Missouri lawmakers take aim at corporate franchise tax

Wednesday, January 26, 2011 | 4:04 p.m. CST; updated 9:35 p.m. CST, Wednesday, January 26, 2011

JEFFERSON CITY — Missouri lawmakers set their sights Wednesday on eliminating a tax that businesses pay on their assets.

Business groups and lawmakers contend the corporate franchise tax hurts the state's economic development by discouraging businesses from growing. Others complain that the corporate franchise tax amounts to double taxation because Missouri also levies a corporate income tax.

Since 1917, Missouri has charged a franchise tax on corporations' assets such as inventory and buildings, though the state has gradually reduced the tax rate and exempted smaller businesses. In 2009, lawmakers exempted firms with less than $10 million in assets.

Legislation filed in the House would cap the franchise tax that businesses owe at $2 million, but lawmakers said they planned a new approach. Instead of a tax cap, they planned to freeze what businesses were required to pay. Under that proposal, businesses would not pay more for the franchise tax than what they paid last year. The measure was considered Wednesday by a House tax committee.

Sponsoring Rep. Jerry Nolte said the franchise tax was stunting Missouri's economic growth.

"Double taxation is not what you want to do if you want to encourage capital investment in our state," said Nolte, R-Gladstone.

Nolte said his goal is to repeal the franchise tax.

A Senate bill sponsored by Sen. Eric Schmitt, R-Glendale, would do just that by reducing the tax rate over five years until the tax is repealed for the 2016 tax year. Separate legislation sponsored by Schmitt also had created a $2 million cap on what businesses pay for the franchise tax, but he too planned to change the bill to instead freeze what companies owe. Both bills also were considered Wednesday by a Senate committee.

Schmitt said the corporate franchise tax is "antiquated" and creates an incentive for businesses to keep their assets out of Missouri.

A cost estimate based on 2009 tax data estimated that Missouri collects more than $70 million from the franchise tax. That estimate does not account for the franchise taxes that business no longer are required to pay because of the exemption for firms with less than $10 million in assets. The Department of Revenue previously estimated that the exemption would shrink state revenue by $14.5 million.

Legislative staff estimate that the initial proposal to cap franchise tax payments at $2 million would not cost the state revenue in the budget year that starts in 2012. It would cost about $1.2 million per year in 2013 and 2014.

Animosity toward the franchise tax among businesses was clear.

Ray McCarty, the president of the Associated Industries of Missouri, said lawmakers should eliminate the franchise tax as quickly as possible.

"We're very much supportive of capping, freezing, eliminating, torturing, killing the franchise tax," McCarty said.


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