Rules of Department of Revenue - Missouri Secretary of State · 2017-11-20 · Rules of Department...

CODE OF STATE REGULATIONS 1MATT BLUNT (5/31/03)Secretary of State

Rules of

Department of RevenueDivision 10�Director of Revenue

Chapter 2�Income TaxTitle Page

12 CSR 10-2.005 Questions and Answers (Rescinded October 30, 2002) ..................................5

12 CSR 10-2.010 Capital Gain (Loss) Allocation Between Spouses.........................................5

12 CSR 10-2.015 Employers� Withholding of Tax ..............................................................7

12 CSR 10-2.016 Quarter-Monthly Period Reporting and Remitting Withholding Tax .................11

12 CSR 10-2.017 Transient Employer Financial Assurance Instrument forEmployer�s Withholding Tax .............................................................12

12 CSR 10-2.020 Difference in Basis on December 31, 1972 ..............................................20

12 CSR 10-2.025 Adjustment to Avoid Double Taxation .....................................................21

12 CSR 10-2.030 Subsequent Change of Accounting Period ................................................22

12 CSR 10-2.035 Conformity of Missouri With Federal Accounting Methods ...........................22

12 CSR 10-2.040 Transitional Adjustments in Accounting Methods(Rescinded October 30, 2002) ............................................................23

12 CSR 10-2.045 Missouri Consolidated Income Tax Returns ..............................................23

12 CSR 10-2.050 Elective Division of Income.................................................................27

12 CSR 10-2.055 Failure to File Tax Returns ..................................................................29

12 CSR 10-2.060 Failure to Pay Tax.............................................................................30

12 CSR 10-2.065 Failure to Pay Estimated Tax (Rescinded October 30, 2002)..........................32

12 CSR 10-2.067 Failure to Pay Estimated Tax for Tax Years EndingAfter December 31, 1983 .................................................................32

12 CSR 10-2.070 Interest on Overpayments....................................................................34

12 CSR 10-2.075 Multistate Allocation and Apportionment.................................................37

12 CSR 10-2.080 Domestic International Sales Corporations ...............................................48

2 CODE OF STATE REGULATIONS (5/31/03) MATT BLUNTSecretary of State

12 CSR 10-2.085 Credit for New or Expanded Business Facility ..........................................48

12 CSR 10-2.090 Computation of Federal Income Tax Deduction for Consolidated Groups ..........50

12 CSR 10-2.105 Report of Changes in Federal Income Tax Return.......................................50

12 CSR 10-2.110 Penalty for Filing Incomplete or Misleading Income Tax Returns(Rescinded December 26, 1985) .........................................................51

12 CSR 10-2.115 Enterprise Zone Credit and Exemption (Rescinded July 30, 1994) ..................51

12 CSR 10-2.120 Information at Source Reporting Requirements ..........................................51

12 CSR 10-2.125 Cultural Contributions........................................................................52

12 CSR 10-2.130 Allocation of Taxable Social Security Benefits Between Spouses.....................52

12 CSR 10-2.135 Frivolous Returns .............................................................................52

12 CSR 10-2.140 Partnership Filing Requirements............................................................53

12 CSR 10-2.145 Regulation for Computation of Interest on InvestmentTax Credit Carryback (Rescinded October 30, 2002) ................................53

12 CSR 10-2.150 Tax Exempt Status of United States Government-Related Obligations ...............53

12 CSR 10-2.155 Regulated Investment Companies ..........................................................53

12 CSR 10-2.160 State Income Tax Deduction Add-Back ...................................................54

12 CSR 10-2.165 Net Operating Losses.........................................................................55

12 CSR 10-2.170 Wood Energy Credit (Rescinded September 6, 1992) ..................................56

12 CSR 10-2.175 Agricultural Unemployed Person (Rescinded October 30, 2002) .....................56

12 CSR 10-2.180 Public Law 86-272 Immunity ...............................................................56

12 CSR 10-2.190 Partners and S Corporation Shareholders Composite Individual Income Tax Return Filing Requirements, Withholding of IncomeTax Requirements and Partnership/S Corporation Withholding Exemption .......58

12 CSR 10-2.195 Special Needs Adoption Tax Credit ........................................................59

12 CSR 10-2.200 Trucking Companies..........................................................................60

12 CSR 10-2.205 Railroads........................................................................................61

12 CSR 10-2.210 Airlines .........................................................................................62

12 CSR 10-2.220 Taxation of Nonresident Members of Professional AthleticTeams ..........................................................................................66


