Taxes, Fees & More
Details matter for any business – especially new ones. Here’s some info to get you started.
Business Formation Fees
Missouri’s initial fee for a domestic corporation is $58 on the first $30,000 of authorized capital plus $5 on each additional $10,000. For foreign (non-Missouri) corporations, Missouri assesses a $155 fee for issuance of a certificate of authority to do business in Missouri. Also, foreign corporations are required to file an annual affidavit of capital and surplus, or the value of the corporation’s property located in Missouri. Foreign and domestic corporations pay $45 annually for registration with the Secretary of State’s office.
Corporate Franchise Taxes
The Missouri annual corporation franchise tax is assessed at 0.033% of the par value (face value) of the outstanding shares and surplus. Outstanding shares and surplus is the value of total assets or the par value of issued and outstanding capital stock, whichever is greater. Companies with less than $1,000,000 in outstanding shares and surplus in Missouri are not taxed. Non-profit corporations, express and insurance companies paying an annual tax on gross receipts or premium receipts in Missouri, and certain other firms are also exempt. Capital stock without a par value is valued at $5 per share or at its actual value, whichever is greater. Multi-state corporations are subject to the franchise tax on the portion of total company shares and surplus which is in Missouri.
Note that several of the programs which offer credits to state income taxes can also be applied to taxpayers’ franchise tax liability. The return for Missouri’s franchise tax is filed with the Department of Revenue.
Corporate Income Taxes
Missouri administers an income tax measured by net income of the corporation. The determination of taxable income begins with net taxable income reported for federal income tax purposes. Missouri permits deduction of operating expenses from gross income in arriving at net taxable income. Missouri’s corporate income tax rate is 6.25% of net taxable income earned in the state. (Note that Missouri allows 50% of federal income tax payments to be deducted before computing taxable income.)
Missouri corporate income tax is based on federal taxable income with adjustments for state income taxes, interest from exempt federal obligations, and other less common adjustments.
The tax rate for corporations is 6.25% applied to Missouri taxable income. In addition, Missouri allows 50% of federal income tax payments to be deducted before computing taxable income. Using the deduction, a corporation with a taxable income of $1 million would have a Missouri effective tax rate of only 5.2%. Estimates must be filed and quarterly payments made, if the tax is reasonably expected to exceed $250.
For corporations conducting business both inside and outside Missouri, only income earned in Missouri is taxed. Two allocation options are offered for calculating this income: 1) a single-factor formula based on sales, or 2) a three-factor formula based on property, payroll, and sales. Missouri is the only state that permits companies to choose the formula that results in the lesser corporate income tax liability.
Kansas City, Mo., imposes a tax at the rate of 1% on net profits earned by all corporations as a result of work done or services performed within its boundaries. Federal and state income taxes are not deductible, but local taxes paid are deductible. Apportionment of earnings, where the company has established places of business both in and out of the city, is made by use of a three-factor formula based on property, payroll, and sales.
A variety of benefits, including an array of income tax credits, are available to companies which create new jobs and new investment within Missouri.
The Missouri Department of Revenue can be found on the web at http://dor.state.mo.us/tax/.
Individual Income Taxes
The state of Missouri uses a graduated tax rate schedule based on net taxable income. Personal exemptions, itemized deductions, or standard deductions are applied to gross income to obtain net taxable income.
The tax rate for individuals ranges from 1.5% on the first $1,000 of taxable income to 6% of taxable income over $9,000. Missouri taxable income is reduced by the amounts of various standard and itemized deductions. The standard deductions include: a portion of federal income tax paid (up to $5,000 on a single return and $10,000 on a joint return), $1,200 for each dependent, $2,100 for each personal exemption, as well as the federal standard deduction for a married couple filing jointly who does not itemize deductions.
The Missouri Department of Revenue can be found on the web at http://dor.state.mo.us/tax/.
