On June 30, 2022, Missouri Gov. Michael Parson signed House Bill 2400, which included an amendment (Senate Bill 688) for the creation of a research and development (R&D) tax credit in Missouri. Not since 2005 has Missouri offered businesses the opportunity to take advantage of an R&D credit. The legislation is effective August 28, 2022 for tax years beginning on or after January 1, 2023.
The legislation offers two primary benefits to businesses conducting research in Missouri. First, it provides for the potential to secure up to $300,000 per year in R&D tax credits. Second, purchases of qualified R&D equipment are exempted from all state and local sales and use taxes.
R&D Tax Credit
For tax years beginning on or after January 1, 2023, the legislation authorizes the aggregate distribution of $10 million in R&D tax credits annually to Missouri businesses including C corporations, flow-throughs, and sole proprietorships. Of the $10 million of credit allocation per year, $5 million will be reserved for minority-owned, women-owned, and small businesses.
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Minority-owned businesses are defined as follows:
- Business that is a sole proprietorship owned and controlled by a minority;
- Partnership or joint venture owned and controlled by minorities in which at least 51% of the ownership interest is held by minorities and the management and daily operations are controlled by one or more of the minority owners;
- Corporation whose daily business operations are controlled by one or more minorities that own it and that is at least 51% owned by one or more minorities or, if stock is issued, at least 51% of the stock is owned by one or more minorities
Women-owned business enterprises are defined as follows:
- Business that is a sole proprietorship owned and controlled by a woman;
- Partnership or joint venture owned and controlled by a woman in which at least 51% of the ownership interest is held by women and the management and daily operations of which are controlled by one or more women who own it;
- Corporation or other entity whose management and daily operations are controlled by one or more women who own it and that is at least 51% owned by women or, if stock is issued, at least 51% of the stock is owned by one or more women
Small businesses include corporations, partnerships, sole proprietorships, or other business entity that is independently owned and employs 50 or fewer employees.
The credit is equal to 15% of the difference between the taxpayer’s qualified research expenses in the current tax year (as certified by the director of economic development) compared to the average qualified research expenses incurred in the three immediately preceding tax years. For purposes of defining qualified research activities and expenses, Missouri adopts a definition consistent with Internal Revenue Code Section 41. If the research activity is performed in conjunction with a Missouri college or university, the credit is equal to 20% of the incremental qualified research expenses over the average of the three prior tax years. Taxpayers shall not receive credit on any qualified research expenses that exceed 200% of the taxpayer’s average qualified research expenses incurred during the three immediately preceding tax years.
No single taxpayer shall be issued or awarded more than $300,000 in tax credits in any year. The tax credit must be claimed against income tax liability. Where the credit exceeds that tax liability, the excess credit may be carried forward for the next 12 succeeding tax years or until the full credit has been claimed, whichever occurs first. In addition, up to 100% of the tax credits provided under the program may be transferred, sold, or assigned to a transferee. In the event the total eligible claims for credit received in the calendar year exceed the annual cap, each eligible claimant shall be issued credits upon a pro rata basis. All new businesses, defined as a business less than five years old, will be issued credits in full first.
Sales & Use Tax
Section 5 of the legislation exempts purchases of Missouri qualified R&D equipment from all state and local sales and use taxes. To be eligible, equipment must be tangible personal property that has not previously been used in this state for any purpose and is acquired by the purchaser for the purpose of R&D activities devoted to experimental or laboratory R&D for new products, new uses of existing products, or improving or testing existing products.
Summary
There will be more details to come on the implementation of the credit as the legislation directs the Missouri Department of Revenue to adopt rules, statements of policy, procedures, forms, and guidelines necessary to carry out the provisions of the credit, including any associated application or certification process.
The enactment of this legislation and reinstatement of the Missouri research credit will provide a great opportunity and a powerful mechanism for businesses continuing to increase investments in research activities and purchase R&D equipment in Missouri to increase their return on innovation investment. For any businesses that do not generate taxable income and thus are not able to use the credit, the ability to transfer, sell, or assign the credit gives these businesses the ability to benefit financially from the program.
The R&D tax credit is complex to analyze, calculate, and document. Forvis Mazars’ national team of R&D tax credit professionals is here to help! The R&D tax credit team at Forvis Mazars has helped businesses large and small across the U.S. to secure the benefits they are entitled to and missing out on.
If you have any questions about whether your business qualifies for the R&D tax credit, want to begin the planning process to take advantage of the new Missouri R&D credit, or are interested to learn more about Forvis Mazars’ R&D credit services, please reach out to a professional on our R&D tax credit team or submit the Contact Us form below.