Missouri enacts alternative single sales factor apportionment election
TAX ALERT |
Pursuant to Missouri HB 128, effective Aug. 28, 2013, entities subject to Missouri’s corporation income tax may without state approval elect to apportion income using any of the following methods:
- The state’s standard three-factor apportionment formula with equally weighted property, payroll, and sales factors, with sales of tangible property sourced based on the ultimate destination
- The state’s preexisting single sales factor formula, which includes in the numerator receipts from sales of tangible property transacted wholly within Missouri plus one-half of total receipts from sales of tangible property transacted partly within and partly without the state or
- A new single sales factor formula, which includes in the numerator receipts from sales of tangible property only if the purchaser’s ultimate destination for the property is within Missouri, without regard to the freight on board (FOB) shipping point or other conditions of sale
As with the preexisting single sales factor formula, the new single sales factor formula does not have a throwback rule. Under the standard three-factor formula, Missouri requires taxpayers to throwback sales of tangible property either shipped from Missouri to a purchaser in a state in which the taxpayer is not taxable, or sold by a Missouri-based salesperson and shipped from a state other than Missouri to a purchaser in a state in which the taxpayer is not taxable. Accordingly, from an overall perspective, the new formula allows a taxpayer with substantial property and payroll to obtain the benefit of single sales factor sourcing (1) without the preexisting single sales factor requirement to include 50 percent of receipts from sales originating in Missouri with an out-of-state destination in the sales factor, and (2) without application of a three-factor style throwback rule.
However, HB 128 leaves a number of open issues. For example, the effective date of the revised apportionment election provisions leaves open the question of whether the new option applies to returns filed for tax years beginning on or after Aug. 28, 2013; returns filed for tax years ending on or after Aug. 28, 2013; or returns due on or after Aug. 28, 2013. Additionally, the legislation provides no guidance regarding how taxpayers that elect to utilize the new single sales factor formula must source receipts from sales other than sales of tangible property. The Missouri Department of Revenue has indicated that it intends to address all of these issues, but it has not done so as of the date of this alert. Accordingly, taxpayers should consider the benefits provided by the new option in light of these open issues when determining whether to make the election in the near term.