Property Taxes
A variety of services are offered by local municipalities, which must be carefully considered in conjunction with property tax rates. Throughout the area, there are numerous taxing authorities for services such as schools, fire prevention, and libraries. All of these taxing authorities may impose levies in any given community, thus, tax rates will vary for every municipality.
The local property tax rate is an aggregate of school, city, county, and state levies expressed as tax per $100 of assessed valuation. Property is assessed on the basis of “fair or true market value.” All property, real and tangible personal, is taxable unless expressly exempt.
Examples of exemptions include:
Inventories of retail merchants, manufacturers, and wholesalers, including raw materials and goods in process.
Property “actually and regularly used exclusively” by an exempt organization pursuant to its exempt purposes and not held for private or corporate profit.
The State Tax Commission of Missouri is the agency charged with overseeing Missouri’s property tax system.
Assessment Ratios
Commercial and industrial real property is assessed at 32% of fair market value.
Tangible personal property, not elsewhere classified, is assessed at 33 1/3% of fair market value.
Residential property is assessed at 19% of fair market value.
Agricultural property is assessed at 12% of fair market value.
Real Property
All property is appraised at its fair or true market value by the county. Commercial and industrial real property (i.e., land and buildings) is assessed an additional county surcharge designed to replace revenue losses attributable to the tax exemption of business inventories.
Tangible Personal Property
Assessed values of tangible personal property in Missouri are set at 33 1/3% of fair or true market value. Most counties in the metropolitan area use formulas under which original costs of depreciable personal property are discounted to determine true values. Tangible personal property includes machinery and equipment.
Intangible Personal Property
There is no tax on intangible personal property.
Non-Business Personal Property
The state has authorized local governments to apply a tax based on the actual cash value of licensed motor vehicles (automobiles, trucks, motorcycles), boats, motors, trailers, campers, livestock, and feed. The assessment ratio for this type of property is 33 1/3%.
Effective 2004 Real Property Tax Rates (Kearney)
Commercial (Real): 7.56%
Residential: 5.97%
Personal: 5.97%
Sales & Use Taxes
Sales tax is applicable on all sales made from a location within a state. Use tax applies to property for use, storage, or consumption that was purchased from an out-of-state vendor.
The state of Missouri levies a 4.225% sales/use tax on purchases other than retail sales of food. Food is taxed by the state at 1.225%. The sales tax is applied to all retail purchases plus taxable services such as utilities sold at retail to the consumer. Counties in the metro area impose levies ranging from 0.75% to 1.5%. Local municipalities have levies that range from 0% to 3.375%. Local county and municipal sales taxes apply to food as well as other retail purchases. However, many local counties and municipalities do not impose any use tax above the state rate. Total sales taxes in the Missouri portion of the metro range from 4.975% to 8.35% for non-food purchases and from 1.975% to 5.35% for food. Total use taxes (non-food) range from 4.225% to 7.975%.
If the sale or use of property has already been subject to a tax of less than 4.225% by any state, then the tax is the difference between 4.225% and the tax that has already been imposed.
Unemployment Insurance
In Missouri, the unemployment insurance tax is levied on the first $7,500 of an employee’s annual compensation. The taxable wage base can increase or decrease in increments of $500, depending on the state’s unemployment fund balance, but it cannot fall below the federally required minimum of $7,000. In 2003, employers with a credit balance pay tax rates from 0.0% to 3.51%. An employer with a deficit account pays 4.68% to 7.80%. The normal entry rate set for a new employer is contingent upon the type of business involved, however, in 2003, all new employers pay 3.51%, except nonprofit and governmental entities whose rate is 1.30%.
Thus, a new employer’s cost per employee would be 3.51% of $7,500, or $263. An employer may qualify for a rate below the entry rate based on at least 12 months benefit chargeability. A new employer may qualify for a rate based on a predecessor’s experience in the case of an acquisition of a business. The maximum unemployment benefit in 2003 is $250 per week for up to 26 weeks.
