Current through Register Vol. 49, No. 18, September 16, 2024
PURPOSE: This rule interprets sections
143.431
and
143.455,
RSMo for purposes of the apportionment and allocation of a corporate taxpayer's
income where that taxpayer is taxable in another state.
(1) Income Derived from Sources Within this
State. On or after January 1, 2020, a corporation's income derived from sources
within Missouri is its federal taxable income allocated to Missouri or
apportioned to Missouri pursuant to section
143.455,
RSMo. Section
143.455,
RSMo replaces all methods and tests previously used in Missouri to apportion
and allocate corporate income, including the 'source of income test' and the
Multistate Tax Compact three-factor method.
(2) Definitions.
(A) "Allocation" refers to the assignment of
a portion of net income to a particular state. Any taxpayer subject to the
taxing jurisdiction of this state shall assign all of its nonapportionable
income within or without this state in accordance with sections
143.455.5.-143.455.9., RSMo.
(B)
"Apportionment" refers to the division of apportionable income between states
by the use of a formula containing one (1) or more apportionment
factors.
(C) "Director" or
"Director of Revenue" shall mean the Missouri Director of Revenue or his/her
duly authorized agent or designee.
(D) "Franchise tax," as that term is used in
section 143.455.4., RSMo and in this regulation, means a tax, or a portion of a
tax, charged for the privilege of doing business in a state.
(E) "Gross receipts" are the gross amounts
realized (the sum of money and the fair market value of other property or
services received) on the sale or exchange of property, the performance of
services, or the use of property or capital in a transaction which produces
apportionable income in which the income or loss is recognized under the
Internal Revenue Code, and, where the income of foreign entities is included in
apportionable income, amounts which would have been recognized under the
Internal Revenue Code if the relevant transactions or entities were in the
United States. Amounts realized on the sale or exchange of property are not
reduced for the cost of goods sold or the basis of property sold.
(F) "Net Income," for purposes of section
143.455,
RSMo, means the taxpayer's federal taxable income, net of Missouri additions,
subtractions and deductions; except, that in section 143.455.10., RSMo the
phrase "net income" refers to that portion of the taxpayer's federal taxable
income, net of Missouri additions, subtractions, and deductions which also
constitutes apportionable income;
(G) "Petition" or "Petitioning," as those
terms are used in section 143.455.13.(2)-(3), RSMo, means the filing of written
or electronic document(s) with the director at least sixty (60) days before the
end of the tax year to which alternative apportionment is sought to apply, in
the manner prescribed, and containing the following information:
1. The name and tax identification number of
the taxpayer seeking alternative apportionment;
2. The name, telephone number, email address,
and mailing address of each individual filing the petition on behalf of the
taxpayer;
3. A power of attorney
form (Form 2827) signed by an officer of the corporation authorizing the
person(s) named in paragraph (2)(G)2. above to serve as an authorized agent
with respect to any of the tax years to which the alternative apportionment may
apply and all previous tax years that may be discussed in connection with the
petition;
4. A statement describing
with particularity the alternative apportionment method sought;
5. A statement setting forth the facts and
arguments from the facts to the conclusion that the ordinary allocation and
apportionment provisions of section
143.455,
RSMo do not fairly represent the extent of the corporation's income applicable
to this state;
6. A statement
setting forth the facts and arguments from the facts to the conclusion that the
alternative apportionment method sought by the taxpayer is
reasonable;
7. A Missouri tax
return for the first tax year the alternative apportionment method is to be
applied, completed using the ordinary apportionment and allocation provisions
of section
143.455,
RSMo, and prepared using reasonably estimated figures; and
8. A Missouri tax return for the first tax
year the alternative apportionment method is to be applied, completed using the
alternative apportionment method sought, and prepared using reasonably
estimated figures.
(H)
"Receipts" has the meaning given in section 143.455.3.(6), RSMo, with the
following clarifications:
1. Receipts from the
maturity of a bond or other debt instrument are excluded from the definition of
"receipts" used in section 143.455.3.(6), RSMo.
