06/22/2011

Corporate Finance Alert: Missouri Corporate Franchise Tax Repealed

On April 26, 2011, Missouri Governor Jay Nixon signed into law a bill that, starting on January 1, 2012, and ending on January 1, 2016, phases out the Missouri corporate franchise tax, a tax levied on the assets and stock of a corporation located in Missouri.

The Missouri franchise tax was first levied in 1917. In 2009, the Missouri legislature enacted legislation exempting businesses with a valuation of less than $10 million from payment of the franchise tax. A corporation's franchise tax liability is determined by multiplying the applicable franchise tax rate by the corporation's outstanding shares of stock and surplus. 

The new legislation provides for a phase-out and repeal of the corporate franchise tax pursuant to which, beginning on or after January 1, 2012, the franchise tax rate will be gradually reduced and completely eliminated by January 1, 2016. The gradual reduction in the rate will take effect as follows: 

Tax Year	Rate
2012	1/37th of 1% or 0.00027
2013	1/50th of 1% or 0.0002
2014	1/75th of 1% or 0.000133
2015	1/150th of 1% or 0.000066667
2016	0%

Additionally, the legislation provides that if a corporation paid a franchise tax in the taxable year of 2010, its maximum annual franchise tax liability between January 1, 2011, and December 31, 2015, will be capped at the franchise tax paid in 2010. If a corporation did not owe franchise tax prior to January 1, 2011, the total amount of the corporation's franchise tax liability will be capped at the amount of its franchise tax liability for its first year of existence. Consequently, if a corporation experiences substantial growth in the given time frame, its franchise tax liability will not increase. Should a corporation's valuation drop, the franchise tax liability will be reduced accordingly.

According to a statement from Governor Jay Nixon's office, about 3,000 businesses stand to benefit from the bill. To provide an example of the impact, a business with assets greater than $10 million will save more than $6,700 over the course of the five-year phase-out period. The bill will take effect on August 28, 2011.

For more information on this alert, contact Craig Evans or any of our Corporate Finance attorneys.