Earlier this week, Missouri Governor Jay Nixon signed into law legislation that will gradually phase out the state’s corporate franchise tax.
The tax is levied on either the total assets of a company or the value of its paid up capital stock, and it generated about $88 million in needed revenue in 2010.
In 2009 the legislature took steps to make sure that small businesses wouldn't be affected by the tax, exempting any firm with assets under $10 million. This means that the principal beneficiaries of this year's repeal legislation will be the very biggest corporations.
The Missouri Budget Project responded to the franchise tax news, saying "it's extremely disappointing that the state would eliminate a source of revenue while facing a general revenue shortfall approaching $700 million.”
The elimination of the corporate franchise tax puts enormous pressure on the state’s only other major tax on corporations — the corporate income tax. Sadly, the corporate income tax isn’t very robust either. Compared to other state corporate income taxes, Missouri's is already the lowest in the country as a share of gross state product.
Because there is no public disclosure of Missouri corporate income tax payments, it's impossible to know how specific companies are using loopholes to avoid the Missouri tax. But the tax information in some companies' public filings makes it obvious that they are successfully avoiding state taxes generally.
For example, Missouri-based Monsanto is paying less than zero dollars in state corporate income taxes nationwide. In 2010, when Monsanto reported $1.2 billion in pretax U.S. profits, it says it received a nationwide state income tax rebate of $1 million. These figures beg questions about the effectiveness of state taxes on corporations, particularly in Missouri, where Monsanto is based.
With the demise of Missouri's franchise tax, these questions should become even more urgent for Missouri policymakers who care about a fair and sustainable revenue stream.