2. Receipts from the sale or exchange of a
security are excluded from the definition of "receipts" used in section
143.455.3.(6), RSMo, even if the sale or exchange was made as part of a
corporation's regular business.
3.
Receipts from the sale or exchange of currency, including foreign currencies or
cryptocurrencies, are excluded from the definition of "receipts" used in
section 143.455.3.(6), RSMo.
(I) "Receipts Factor" means the fraction
stated in section 143.455.10., RSMo, the numerator of which is the total
receipts of the corporation in Missouri during the tax period and the
denominator of which is the total receipts of the corporation everywhere during
the tax period.
(J) "Securities,"
means any interest or instrument commonly treated as a security as well as
other instruments which are customarily sold in the open market or on a
recognized exchange, including, but not limited to, transferable shares of a
beneficial interest in any corporation or other entity, bonds, debentures,
notes, and other evidences of indebtedness, accounts receivable and notes
receivable, cash and cash equivalents including foreign currencies, and
repurchase and futures contracts.
(K) "Taxpayer" or "Entity" means any
individual, corporation, partnership, firm, association, or governmental
unit.
(L) "Ultimate beneficiary of
the service," as that term is used in section 143.455.12.(1)(c), RSMo and
except for bartering or similar in-kind transactions, means the entity that
receives benefit or value from, but does not also receive monetary or
credit-based payment (other than refunds, cashback, or discount-equivalents) in
direct connection with, the service at issue. Examples of the ultimate
beneficiary of the service include:
1. For
entertainment services, the individual(s) viewing, interacting with,
experiencing, or otherwise deriving entertainment value from such
services;
2. For education
services, the individual(s) receiving instruction, teaching, coaching, or
lectures from the education provider, regardless of the medium used to transmit
such educational content (e.g. telephonically or by internet or
mail);
3. For investment advising
or investment management services, the location of the ultimate investor,
determined by ignoring investment intermediaries such as investment funds;
and
4. For advertising services,
the entities which have their products, services, or messages advertised
through the provider of advertising services.
(3) Apportionable Income. All income is
presumed to be apportion-able unless it is clearly nonapportionable under the
U.S. Constitution or the laws of this state. Sections 143.455.5. through
143.455.9., RSMo provide for the allocation of certain categories of income
only if that income is nonapportionable. In general all transactions and
activities of the taxpayer which are dependent upon, or contribute to, the
operations of the taxpayer's economic enterprise as a whole constitute the
taxpayer's trade or business and will be transactions and activity arising in
the regular course of, or will constitute integral parts of, a trade or
business. Income from such transactions and activities is apportionable income,
although the concept of apportionable income extends to all income of the
taxpayer unless nonapportion-able.
(4) Accounting Terms and Classification
Conventions. The categories and terms to describe income items used in
financial or other forms of accounting, or as conventions by any taxpayer or
industry, are not conclusive in determining whether any item of income
constitutes apportionable or nonapportionable income. The classification of
income by the labels occasionally used, such as manufacturing income,
compensation for services, sales income, interest, dividends, rents, royalties,
gains, operating income, nonoperating income, and the like, is not conclusive
in determining whether income is apportionable or nonapportionable
income.
(5) Taxable in Another
State. For purposes of section 143.455.4.(2), RSMo, another state has
jurisdiction to subject the taxpayer to a net income tax in the following
circumstances. The circumstances provided are non-exclusive and a taxpayer may
be subject to a net income tax in another state even if it fails to meet any of
the following:
(A) The taxpayer has its
commercial domicile in another state; or
(B) The taxpayer derives income from a part
of its unitary business in another state, and that taxpayer is not entitled to
the protections of the Interstate Income Act of 1959 with respect to that
state.
Even if a state cannot impose a tax on a taxpayer's net
income by operation of the Interstate Income Act of 1959, a taxpayer is still
taxable in that state if the taxpayer is subject to a franchise measured by net
income, a franchise tax for the privilege of doing business, or a corporate
stock tax in that state. A taxpayer is not taxable in another state with
respect to a particular trade or business merely because the taxpayer conducts
activities in the other state pertaining to the production of nonapportionable
income or business activities relating to a separate trade or business not
taxable by that state under the U.S. Constitution.
