HCS/SS#2/SB 674 - This act modifies several provisions relating to taxation. INDIVIDUAL INCOME TAX Current law provides for the following tax brackets and rates of tax: If Missouri taxable income is: The tax is: Not over $1,000 1.5% Between $1,000 and $2,000 $15 plus 2.0% of excess Between $2,000 and $3,000 $35 plus 2.5% of excess Between $3,000 and $4,000 $60 plus 3.0% of excess Between $4,000 and $5,000 $90 plus 3.5% of excess Between $5,000 and $6,000 $125 plus 4.0% of excess Between $6,000 and $7,000 $165 plus 4.5% of excess Between $7,000 and $8,000 $210 plus 5.0% of excess Between $8,000 and $9,000 $260 plus 5.5% of excess Over $9,000 $315 plus 6.0% of excess For all tax years beginning on or after January 1, 2019, this act modifies such brackets as follows: If Missouri taxable income is: The tax is: Not over $1,000 3.5% Between $1,000 and $,2000 $35 plus 4.0% of excess Between $2,000 and $3,000 $75 plus 4.5% of excess Between $3,000 and $4,000 $120 plus 5.0% of excess Over $4,000 $170 plus 5.5% of excess This act maintains reductions to the top rate of tax in current law, allowing such top rate to be reduced to 5.0% with each cut of 0.1% becoming effective if net general revenue collections in the fiscal year exceed the net general revenue collections from any of the three previous fiscal years by $150 million. This act provides that when an income bracket is eliminated from the tax table, the top remaining tax rate shall apply to all income in excess of the second highest remaining income bracket. This act also creates a definition for "net general revenue collected", which includes all revenue deposited into the general revenue fund, less refunds and revenues originally deposited into the general revenue fund but designated by law for a specific distribution or transfer to another state fund. (Section 143.011) This provision is similar to a provision contained in HB 1824 (2018), HCS/HB 1964 (2018), HB 2502 (2018), SCS/HCS/HB 2540 (2018), HB 2641 (2018), HB 2691 (2018), HB 2738 (2018), and SS#2/SCS/SBs 617, 611, & 667 (2018). Current law provides for an individual income tax deduction in the amount of 25% of a taxpayer's business income, which is phased in at 5% increments over a period of years if net general revenue collections meet a certain trigger. This act modifies such deduction by reducing the maximum deduction from 25% to 5%. (Section 143.022) This provision is identical to a provision contained in HCS/HB 1964 (2018), and is similar to HB 2472 (2018) and to a provision contained in SCS/HCS/HB 2540 (2018). For all tax years beginning on or after January 1, 2018, this act eliminates the Missouri personal and dependency exemptions. (Sections 143.151 and 143.161) This provision is substantially similar to a provision contained SS#2/SCS/SBs 617, 611, & 667 (2018), SCS/HCS/HB 2540 (2018), HCS/HB 1964 (2018), and HB 2472 (2018). CORPORATE INCOME TAX For all tax years beginning on or after January 1, 2019, this act reduces the corporate income tax rate from 6.25% to 5.5%. This act provides for further reductions in the rate of corporate income tax over a period of years from 5.5% to 5.0%, with each cut of 0.1% becoming effective if net general revenue collections in the fiscal year exceed the net general revenue collections from any of the three previous fiscal years by $150 million. (Section 143.071) This provision is similar to HB 2576 (2018) and to a provision contained in CCS/SB 884 (2018), SS#2/SCS/SBs 617, 611, & 667 (2018), HB 2691 (2018), HB 2738 (2018), and HCS/HB 1964 (2018). This act removes the requirement that an affiliated group of corporations have fifty percent or more of its income derived from sources within this state in order to file a consolidated return, and eliminates transactions between affiliated members of the group from such consolidated return. (Section 143.431) This provision is identical to a provision contained in SS#2/SCS/SBs 617, 611, & 667 (2018) and CCS/SB 884 (2018). For all tax years beginning on or after January 1, 2019, this act modifies the Multistate Tax Compact by requiring corporations subject to income tax in this state to apportion and allocate income according to the income tax provisions provided in Chapter 143, and disallows the three-factor apportionment option available in the Multistate Tax Compact. (Section 32.200) For all tax years beginning on or after January 1, 2019, this act modifies the law relating to the allocation and apportionment of corporate income by requiring corporations to determine their income derived from sources within this state according to the provisions of this act. ALLOCABLE INCOME Net rents and royalties from real property located in the state, and capital gains from the sale of such property, is allocable to the state. Net rents and royalties from tangible personal property are allocable to the state to the extent that the property is used in this state, or in their entirety if the corporation's commercial domicile is in this state and is not organized or taxable by the state in which the property is utilized, as described in the act. Capital gains from the sale of tangible personal property is allocable to this state if the property had a situs in the state at the time of sale, or if the corporation's commercial domicile is in this state and is not organized or taxable by the state in which the property had a situs, as described in the act. Interest and dividends are allocable to this state if the corporation's commercial domicile is in this state, provided that the corporation is not a financial organization, as defined in the act. Patent and copyright royalties are allocable to this state to the extent that the patent or copyright is utilized in this state, or to the extent that the patent or copyright is utilized in a state in which the corporation is not taxable and the corporation's commercial domicile is in this state. APPORTIONABLE INCOME All apportionable income shall be apportioned to this state by dividing the total receipts of the corporation in this state during the tax period by the total receipts of the corporation everywhere during the tax period, and multiplying such result by the net income. Receipts from the sale of tangible personal property shall be considered in this state if the property is received in this state by the purchaser, as described in the act. Receipts from all other sales shall be considered in this state if the corporation's market for such sales is in this state, as described in the act. In the case of certain industries where unusual factual situations produce inequitable results under the apportionment and allocation provisions of this act, the Director of Revenue shall promulgate rules for determining the apportionment and allocation factors for each such industry. In such a case, a corporation may petition the Director of Revenue, as described in the act. (Sections 143.451, 143.455, 143.471, 620.1350) This act provides that the method of allocation and apportionment elected by a corporation shall expire after five years, or whenever the director of revenue finds and notifies such corporation that such method does not show the income applicable to this state, whichever occurs first. After such expiration or revocation, the corporation may elect to use the same or a different method. Failure to make such an election shall constitute an election to comply with the allocation and apportionment provisions provided by the act. (Section 143.461) These provisions are substantially similar to provisions contained in SS#2/SCS/SBs 617, 611, & 667 (2018), CCS/SB 884 (2018), HCS/HB 1964 (2018), HB 2691 (2018). FINANCIAL INSTITUTIONS TAX Current law allows certain financial institutions to receive a credit against the financial institutions tax for any corporate income tax paid. This act provides that, if the corporate income tax rate is reduced, the financial institutions tax rate shall be reduced proportionally. (Section 148.720) This provision is identical to a provision contained in HCS/SCS/SB 769 (2018) and is substantially similar to provisions contained in SS#2/SCS/SBs 617, 611, & 667 (2018). JOSHUA NORBERG