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July 11, 2022

Missouri Reintroduces R&D Tax Credit and Changes to State and Local Tax Treatment and MO Works Program

A Missouri bill, HB 2400, was recently signed into law and will impact businesses across the state. With several provisions affecting the R&D tax credit, Missouri Works program, the State and Local Tax Parity Act and more, the new law takes effect for tax years ending on or after 12/31/2022.

New Missouri R&D Tax Credit

While Missouri offers a sales tax exemption for research and development (R&D) purchases made within the state, Missouri has been without a state R&D tax credit since the program expired in 2005. This legislation sets aside $10 million for a new R&D tax credit to help businesses finance innovation. It also dedicates $5 million specifically to small businesses, minority-owned businesses and women-owned businesses. The tax credit will be equal to 15% of qualified research expenses and up to 20% if the research is done through a Missouri university.

Changes to the Missouri Works Program

With the current labor shortage and economic impacts of the pandemic, many businesses were unable to hire as projected. As a result, these companies would have been ineligible for the Missouri Works program and denied the benefits they would have received if not for the pandemic. This new law will offer relief by suspending the Missouri Works program when a statewide state of emergency exists for more than 16 months. It’s important to note that benefits will be suspended, but participants will not lose the opportunity to participate in the program.

State and Local Tax Opportunities

The law establishes the State and Local Tax (SALT) Parity Act allowing partners and shareholders in flow-through entities to take full advantage of federal tax deductions and allowing credit for taxes paid in other states.

According to the Missouri Senate, the prior law provided that, in lieu of a corporate income tax on a pass-through entity, shareholders of such pass-through entities shall pay income tax on the shareholder’s pro rata share of the entity’s income attributable to Missouri. For tax years ending on or after December 31, 2022, this Act allows the pass-through entity to elect to pay the tax, as described in the Act. The tax would be equal to the sum of each member’s income and loss items, as described in federal law, reduced by a deduction allowed for qualified business income, as described in federal law, and modified by current provisions of state law relating to the taxation of pass-through entities, with such sum multiplied by the highest rate of tax in effect for the state personal income tax.

There are several other provisions in HB 2400, including:

  • Changes to LLC campaign contributions
  • Changes to several tax credits, including:
    • Business headquarter tax credit
    • Tax Credit Accountability Act
    • S Corp tax credit
    • Health insurance deduction tax credit
  • Extends the Missouri RX Plan
  • Treatment of professional employer organizations
  • Requirements for gambling boat facilities
  • Modifies the Show-Me Heroes Program and Missouri One Start Program
  • Establishes the Personal Privacy Protection Act and Citizen’s Land Development Cooperative Act

Our advisors are closely following legislation changes and will continue to publish insights to keep you informed. To discuss how we can best assist you and the associated fees, contact an Anders advisor below.

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