State changes corporate franchise tax, loan program

New laws rolling back Missouri's corporate franchise tax and expanding a low-interest loan program available to businesses through the state Treasurer's Office took effect Aug. 28.

Changes to the state's corporate franchise tax were part of House Bill 191, an economic development package that expanded and capped various tax credit programs aimed at retaining and attracting companies. Gov. Jay Nixon signed the bill into law in early June, at which time most of the tax credit changes took effect.

Beyond those changes, the new law also eliminates the franchise tax for businesses with assets valued at less than $10 million. Previously, small businesses with assets valued at $1 million or more were taxed at a rate of A⁄cj of 1 percent.

"Small corporations were the ones hit hardest by that," said John Fougere, a spokesman for the Missouri Department of Economic Development.

The Missouri Department of Revenue estimates that the law effectively repealed the tax for more than 16,500 businesses - or about 82 percent of those that paid the tax last year - and amounts to an average annual tax cut of $878.

In fiscal 2008, DOR said about 20,129 businesses paid the franchise tax - levied on corporations for the privilege of doing business in Missouri.

Annual franchise tax collections are only expected to decrease by about 14 percent, based on fiscal 2008 figures. Last year, the franchise tax generated $106 million in revenue, and 3,571 corporations with assets of $10 million or more accounted for $91.6 million of the total, according to DOR.

For more than a decade, Associated Industries of Missouri has been pushing for eradication of the franchise tax. AIM President Ray McCarty said the tax had essentially become a "hassle" for smaller businesses, many of which paid someone to prepare and file the required returns.

"This tax is more of an annoyance than anything," he said. "It doesn't produce a lot of money."

Another law that took effect Aug. 28 expanded the state's Linked Deposit loan program, which gives qualified borrowers access to loans at 2 percent to 3 percent below the market average interest rate. The program allows the state treasurer to make deposits that are linked to loans approved by community banks, which elect to participate.

The expanded program now covers businesses that employ as many as 100 people, up from the previous limit of 25 employees. Loan limits of $50,000 per employee also have increased to include the costs of capital outlay, physical expansion and renovation.

Jon Galloway, a spokesman for the treasurer's office, said more information about the program is available at www.treasurer.mo.gov/linkeddeposit, a newly constructed page launched to spread awareness. The treasurer's office also has hired a relationship manager to reach out to Missouri's lenders about program specifics, he added.

"It's really a program that offers valuable low interest rates to their customers. That's really the selling point," Galloway said. "(Banks are) not losing money on doing a Missouri Linked Deposit loan. The borrower has to be approved per the lender's requirements."

Changes to the state's Timed Deposit program, which allows the treasurer's office to make short-term deposits in Missouri banks, also went through at the end of last month.

Deposits of more than $7 million in any bank can now earn the market rate of return, determined by a survey of similar investments at well-capitalized financial institutions.

That $7 million figure will be reduced each year until it hits zero in 2014.

"From a business perspective, that's good, because that cap is providing a disincentive for Treasurer (Clint) Zweifel to put more money in Missouri banks," Galloway said, noting that only about $500 million of the state's $3.5 billion portfolio is invested in Missouri banks.

Previously, returns were capped at the Treasury bonds rate, which is usually 1 percent or more below the market rate, resulting in an annual loss in returns on taxpayer money of about $15 million a year.[[In-content Ad]]