(6) Consistency in Reporting. In filing
returns with this state, if the taxpayer departs from or modifies the manner in
which the same item of income has been classified as apportionable income or
non-apportionable income in returns for prior years, the taxpayer shall
disclose in an attachment to the return for the current year the nature and
extent of the modification.
(7)
Taxable In Another State-Reporting. Any taxpayer which asserts that it is
subject to one (1) of the taxes generally described in section 143.455.4., RSMo
in another state shall furnish to the director, upon his/her request, evidence
to support the assertion. The director may request proof the taxpayer has filed
the requisite tax return in the other state and has paid any taxes imposed
under the law of the other state. The taxpayer's failure to produce proof may
be taken into account in determining whether the taxpayer in fact is subject to
tax in another state. If the taxpayer pays a minimal fee for qualification,
organization, or for the privilege of doing business in the state, but does not
actually engage in business activity in that state, or does actually engage in
some business activity, not sufficient for income tax, franchise tax, or stock
tax nexus, and the minimum tax bears no relation to the taxpayer's business
activity within that state, the taxpayer is not subject to tax in another state
for purposes of section 143.455.4., RSMo.
(A)
Example: State A has a corporation franchise tax measured by net income for the
privilege of doing business in that state. Corporation X files a return and
pays the fifty-dollar ($50) minimum tax, although it carries on no business
activity in State A. Corporation X is not taxable in State A.
(8) Taxability. The concept of
taxability in another state is based upon the premise that every state in which
the taxpayer is engaged in business activity may impose an income, franchise,
or stock tax even though every state does not do so. In states which do not
impose such taxes, other types of taxes, fees, or even penalties may be imposed
as a substitute for an income, franchise, or stock tax. Therefore, only those
taxes generally described in section 143.455.4., RSMo, which are essentially
revenue raising, rather than penalties or occupational/business licenses that
are not essentially revenue raising, shall be considered in determining whether
the taxpayer is subject to one of the taxes generally described in section
143.455.4., RSMo, in another state. Jurisdiction to tax is not present where
the state is prohibited from imposing the tax by reason of the provisions of
P.L. 86-272, 15 USCA Sections 381-385, and is further prohibited by federal law
from imposing a franchise tax measured by net income or for the privilege of
doing business, or a corporate stock tax.
(A)
Example: State A requires all nonresident corporations which qualify or
register in State A to pay to the secretary of state an annual license fee or
tax for the privilege of doing business in the state regardless of whether the
privilege is in fact exercised. The amount paid is determined according to the
total authorized capital stock of the corporation, and the rates are
progressively higher by bracketed amounts. The statute sets a minimum fee of
fifty dollars ($50) and a maximum fee of five hundred dollars ($500). Failure
to pay the tax bars a corporation from utilizing the state courts for
enforcement of its rights. State A also imposes a corporation income tax.
Nonresident Corporation X is qualified in State A and pays the required fee to
the secretary of state but does not carry on any business activity in State A
(although it may utilize the courts of State A). Corporation X is not taxable
in State A.
(B) Example: Same facts
as in the previous subsection except that Corporation X is subject to and pays
the corporation income tax. Payment is prima facie evidence that Corporation X
is subject to the net income tax of State A and is taxable in State
A.
(C) Example: State B requires
all nonresident corporations qualified or registered in State B to pay to the
secretary of state an annual permit fee or tax for doing business in the state.
The base of the fee or tax is the sum of outstanding capital stock, surplus,
and undivided profits. The fee or tax base attributable to State B is
determined by a three-factor apportionment formula. Nonresident Corporation X
which operates a plant in State B pays the required fee or tax to the secretary
of state. Corporation X is taxable in State B.
(D) Example: State A has a corporation
franchise tax measured by net income for the privilege of doing business in
that state. Corporation X files a return based upon its business activity in
the state but the amount of computed liability is less than the minimum tax.
Corporation X pays the minimum tax. Corporation X is subject to State A's
corporation franchise tax.
