB1504, if a purchaser realized that it overpaid taxes to a vendor, the purchaser was required to contact the vendor and request the vendor to file a refund claim with the Department of Revenue on behalf of the purchaser. If a vendor was not willing to cooperate, the purchaser lacked authority to pursue a refund of the overpaid tax with the Department of Revenue directly and thus lost the opportunity to obtain the refund of taxes it erroneously paid.
Meanwhile, if the Department of Revenue sent a notice to the vendor in response to a purchaser’s request for a refund, that purchaser may have missed its opportunity to respond or appeal due to the lack of due diligence on the part of the vendor. Overall, it was a struggle for purchasers to obtain refunds for taxes they paid to their suppliers. Additionally, vendors who did cooperate with their customers request to submit refunds potentially had an additional risk of being audited by the state.
With the passage of HB1504, the purchaser receives its refund from the state, not the vendor, so the process is more efficient and effective. A purchaser who has overpaid taxes must contact the vendor in writing requesting the vendor to assign its right to the refund. If the vendor agrees and signs the letter, the purchaser can file a refund claim directly with the state and include a copy of the letter. Once the claim is filed, reviewed, and approved by the Department of Revenue, the state will notify the vendor and, upon approval, will refund the overpaid tax directly to the purchaser.
Because the refund is paid directly from the Department of Revenue to the purchaser, the process is streamlined and can easily be audited. In addition, it relieves some of the vendor’s burden because it does not need to utilize its own resources to obtain such refunds.
How has Missouri expanded the exemption for transportation assets?
Historically, there have been transportation asset exemptions that applied to assets used for the transportation of persons or property for hire by common carriers. Since the original exemptions were adopted, the U.S. Department of Transportation has changed the rules regarding common carriers, and many businesses have obtained and now operate their own fleets of qualifying assets. To allow more businesses to take advantage of the exemption, the new law enhanced the existing exemptions by the addition of a transportation asset exemption.
The new exemption applies to purchases or leases by all motor carriers that operate motor vehicles that have a licensed weight of 54,000 pounds or more. Additionally, this new exemption is a bright line exemption. If a business operates as a motor carrier, with a truck licensed for the requisite weight, the exemption requirements may be met.
How can partnerships and S corporations now take advantage of a job creation deduction?
When original legislation was passed providing a deduction from income tax for new jobs created in Missouri for certain qualifying small businesses, the language in that bill limited the tax opportunity to corporations. It did not apply to partnerships or S corporations because those are pass-through entities that do not pay income tax, as they are taxed at the owner level. Missouri recently passed a remedy to correct this oversight in the original law, which allows owners of partnerships and S corporations to pass the deduction through to their owners. This change is reflected in House Bill 1661, and it is great news for small businesses of all types that are creating jobs in the state.
What steps should a business take to determine eligibility for these tax advantages so it can reap the benefits?
First, business owners should present their fact patterns to their attorneys or accountants when discussing whether these opportunities will apply to them. Do they operate a fleet of trucks that transports goods? Are they currently claiming a transportation exemption? Are they creating jobs in the state?
A knowledgeable professional can provide guidance by reviewing a business’s operations, its tax posture, understanding the scope of the particular law and how these laws may affect the taxpayer’s everyday business.
Susan Nunez is a state and local tax principal in the Tax Services Group at Brown Smith Wallace LLC, St. Louis, Mo. Reach her at (314) 983-1215 or [email protected].
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