12 CSR 10-2.225 Withholding of Tax by Nonresident Professional Athletic Teams .....................66

12 CSR 10-2.226 Withholding of Tax by Nonresident Professional Entertainers ........................67

12 CSR 10-2.230 Construction Contractors ....................................................................67

12 CSR 10-2.235 Government Pension Exemption............................................................72

12 CSR 10-2.240 Determination of Timeliness ................................................................73

12 CSR 10-2.705 Filing Corporation Tax Returns.............................................................74

12 CSR 10-2.710 Net Operating Losses on Individual Income Tax Returns..............................74

12 CSR 10-2.720 Reporting Requirements for Individual Medical Accounts .............................75

12 CSR 10-2.730 Expenses Related to Production of Tax Exempt Interest Income .....................76


Chapter 2�Income Tax 12 CSR 10-2

Title 12�DEPARTMENT OFREVENUE

Division 10�Director of RevenueChapter 2�Income Tax

12 CSR 10-2.005 Questions and Answers(Rescinded October 30, 2002)

AUTHORITY: section 143.961, RSMo 1986.This rule was previously filed as Income TaxRelease 73-11, Jan. 29, 1974, effective Feb.8, 1974. Rescinded: Filed April 4, 2002,effective Oct. 30, 2002.

Mobil Oil Corp. v. State Tax Commission ofMissouri, 513 SW2d 319 (1974). In authoriz-ing the prescription of rules relating to theadministration of the income tax laws, formersection 143.200, RSMo does not delegate tothe director of revenue the power to promul-gate rules of substantial law. The rules whichthe director of revenue is empowered by for-mer section 143.200, RSMo to prescribe arelimited to procedural rules useful in theadministration and enforcement of the incometax laws. However, the statutory direction thatthe rules shall follow the federal rules asnearly as practicable does not require orauthorize the director to ignore a specific,pertinent, applicable state statute and pro-mulgate rules in conflict therewith (subjectmatter of section 143.200, RSMo now cov-ered by section 143.961, RSMo Supp. 1973).

12 CSR 10-2.010 Capital Gain (Loss)Allocation Between Spouses

PURPOSE: This rule sets forth the method tobe used by married persons filing joint feder-al income tax returns in allocating capitalgains and losses between the spouses forMissouri income tax purposes.

PUBLISHER�S NOTE: The secretary of statehas determined that the publication of theentire text of the material which is incorpo-rated by reference as a portion of this rulewould be unduly cumbersome or expensive.Therefore, the material which is so incorpo-rated is on file with the agency who filed thisrule, and with the Office of the Secretary ofState. Any interested person may view thismaterial at either agency�s headquarters orthe same will be made available at the Officeof the Secretary of State at a cost not toexceed actual cost of copy reproduction. Theentire text of the rule is printed here. Thisnote refers only to the incorporated by refer-ence material.

(1) The following general rules have beenissued by the Missouri Department ofRevenue and should be used in arriving atMissouri adjusted gross income (MAGI) ofeach spouse in situations involving gains orlosses from sale or exchange of capital assets,but only if the husband and the wife file ajoint federal income tax return for the year.The rules presume the applicability of theMissouri Income Tax Law of 1973 (SenateBill 549).

(2) Losses: General Rule. If the losses fromthe sale or exchange of capital assets exceedthe net gains from the sales, so that line 14,Schedule D, Form 1040 is a loss, then, sub-ject to the limitation provided for in InternalRevenue Code (IRC) Section 1211, allocatethe excess to the spouse responsible for theexcess. If both spouses are responsible for theexcess, then allocate the excess, subject toIRC Section 1211 limitation, between thespouses on a pro rata basis. Allocate excessshort-term capital losses before allocatingexcess long-term capital losses.

(A) Example No. 1: Assume the followingfacts on the joint federal income tax returnfor 1973:

Husband Wife Total

Wages $10,000 $5,000 $15,000Short-TermGain (Loss) 0 0

Long-TermGain (Loss) ($2,000) ($3,000) ($5,000)

FAGI *$14,000*Section 1211 Limitation of ($1,000).

Missouri Answer: The amount of the excessis (5,000) but, because of the limitation ofIRC Section 1211, the deductibility of theloss is limited to (1,000). Since both spousesare responsible for the excess, then allocatethe (1,000) on a pro rata basis, that is�hus-band (2/5 x 1,000) and wife (3/5 x 1,000).

