UPDATE: Missouri Senators discuss eliminating corporate franchise tax

Wednesday, January 26, 2011 | 8:41 p.m. CST; updated 12:23 p.m. CST, Monday, February 28, 2011

JEFFERSON CITY — Missouri business owners and representatives showed their support in front of the Senate Jobs Committee on Wednesday for two bills that would effectively rid the state of the corporate franchise tax.

Legislative staff cited estimates that Missouri collects more than $70 million per year from the tax on corporations' assets.

Capping the franchise tax was one of six proposals that a consortium of the state's major business organizations endorsed at the start of the legislative session earlier this month.

Ray McCarty, president of Associated Industries of Missouri, a business trade association, said his group wants the corporate franchise tax eliminated  but that the organization would accept what they could get from the bills.

"If there is any way we can control, torture or kill this franchise tax, then we should do it," McCarty said to the committee.

Tracy King, a vice president with the Missouri Chamber of Commerce and Industry, called the franchise tax "antiquated" and a deterrent for business growth.

"Not only is it double taxation, it's an antiquated tax," King said. "It was only supposed to be temporary, but it is a disincentive for those employers to grow, and if they are going over the $10 million threshold there is a huge tax burden."

Committee Chairman Sen. Eric Schmitt, R-St. Louis County, sponsored the two bills and spoke to his fellow committee members about the franchise tax and its impact on corporate investment in Missouri.

"The tax was instituted about 100 years ago and is an outdated tax, created before there was a corporate income tax, and it's really a double tax on assets for businesses who already pay an income tax and sales tax," Schmitt said to the committee. "(Businesses) actually have an incentive to move their assets outside of the state, so this is really a disincentive for investment."

Schmitt has sponsored two different bills on the issue — one to cap the tax at its current maximum collection rate and the other to completely phase out the tax:

One bill will freeze the franchise tax at the 2010 level. Originally, the bill established a cap of $2 million for the tax, but it did not provide relief for small companies that go below that level, Schmitt said. The new bill provides that corporations will be taxed based on what they paid in 2010 or, if they are new companies, what they were taxed in their first fiscal year.

The second bill proposes to phase out the franchise tax over the next five years. Starting in 2012, the bill proposes to slowly reduce the franchise tax until it is phased out by 2016.

If enacted, the dissolution of the franchise tax would encourage corporate investment and expansion in Missouri, Schmitt said.

"(With the tax,) what you're telling companies is 'don't invest, don't make your capital improvements here,' and that's not a message we want to give," Schmitt said. "What we want to do is, as Illinois has raised their corporate income tax and personal income tax by two-thirds, we think this is a good way to set us apart and tell businesses that they can come here without being double taxed."

A measure to reduce the franchise tax cleared the House in 2009 but was killed by the Senate committee that reviews measures that would have a negative impact on the state's budget. Legislative staff estimated the proposal would have cost the state more than $7 million per year.

No one has testified against either of the new bills.

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