Many states have had to adopt the usage of surtaxes to defray the costs of benefits attributed to the severity and duration of the most recent recessionary period. The surtax in Missouri is based on the unemployment compensation fund balance and increases rates by 10, 20 or 30% of the tax due or reduces rates by 7 or 12% of tax due, depending on the balance in the fund. For 2003, there is a surcharge of 30% on rates due to the fund balance. (Note that the 3.51% entry rate referred to above is the total rate including the currently applicable surcharge.
The Department of Labor and Industrial Relations’ Division of Employment Security oversees unemployment insurance in Missouri.
Shared Work Program
This program was initiated to encourage job retention. Under the program, employers reduce work hours a certain percentage, rather than lay off employees. Those employees then receive both wages for actual hours worked, and partial unemployment insurance benefits
Worker’s Compensation
Workers’ compensation provides benefits to injured employees for accidents or occupational diseases arising out of, and in the course of, their employment. Compensation coverage is available through private insurance carriers licensed by the state, but self-insurance is allowed in both states with approval from the states’ Division of Workers’ Compensation.
Costs vary for individual businesses and are dependent upon type of employment (occupational risk), estimated annual remuneration, and the company’s loss experience.
All businesses with five or more employees (excluding agricultural or domestic labor) must provide workers’ compensation insurance to protect their workers in case of job-related injury, illness, or death. Construction employers with one or more employees must provide workers’ compensation insurance. Companies can offer this protection through a private insurance carrier or they can become self-insured. Premium rates vary depending on the risks associated with special occupations and on the employer’s loss (or injury) experience. Beginning in 1994, insurance rates are set by each insurance company on a competitive basis and employers have the opportunity to shop around for the lowest rates.
As in most states, the premium rates apply to an employee’s total annual salary. The maximum weekly benefit for temporary total disability payments of up to two-thirds of his or her average weekly wage. Additional payments are required if the employee has a permanent impairment or cannot return to work. If the injury results in death, benefits are paid to the employee’s surviving dependents. Missouri’s maximum weekly benefit for the period July 1, 2003 through June 30, 2004 is $662
Missouri’s workers’ compensation rates compare favorably with those of other states. Deregulation of rates, the introduction of competition, and other recent workers’ compensation insurance reforms have lead to dramatic decreases in premiums. Missouri’s rates dropped by 9.4% in 1999 and 7.2% in 2000. In 2001, rates increased by 3.6%. Since 1994, Missouri employers have saved $175 million in premiums. Losses paid have dropped from $605.4 million in 1991 to $487.2 million in 2000.
An additional employer cost related to workers’ compensation is a premium tax to finance the expenses of the Missouri Division of Workers’ Compensation (up to 2%) and a premium surcharge to finance the Second Injury Fund. Both of these charges may be suspended or reduced depending on the amount needed for the administrative costs of the Division or the amount needed to maintain the proper balance of the Fund. During 1994 through 1997 both rates were either suspended or were reduced by 50%. The rates were in effect at their full amounts in 1998 and 1999. During Calendar years 2000 and 2001, the premium tax was suspended, but the surcharge on premiums was 3% and 2.5% respectively. During the calendar year 2002, the state of Missouri will assess a workers’ compensation administrative tax of 1%, and a Second Injury Fund surcharge of 2.5%. In calendar year 2003, the administrative tax is assessed at 2.0% and the Second Injury Fund surcharge is assessed at 4.0%.
To aid in shopping among insurers, the state has set up a toll-free number for employers (888.200.1697). Information on companies with the lowest rates as well as the high, medium, and low rates for any particular class code is faxed back or mailed to the employer shopping for coverage. Additionally, employers can use the web version of the hotline, which provides the insurance rates for all carriers.
The Missouri Divison of Workers’ Compensation is on the web at http://www.dolir.state.mo.us/wc/index.htm.