(9) Receipts Factor. Generally, all gross
receipts of a taxpayer that are received from transactions and activity in the
regular course of the taxpayer's trade or business are considered receipts for
purposes of the receipts factor. Where a taxpayer's entire activity in the
regular course of trade or business is composed of hedging transactions or the
disposition of cash or securities, such that the denominator of the receipts
factor would be zero, the total receipts factor shall be one hundred percent
(100%); in such instances, taxpayers are invited to apply for alternative
apportionment pursuant to section 143.455.13., RSMo. Exclusion of an item from
the definition of "receipts" is not determinative of its character as
apportionable or nonapportionable income. The following are additional rules
for determining "receipts" in various situations:
(A) In the case of a taxpayer engaged in
manufacturing and selling or purchasing and reselling goods or products,
"receipts" includes all gross receipts from the sales of such goods or products
(or other property of a kind which would properly be included in the inventory
of the taxpayer if on hand at the close of the tax period) held by the taxpayer
primarily for sale to customers in the ordinary course of its trade or
business. Gross receipts for this purpose means gross sales less returns and
allowances;
(B) When property being
shipped by a seller from the state of origin to a consignee in another state is
diverted while en route to a purchaser in this state, the sales are in this
state.
1. Example: The taxpayer, a produce
grower in State A, begins shipment of perishable produce to the purchaser's
place of business in State B. While en route, the produce is diverted to the
purchaser's place of business in this state in which state the taxpayer is
subject to tax. Receipts from this sale by the taxpayer are attributed to this
state;
(C) In the case
of cost plus fixed fee contracts, such as the operation of a government-owned
plant for a fee, "receipts" includes the entire reimbursed cost plus the
fee;
(D) In the case of a taxpayer
engaged in providing services, such as the performance of equipment service
contracts or research and development contracts, "receipts" includes the gross
receipts from the performance of such services, including fees, commissions,
and similar items;
(E) In the case
of a taxpayer engaged in the sale of equipment used in the taxpayer's trade or
business, where the taxpayer disposes of the equipment under a regular
replacement program, "receipts" includes the gross receipts from the sale of
this equipment. For example, a truck-based delivery company that owns a fleet
of trucks and sells its trucks under a regular replacement program the gross
receipts from the sale of the trucks would be included in "receipts";
and
(F) For purposes of determining
the receipts factor, receipts are presumed not to include:
1) damages and other amounts received as the
result of litigation;
2) where the
taxpayer is an agent of another, property acquired by that agent on behalf of
another;
3) tax refunds and other
tax benefit recoveries;
4)
contributions to capital;
5) income
from forgiveness of indebtedness;
6) amounts realized from exchanges of
inventory that are not recognized by the Internal Revenue Code; or
7) amounts realized as a result of factoring
accounts receivable recorded on an accrual basis; and
8) repayment of loan
principal.
(10) Ultimate Beneficiary Approximation. In
the event that the ultimate beneficiary is a corporation or other entity that
owns, or operates in, locations in multiple states, and the extent to which the
ultimate beneficiary is located in Missouri is not reasonably deter-minable-
(A) The extent to which the ultimate
beneficiary is located in Missouri may be reasonably approximated as the ratio
of the ultimate beneficiary's locations in Missouri to the number of its
locations throughout the United States;
(B) If the ratio in subsection (10)(A) above
is not reasonably deter-minable, the extent to which that ultimate beneficiary
is located in Missouri may be approximated as the ratio of one to the number of
states in which the ultimate beneficiary operates; and
(C) If the ratio in subsection (10)(B) is not
reasonably deter-minable, the extent to which the ultimate beneficiary is
located in Missouri may be approximated as fifty percent (50%). A taxpayer
shall not be subject to an addition to tax for negligence in relying upon this
approximation.
