Missouri enacts changes to alternative single factor apportionment formula
Clarifies sourcing of sales other than sales of tangible property
TAX ALERT |
On May 6, 2015, Missouri Gov. Jay Nixon signed into law Missouri Senate Bill 19, which clarifies the provisions of the state’s elective alternative single factor apportionment method for determining what portion of a corporation's income is taxable in Missouri that was enacted in 2013 pursuant to Missouri House Bill 128, previously discussed in detail in our prior alert.
Under Missouri HB 128, sales of tangible property are considered to have a Missouri situs if the final destination of the tangible property was to Missouri. However, HB 128 left a good deal of uncertainty regarding the sourcing of sales other than sales of tangible personal property, such as sales of services and intangibles. Missouri SB 19 clarifies that sales other than tangible personal property should be sourced as follows:
- Real property or rentals of tangible personal property - For sales of real property or rentals of tangible personal property, the portion of the property sold or rented that is located in this state will be considered an in-state sale.
- Sales of services - For sales of service, the portion of the benefits delivered to an ultimate beneficiary in this state will be considered an in-state sale.
- Rental or license of intangible property - For rentals or licenses of intangible property, the portion used in this state by the rentee or licensee will be considered an in-state sale. Intangible property used for marketing will be considered used in this state if the good or service being marketed is purchased by a consumer in this state.
- Royalties or franchise fees - For franchise fees or royalties for intangible property are considered used in this state if the franchise is located in this state.
- Sales of intangible property - For sales of intangible property, the portion of the sale used in this state will be considered an in-state sale.
- Geographic - If the sale is for the right to conduct business activity in a certain geographic area, the sale will be in Missouri if the geographic area is in this state.
- Productivity - If receipts for sales of intangible property are dependent on use or productivity, such sale shall be considered a lease or rental of intangible property.
- All others - All sales of intangible property other than the right to conduct business in a specific area or sales with receipts contingent on productivity or use will be excluded (thrown out) from the sales factor when determining corporate income tax.
- Throwout sales - If it cannot be determined or reasonably approximated that a sale occurs in this state, such sale shall be excluded from the sales factor for corporate income taxation.
These clarifications should assist taxpayers in determining whether there is a benefit to making the irrevocable election to use the new single factor formula. Taxpayers should review the projected liability impact of the differences between the old single factor formula, the multistate tax compact three-factor formula, and the new alternative single factor formula before deciding which formula to use in preparing their corporate income tax return.