MAGI is therefore�

Husband Wife Total

Wages $10,000 $5,000LessSection1211Deduction ($400) ($600)

MAGI $9,600 $4,400 $14,000

(B) Example No. 2: Assume the followingfacts on the joint federal income tax returnfor 1973:

Husband Wife Total

Wages $10,000 $5,000 $15,000Short-TermGain (Loss) ($200) ($300) ($500)


FAGI *$14,000

*Section 1211 Limitation of ($1,000).

Missouri Answer: The Section 1211 limita-tion of (1,000) should be allocated as follows:a) Allocate excess short-term losses of (500)first and, since both spouses are responsiblefor the excess, it should be allocated on a prorata basis, that is�husband (2/5 x 500) andwife (3/5 x 500); b) Allocate the remaining(500) of the limitation from excess long-termlosses and, since the husband is responsiblefor the excess, the remaining (500) should beallocated entirely to him. Note that husbandmust use $2 of net long-term loss to offset $1of ordinary income.

MAGI is therefore�Husband Wife Total

Wages $10,000 $5,000LessSection1211Deduction ($700) i.e. ($300) i.e.

S.T. ($200) S.T.($300)

x + +L.T. ($500) 0

MAGI $9,300 $4,700 $14,000

(C) Example No. 3: Assume the followingfacts on the joint federal income tax returnfor 1973:

Husband Wife Total

Wages $10,000 $5,000 $15,000Short-TermGain (Loss) ($1,000) ($1,000) (0)


FAGI *$14,000

*Section 1211 Limitations of ($1,000).

Missouri Answer: Since there are no netshort-term losses, all of the IRC Section 1211limitation of (1,000) should be allocated fromexcess long-term losses. Since the husband isresponsible for the excess, the entire amountof the limitation is allocated to him.

MAGI is therefore:

Husband Wife Total

Wages $10,000 $5,000LessSection1211Deduction ($1,000) 0

MAGI $9,000 $5,000 $14,000

(3) Gains: General Rule. If net gains from thesale or exchange of capital assets exceed netlosses from the sales, so that line 14,Schedule D, Form 1040 is a gain, then allo-cate the excess short-term capital gain to thespouse(s) responsible for the gains, and allo-cate the excess long-term capital gain to thespouse(s) responsible for the gain and allo-cate the IRC Section 1202 deduction in thesame manner and to the same spouse(s) towhom excess long-term gains are allocated.If both spouses are responsible for the excessshort-term (long-term) gain, then allocate theexcess of short-term (long-term) gain on apro rata basis.


Husband Wife Total

Wages $10,000 $5,000 $15,000Short-TermGain (Loss) 0 0Long-TermGain (Loss) ($3,000) ($8,000) ($5,000)FAGI *$17,500

*$5,000 net long-term gain less IRC Section1202 deduction of $2,500.

Missouri Answer: Since the excess gains areall net long-term gains and since the wife isresponsible for the excess, then allocate theentire amount of the excess to the wife andalso allocate the entire IRC Section 1202deduction to the wife.


Husband Wife Total

Wages $10,000 $5,000PlusExcessGains 0 $5,000

(L.T.)LessSection1202Deduction 0 $2,500

MAGI $10,000 $7,500 $17,500

(B) Example No. 5: Assume the followingfacts on the joint federal income tax returnfor 1973:

Husband Wife Total

Wages $10,000 $5,000 $15,000Short-TermGain (Loss) ($8,000) ($3,000) ($5,000)Long-TermGain (Loss) ($3,000) ($8,000) ($5,000)FAGI *$22,500

*IRC Section 1202 deduction of $2,500.

Missouri Answer: Since the husband isresponsible for the entire amount of excessshort-term gains, the excess is allocated tothe husband. Since the wife is responsible forthe entire amount of excess long-term gains,the excess, as well as the IRC Section 1202deduction, should be allocated to her.

Missouri AGI is therefore:

Husband Wife Total

Wages $10,000 $5,000PlusExcessGains $5,000 $5,000

(S.T.) (L.T.)LessSection1202Deduction 0 $2,500

MAGI $15,000 $7,500 $22,500


Husband Wife Total


*IRC section 1202 deduction of $2,500.

