Economic stress is impacting organizations of all shapes and sizes, particularly state governments.
Missouri, like most states, is aggressively enforcing tax laws to increase revenue. However, there is some light on the horizon, and scattered pockets of opportunity dotting the scene. Unlike the governors of some states, Missouri’s governor has not proposed any state tax increases to balance the budget. Instead, the governor is focused on reducing government spending by $1.8 billion in 2011.
And legislative efforts appear to follow suit. There are two proposed bills that support taxpayers: The first is a tax amnesty program and the second is a bill to repeal the Missouri franchise tax over a five-year period.
In addition, a recent Missouri Supreme Court decision held in favor of the taxpayer. The issue involved the application of a sales tax exemption on materials purchased and used by a real property contractor. The decision is very favorable for certain qualifying businesses.
However, collection efforts are on the rise in Missouri. The state has increased audit activities and the quantity and type of tax notices it is issuing.
According to Susan Nunez, principal, and Pam Huelsman, manager, in the Tax Services practice at Brown Smith Wallace LLC, more than ever, all states — including Missouri — are cracking down on state income and sales tax compliance.
“Although the Missouri Department of Revenue is increasing its collection efforts, there are still opportunities for taxpayers in both the state income tax and sales tax areas,” says Nunez.
Smart Business spoke with Nunez and Huelsman about the types of income tax elections and sales tax exemptions available to Missouri taxpayers that could present tax benefits for businesses.
What is the current tax climate in Missouri?
Missouri has been experiencing a sharp decline in revenue collections and the result is an increase in taxpayer notices and ramped-up collection efforts. For instance, the state is matching the data within its own system to identify taxpayers who might be registered for one type of tax but not another.
The state is also partnering with other states’ departments of revenue, the IRS and Customs to receive information regarding tax filings, residency and shipments made into the state. With the expansion of tax collection tools, taxpayers are more likely to receive some type of correspondence from the state.
These notices typically require a response within a given time period, and an untimely response may result in severe financial penalties. Although it may seem stressful and complicated, the key is for taxpayers to realize that they have rights. They should discuss such notices with a tax professional and respond to any notice received in a timely manner.
Taxpayers should also keep in mind that they may have opportunities to offset these increasing assessments. Consult with a tax professional to keep abreast of new rules and partner with someone who will help you advocate for your rights in the event of a notice, audit and/or assessment.
What notable income tax elections are available for Missouri taxpayers?
For Missouri income tax purposes, a couple of elections are available. First, a corporation that is a member of a federal consolidated group can choose to file as a separate legal entity in Missouri, or as part of the entire federal group. Depending on each taxpayer’s specific fact pattern, one election is likely more advantageous than the other.
Factors that generate tax differences include tax base and property, payroll and sales within and without the state.
Additionally, Missouri offers a ‘three factor’ apportionment election and a ‘single factor’ (sales only) apportionment election. The single factor calculation is unique and, again, depending on a taxpayer’s specific facts and circumstances, may prove to be beneficial.
Keeping up with these details can be burdensome for business owners, thus, taxpayers should consult with a state tax professional to assist in analyzing the various Missouri filing options.
What are some of the sales tax exemptions that present opportunities for taxpayers?
There are several exemptions in Missouri. The manufacturing exemptions apply to manufacturers of tangible property. There are very specific factors that a taxpayer must meet for these exemptions to apply, some of which are not obvious.
However, once these factors are met, the exemptions can provide substantial state and local tax benefits to qualifying taxpayers.
Missouri provides another exemption that applies to manufacturers and processors of product. The application of this exemption is similar to, but somewhat broader than the manufacturing exemptions discussed above. Qualifying taxpayers may reap tax benefits under this exemption as well; however, it should be noted that, unlike the manufacturing exemptions, this exemption does not apply to local sales tax.
So, while the tax traffic sign in Missouri might read ‘proceed with caution,’ the benefits gained from the proper application of Missouri’s income tax elections and sales tax exemptions can offset the overall rise in tax assessments.
SUSAN NUNEZ is principal, State and Local Tax, Brown Smith Wallace in St. Louis, Mo. Reach her at (314) 983-1215 or firstname.lastname@example.org.
PAM HUELSMAN is manager, State and Local Tax, Brown Smith Wallace in St. Louis, Mo. Reach her at (314) 983-1392 or email@example.com.