(11)
Alternative Apportionment by the Director. Consistent with section 143.455.13.,
RSMo, the director may adjust a taxpayer's return to utilize, or if no return
was filed the director may utilize in estimating Missouri taxable income, an
alternative apportionment method in order to equitably allocate and apportion
the corporation's income. In this event, a taxpayer adversely affected by this
determination challenges such a determination by raising it as an issue in the
taxpayer's protest of a notice of deficiency under section
143.631,
RSMo, or refund denial under section
143.841,
RSMo. Whether the director has proven the requirements of section
143.455.13.(3)(a)-(b), RSMo, by a preponderance of the evidence is a
determination within the director's discretion.
(12) Petition for Alternative Apportionment
by the Taxpayer. A taxpayer may seek alternative apportionment under section
143.455.13.(2), RSMo by filing a petition in the manner prescribed on the
director's website or latest corporate income tax return instructions. A
petition is subject to denial if it fails to comport with the definition of
petition set forth in this regulation. A denial by the director may be appealed
to the Administrative Hearing Commission consistent with section
621.050,
RSMo.
(13) Transactions and
Activity in the Regular Course of the Taxpayer's Trade or Business. For a
transaction or activity to be in the regular course of the taxpayer's trade or
business, the transaction or activity need not be one that frequently occurs in
the trade or business. Most, but not all, frequently occurring transactions or
activities will be in the regular course of that trade or business. It is
sufficient to classify a transaction or activity as being in the regular course
of a trade or business, if it is reasonable to conclude transactions of that
type are customary in the kind of trade or business being conducted or are
within the scope of what that kind of trade or business does. However, even if
a taxpayer frequently or customarily engages in investment activities, if those
activities are for the taxpayer's mere financial betterment rather than for the
operations of the trade or business, such activities are not in the regular
course of the taxpayer's trade or business. Examples of income from activity in
the regular course of the taxpayer's trade or business include, but are not
limited to:
(A) Income from sales of
inventory, property held for sale to customers, and services which are commonly
sold by the trade or business; and
(B) Income from the sale of property used in
the production of apportionable income of a kind that is sold and replaced with
some regularity, even if replaced less frequently than once a year.
(14) Unitary Business of the
Taxpayer.
(A) A unitary business is a single
economic enterprise that is made up either of separate parts of a single entity
or of a commonly controlled group of entities that are sufficiently
interdependent, integrated, or interrelated through their activities so as to
provide synergy, mutual benefit, the sharing or exchange of value among them,
or a significant flow of value to the separate parts of the economic
enterprise. This sharing, exchange, or flow of value may also be described as
requiring that the operation of one (1) part of the business be dependent upon,
or contribute to, the operation of another part of the business. If the
activities of one (1) business either contributes to the activities of another
business or are dependent upon the activities of another business, those
businesses are part of a unitary business. A single taxpayer may have more than
one (1) unitary business.
(B) A
unitary business may exist within a single taxpayer or among a commonly
controlled group of taxpayers. A taxpayer's formal business organization
structure is not determinative of a taxpayer's unitary business.
(C) The purpose of this subsection is to
clarify the concept of "unitary business" to aid in determining a taxpayer's
apportionable income. A taxpayer's apportionable income includes, but is not
necessarily limited to, the income from one (1) or more unitary busi-ness(es)
of the taxpayer, any part of which is conducted within Missouri. An item of
income is from a unitary business if it is described by either sections
143.455.3.(1)(a)a. or 143.455.3.(1)(a)b., RSMo, but the concept of unitary
business income is not necessarily limited to income described in those
statutory provisions.
(D) The
factors of functional integration, centralization of management, and economies
of scale, alone or in combination, provide evidence of whether a set of
business activities constitutes a unitary business. Further indicators
providing evidence of a unitary business include business activities in the
same line of business or business activities which are steps in a vertical
business process.
(E) Nothing in
this section should be construed to create a "combined reporting" requirement
under which a taxpayer is obligated to include in its consolidated group on its
consolidated Missouri tax return all entities with which the taxpayer has a
unitary business relationship.
(F)
A taxpayer's unitary business is presumed to include, but is not presumptively
limited to, the industry description within the North American Industry
Classification System corresponding to the Principal Business Activity Code(s)
reported on the taxpayer's federal income tax return or related
filings.