Missouri Answer: Excess short-term capitalgains are allocated to the spouses on a prorata basis, that is�husband (4/5 x 5,000) andwife (1/5 x 5,000). Excess long-term capitalgains are allocated to the spouses on a prorata basis, that is�husband (2/5 x 5,000) andwife (3/5 x 5,000). The IRC Section 1202

deduction of $2,500 is also allocated on a2/5�3/5 basis. Note that the Section 1202deduction may be computed on this basis, orit may be separately computed by deducting50% of each spouse�s pro rata share of excesslong-term capital gains.MAGI is therefore�

Husband Wife Total

Wages $10,000 $5,000PlusExcessGains $4,000 $1,000

(S.T.) (S.T.)$2,000 $3,000

(L.T.) (L.T.)LessSection1202Deduction $1,000 $1,500

MAGI $15,000 $7,500 $22,500

(4) The following three (3) examples aredesigned to show that, for allocation purpos-es, the primary focus is on the gain (loss)shown on line 14, Schedule D, Form 1040:


Husband Wife Total


*Excess of net long-term capital gain over netshort-term capital loss is $5,000, less IRCSection 1202 deduction $2,500.

Missouri Answer: Since net long-term capitalgains exceeds net short-term capital loss, the5000 figure reported on line 14, Schedule D,Form 1040 is an excess long-term gain. Sinceboth spouses are responsible for the excess,then the excess long-term capital gain, aswell as the IRC Section 1202 deduction, areallocated to the spouses on a pro rata basis,that is�husband (6/10 x 5,000) and wife(4/10 x 5,000). The IRC Section 1202 deduc-tion of 2,500 is also allocated on 6/10�4/10basis.


12 CSR 10-2�DEPARTMENT OF REVENUE Division 10�Director of Revenue




Husband Wife Total

Wages $10,000 $5,000PlusExcessGains $300 $2,000

(L.T.) (L.T.)

Husband Wife Total

LessSection1202Deduction $1,500 $1,000

MAGI $11,500 $6,000 $17,500(B) Example No. 8: Assume the following

facts on the joint federal income tax returnfor 1973:

Husband Wife Total

Wages $10,000 $5,000 15,000Short-TermGain (Loss) ($14,000) ($9,000) ($5,000)Long-TermGain (Loss) ($12,000) ($2,000) ($10,000)FAGI *$17,500

*Excess of net long-term capital gain over netshort-term capital loss is $5,000, less IRCSection 1202 deduction of $2,500.

Missouri Answer: Since net long-term capitalgain exceeds net short-term capital loss, the$5,000 figure reported on line 14, ScheduleD, Form 1040 is an excess long-term gain.Since the husband is responsible for theexcess, then allocate the entire amount of theexcess to the husband and also allocate theentire IRC Section 1202 deduction to the hus-band.

MAGI is therefore:

Husband Wife Total

Wages $10,000 $5,000PlusExcessGains $5,000

(L.T.) 0LessSection1202Deduction $2,500 0

MAGI $12,500 $5,000 $17,500


Husband Wife Total

Wages $10,000 $5,000 $15,000Short-TermGain (Loss) ($20,000) ($9,000) $11,000Long-TermGain (Loss) ($28,000) $22,000 ($6,000)FAGI *$20,000

*Excess of net short-term gain over netlong-term capital loss is $5,000.

Missouri Answer: Since net short-term capi-tal gains exceed net long-term capital loss,the $5,000 figure reported on line 14,Schedule D, Form 1040 is an excessshort-term gain. Since the husband is respon-sible for the entire amount of excessshort-term gain, the excess is allocated to thehusband.


Husband Wife Total

Wages $10,000 $5,000PlusExcessGains $5,000

(S.T.) 0LessSection1202Deduction 0 0

MAGI $15,000 $5,000 $20,000

AUTHORITY: section 143.961, RSMo 1986.*This rule was previously filed as Income TaxRelease 73-11, Jan. 29, 1974, effective Feb.8, 1974.

*Original authority: 143.961, RSMo 1972.

12 CSR 10-2.015 Employers� Withholdingof Tax

PURPOSE: This rule provides a guide toemployers in properly fulfilling their respon-sibilities of withholding Missouri taxes fromthe wages of employees.

