United States

Missouri: Governor Nixon Signs Legislation Providing Guidance on Sourcing Service and Intangible Receipts

May 11, 2015
From KPMG TaxWatch

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Under Missouri law, multistate businesses may elect to apportion their income using a unique single-factor formula based on business transacted in Missouri (the numerator of which equals all of the taxpayer’s sales wholly within Missouri and half of its sales partly within and partly without Missouri), an equally-weighted three-factor formula, or a more traditional single-sales factor methodology. Under the traditional single-sales factor method, which was adopted in 2013, taxpayers determine Missouri taxable income based on total sales within Missouri divided by total sales everywhere. As originally enacted, the statute included guidance on how to source receipts from sales of tangible personal property, but did not address how to source receipts from sales of other than tangible personal property. The Missouri Department of Revenue has interpreted this lack of guidance as precluding taxpayers that are not selling tangible personal property from making the single-sales factor election.

Last year, Governor Nixon vetoed several bills providing guidance on how taxpayers electing the single-sales factor apportionment methodology should source service and intangible receipts. However, on May 6, 2015, Governor Nixon signed similar legislation, Senate Bill 19. Under this bill, a sale of other than tangible personal property is considered to be in Missouri if the taxpayer’s market for the sale is in Missouri. Receipts from the sale of a service are attributed to Missouri if the ultimate beneficiary of the service rendered by the taxpayer or the taxpayer’s designee is located in Missouri. Receipts from rented, leased, licensed, or sold intangible property are generally sourced to Missouri if the intangible property is used in Missouri. All other receipts from intangible property that are not specifically addressed will be excluded entirely from the numerator and the denominator of the sales factor. If the state or states of assignment cannot be determined, then taxpayers are allowed to reasonably approximate the state or states of assignment. If it is not possible to reasonably approximate, then the affected sales are thrown out of the sales factor entirely. The bill does not provide a specific effective date for the new market sourcing provisions. However, under the Missouri Constitution, legislation becomes effective ninety days after the Missouri Legislature adjourns sine die. Assuming the legislature adjourns May 31 as expected, Senate Bill 19 will become effective on August 28, 2015. Note that when the legislature adopted the new single-sales factor election in 2013, the Department of Revenue took the position that the election was available for any return filed after the August 28 effective date. Presumably, the Department would apply the same rationale to the new market sourcing provisions. Please contact Guy Creveling 404-222-3349 or Derek Love at 816-802-5220 with questions on Senate Bill 19.  


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The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.