Missouri Franchise Tax: Everything You Need to Know

 

 

The Missouri franchise tax is one of the most important taxes you’ll ever pay. This article provides information about what it is, how much it costs, and how to calculate it.

A franchise tax is imposed on corporations doing business within the state. It is based on the amount of income earned within the state. For example, if a corporation earns $100,000 in profits from operations in Missouri, it must pay a franchise tax equal to 2% of that figure.

There are three types of franchise taxes:

• Single Business Tax – applies to businesses that earn less than $500,000 per year;

• Multi-State Corporation Income Tax – applies to businesses earning over $500,000 per annum; and

• Foreign Corporation Income Tax – applies if a corporation does business outside of Missouri.

Types of Taxes

Selecting “Other Tax Type” will allow you to pay the remainder of your taxes owed on an IRS Form1040 or ScheduleE, F, or H, regardless of whether you filed electronically or mailed the original paper copy. You are responsible for filing a return no matter what method you use to pay the amount due. However, you do not have to complete the entire return online; it is sufficient to enter the information required to calculate the refund or credit due. In addition, you cannot claim a refund or credit for any payment made via the internet.

Franchise Tax

A franchise tax is a state tax imposed upon corporations doing business within a particular jurisdiction. In some states, it is called a “corporate income tax.”

The purpose of the franchise tax is to raise revenue for public purposes such as education, roads, police protection, etc.

In addition to corporate income tax, most states impose additional taxes on certain types of businesses. For example, many states charge sales tax on goods sold. Some states levy a tax on gross receipts of companies engaged in certain activities.

Some states require a franchise tax even though no other type of business tax is levied. This is because the franchise tax is considered a form of taxation on the privilege of doing business in the state.

States usually collect the franchise tax directly from the taxpayer. However, some states allow taxpayers to deduct the amount of the tax paid to another state.

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Corporate Income Tax

If you are filing a personal income tax return, it is important to file electronically because it makes the process faster and easier. You must pay taxes on your profits and losses during the taxable year if you are a corporation. You must also make quarterly payments based on your adjusted gross income. This article explains how to prepare and file a corporate estimated tax return.

The IRS requires corporations to estimate their federal income tax liability each quarter. This amount is relatively low for most small businesses and can usually be paid online using the Electronic Federal Tax Payment System (EFTPS). However, some large companies may owe hundreds of thousands of dollars in estimated taxes. These companies typically use the Online Payment System (OPS), which allows you to complete an extension request form and make a payment without having to fill out a separate form.

The IRS automatically calculates the appropriate quarterly payment when you submit an extension request. Once the IRS receives your extension request, it will send you a letter confirming that your request has been received. Your extension request will remain active until the due date specified in the letter.

Once you receive the confirmation letter, you can continue to work on completing your tax return. You can file the return either online or by paper. When you file your return, you will enter the information needed to make future estimated tax payments.

A corporation’s quarterly estimated tax payment is calculated based on the following:

• Adjusted Gross Income (AGI): The total amount of wages, salaries, tips, bonuses, dividends, interest, rents, royalties, capital gains, pensions, annuities, Social Security benefits, unemployment insurance benefits, worker compensation benefits, alimony, child support, gifts, inheritances, prizes, awards, trusts, trusts in foreign countries, and certain other items reported on Schedule K-1. AGI includes net investment income, including long-term capital gain, short-term capital loss, and passive activity loss.

Paying Franchise Tax in MO

A lot of people are confused about how much franchise tax they owe. Some think it’s just 10%, while others believe it’s 15%. In fact, you’ll want to know what you’re paying because there are credits you might qualify for.

The Franchise Tax Act requires every corporation doing business in California to file a return annually. Your annual franchise tax obligation depends on your net worth, including everything your corporation owns. If your net worth exceeds $25 million, you must pay franchise tax based on a sliding scale. For example, if your net worth is less than $5 million, you pay no franchise tax; if it’s between $5 million and $10 million, you pay 2% of your net worth; and if it’s over $10 million, you start paying 3% of your net worth.

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If you’re filing a combined return with another corporation, both corporations’ net worths count toward each other’s franchise tax liability. This means that if one corporation owns a piece valued at $100 million and the other owns a piece of property worth $50 million, the combined net worth of the two companies is $150 million. Both corporations must report the same amount of income, so their combined net worth is still $150 million. However, each corporation pays franchise tax based on the value of its net worth. Therefore, the larger corporation pays more franchise tax.

You can find out whether you owe franchise tax by looking at Form 700, which you file with the Franchise Tax Board. On the form, you list your net worth, including all real estate holdings, personal property, bank accounts, investments, and other assets. Also listed are any loans or mortgages taken out against those items.

There are several ways to reduce your franchise tax burden. First, you can take advantage of certain credits. Second, you can use the “net operating loss carryover” provision to offset future profits. Third, you can make sure that your assets aren’t too large relative to your earnings. Finally, you can consider selling some of your assets to reduce your net worth.

Credits

If you’ve been paying franchise tax since 2006, you may be eligible for a credit. There are three types of credits:

Foreign Corporations

A Missouri law firm argued that a foreign corporation could avoid paying franchise tax by creating a limited partnership. The Missouri Supreme Court disagreed, ruling that even though the company didn’t own any real or tangible personal property in the state, it still had to collect franchise tax because it used the assets to do business there. The court cited a previous case where a foreign corporation owned a building in Kansas City and leased space out to another entity. In that situation, the court found that the corporation owed franchise tax since it used those buildings to conduct business in Missouri.

New Businesses

Business owners are required to file their corporate income tax return within 30 days of incorporation. This includes foreign companies doing business in California.

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A newly incorporated business must file its financial statement on the day it files its articles of organization.

Foreign corporations must file their corporate tax return within 30 days after beginning operations in California.

Extension and Penalties

The Franchise Tax Board offers extensions to companies that are unable to submit timely returns due to circumstances beyond their control. If you do not receive notice within 30 days of the original deadline, you must file a claim for an extension. You must show cause why you cannot complete the return within the extended period.

Failure to file your franchise tax can result in losing your charter, being fined $1,500 per day, interest charges, and possible criminal prosecution.

If you hire an attorney specializing in franchise tax law, he or she can help you understand your obligations and advise you on whether you should file your franchise tax return early or wait until it is too late.

 

 

Frequently Asked Questions

Do I need to pay a franchise tax if I own a business in Missouri?

Yes. The long answer is that the state of Missouri has no franchise tax, but it does have an income tax and sales tax. In addition to these taxes, there are also local taxes in some areas. However, if you’re doing business in Missouri, you will need to pay taxes on your profits.

What is the purpose of franchise tax?

The Franchise Tax Act (FTA) was enacted in 1961 to provide a uniform system for taxing all corporations doing business within Illinois. The act provides that every corporation, whether domestic or foreign, which has its principal place of business in Illinois and engages in any business activity within this state shall be subject to taxation under the provisions of the act.

Which states don’t impose a franchise tax?

According to the IRS, only two states don’t impose a franchise tax on corporations. The list is as follows:

Alaska, Delaware, District of Columbia, Hawaii, Montana, Nevada, New Hampshire, North Dakota, Oregon, Rhode Island, South Carolina, Vermont, Washington, and Wyoming.

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