(1) General Information. The Missouri gen-eral assembly in 1972 enacted Senate Bill549, a new Missouri income tax law. This

law adopts many provisions and terms of theInternal Revenue Code. Its withholding provi-sions are applicable to wages paid afterDecember 31, 1972. The �Missouri Employ-er�s Tax Guide� and this rule are designed toassist employers in withholding Missouriincome tax from wages paid from sources inMissouri. An employer may generally followthe provisions of the Internal Revenue Service(IRS) publication titled �Employer�s TaxGuide� Circular E relating to withholdingincome tax. An employer already assigned aMissouri withholding tax identification num-ber will not need to obtain a new one. If abusiness is discontinued, transferred or sold,the employer must file an Employer�sWithholding Final Report, Form MO-941F,to close the employer�s withholding account.If the business of another employer isacquired, do not use the number assigned tothat business; a new number must beobtained.

(2) Employers. An employer is any person,firm, corporation, association, fiduciary ofany kind or other type of organization forwhom an individual performs service as anemployee, unless the person or organizationfor whom the individual performs servicedoes not have control of the payment of com-pensation for the service, (section 143.191,RSMo). The term employer means the per-son, including all government agencies, whocontrols the payment of the compensation.An employer required to withhold Missouriincome tax is personally liable for the tax.Any amount of tax actually deducted andwithheld by an employer is a special fund intrust for the director of revenue (section143.241, RSMo). An employee does not havea right of action against the employer inrespect to any money deducted and withheldfrom his/her wages if it is paid over to thedirector of revenue in good faith compliancewith the Missouri Income Tax Law.

(3) Registration of Employers. Every employ-er must register with the Missouri Depart-ment of Revenue by completing the MissouriTax Registration Application, Form DOR-2643. A permanent registration number willbe assigned. A new application is required,and a new Missouri tax identification numberwill be assigned, when any change in owner-ship or ownership type occurs. An employerwho receives a new identification number asa result of a change in ownership type, mustfile an Employer�s Withholding Final Report,Form MO-941F, to close the old account.These numbers are not transferable and

should be referred to in all reports and corre-spondence concerning withholding.

(4) Employer With More Than One (1) Pay-roll Unit�Complex Employer. If a consoli-dated report and remittance of the tax with-held cannot be made by the employer becauseof the complexity of the organization, branchoffices or divisions may be designated aswithholding agents. These agents can per-form the actual withholding and remitting.However, regardless of any internal arrange-ments which may be established by the com-plex employer, the legal responsibility andliability under the law still rests with thehome office. If the complex employer hasdesignated withholding agents, and the agentswish to claim the compensation deduction,only one (1) agent will be entitled to the fulldeduction and the remaining agents will beentitled to one-half percent (1/2%) deductionof income taxes withheld if the returns arefiled timely.

(5) Seasonal. If your business is only openfor several months out of the year, you mayregister as a seasonal employer.

(6) Employees. The term employee forMissouri withholding purposes has the samemeaning as it has for federal withholding (see�Employer�s Tax Guide,� Circular E, pub-lished by the IRS). This definition is the samefor Missouri residents and nonresidents.

(7) Wages. The term wages for Missouriwithholding purposes has the same meaningas it has for federal withholding (see �Employer�s Tax Guide,� Circular E, pub-lished by the IRS). Wages include all paygiven to an employee for services performed.The pay may be in cash or in other forms. Itincludes salaries, vacation allowances, bonus-es and commissions, regardless of how mea-sured or paid.

(8) Interstate Transportation Employees. (A) Rail, Motor and Private Motor Car-

riers. 49 U.S.C. section 11504, limits statetaxation on wages of employees of rail, motorand private motor carriers. Missouri with-holding is required on rail, motor and privatemotor carrier employees whose state of resi-dence is Missouri. Employees of rail carriersand motor carriers who perform regularlyassigned duties in more than one (1) state aresubject to state income tax only in their stateof residency.

(B) Air and Water Carriers. 49 U.S.C. sec-tions 1512 and 11504, limit taxation on wages

of employees of air and water carriers to theemployee�s state of residence, and to the statein which the employee earns more than fiftypercent (50%) of the wages paid by the air orwater carrier if different from the state of res-idence.

(9) Nonresident Employees Subject toWithholding. If a nonresident employee per-forms all services within Missouri, tax shallbe withheld from all wages paid as in the caseof a resident. If services are performed part-ly within and partly without the state, onlywages paid for services performed withinMissouri are subject to Missouri withholdingtax. If only a portion of an employee�s wagesis subject to Missouri withholding tax, thenthe amount of Missouri tax required to bewithheld is calculated using a percent of theamount listed in the withholding tables. Thecalculation begins by determining the amountthat would be withheld if all the wages weresubject to Missouri withholding. This amountis then multiplied by a percent which is deter-mined by dividing the wages subject toMissouri withholding tax by the total federalwages.

(A) Example: Nonresident earns $20,000in wages, $12,000 from Missouri sources.Missouri withholding would be 60%($12,000 ÷ $20,000 equals 60%) of thewithholding required on $20,000. Therefore,if $100 per month should be withheld for anindividual earning $20,000, then for this non-resident, $60 should be withheld each month(100 x 60% = $60).

(10) Resident of Missouri Employed inAnother State. A Missouri resident payingincome tax to another state because ofemployment in that state may file aWithholding Affidavit For Missouri Resid-ents, Form MO W-4C. If the employee doesnot complete Form MO W-4C, the employermay withhold Missouri taxes on all servicesperformed, regardless of where performed.All income received for services performedin another state not having a state income taxis subject to Missouri withholding. If ser-vices are performed partly within and partlywithout the state, only wages paid for thatportion of the services performed withinMissouri are subject to Missouri withholdingtax, provided that the services performed inthe other state are subject to the other state�swithholding provisions. If a service is partlywithin and partly without Missouri and onlya portion of an employee�s wages is subject toMissouri withholding tax, then the amount ofMissouri tax required to be withheld is cal-

culated using a percentage of the amount list-ed in the withholding tables. The calculationbegins by determining the amount that wouldbe withheld if all the wages were subject toMissouri withholding. This amount is thenmultiplied by a percent, which is determinedby dividing the wages subject to Missouriwithholding tax by the total federal wages.

(A) Example: A resident employee earns$1,500 per month, is single and claims oneallowance. The employee performs 40% ofhis/her services in Kansas. The remaining60% of the employee�s services are per-formed in Missouri. If the total withholdingon all earnings is $40 per month, the actualwithholding for Missouri would be $24 ($40x 60% = $24).

(11) Missouri Employer with NonresidentEmployees. If a nonresident employee per-forms all services outside Missouri, his/herwages are not subject to Missouri withhold-ing. A nonresident employee performing ser-vices in more than one (1) state is subject towithholding as outlined in section (9).

(12) Supplemental Wage Payments. If supple-mental wages are paid, such as bonuses, com-missions, overtime pay, back pay, includingretroactive wage increases or reimbursementsfor nondeductible moving expenses in thesame payment with regular wages, withholdMissouri income tax as if the total of the sup-plemental and regular wages were a singlewage payment for the regular payroll period.If supplemental wages are paid in a differentpayment from regular wages, the method ofwithholding income tax depends in part onwhether income tax is withheld from theemployee�s regular wages.

(A) If income tax has been withheld fromthe employee�s regular wages, choose eitherone (1) of the following methods for with-holding income tax on the supplementalwages:

1. Method One. Withhold at a flat per-centage rate of six percent (6%) of the sup-plemental wages, using zero withholdingallowances; or

2. Method Two. Add the supplementalwages to the employee�s regular wages paid tothe employee within the same calendar yearfor the payroll period and determine theincome tax to be withheld as if the aggregateamount were one (1) payment. Subtract thetax already withheld from the regular wagepayment and withhold the remaining tax fromthe supplemental wage payment.

(B) If income tax has not been withheldfrom the regular wages (for example, where





an employee�s withholding exemptionexceeds his/her wages), use Method Twodescribed in paragraph (12)(A)2. of this rule.Add the supplemental wages to the regularwages paid within the same calendar year forthe payroll period and withhold income taxon the total amount as though the supplemen-tal wages and regular wages were one (1) pay-ment for a regular payroll period.

(13) Tips Treated as Supplemental Wages.Employers must withhold Missouri incometax based upon total tips reported by theemployee. Withhold income tax on tips usingthe same options indicated for withholding onsupplemental wage payments.

(14) Vacation Pay. Vacation pay received byan employee is subject to withholding asthough it were a regular wage payment madefor the payroll periods during the vacation. Ifvacation pay is paid in addition to regularwages for the vacation period, the vacationpay is treated as a supplemental wage pay-ment. An employee who is not a resident ofMissouri but works in Missouri is subject towithholding on his/her vacation pay.

(15) Lump-Sum and Periodic Distribution.Missouri follows the federal guidelines forlump-sum and periodic distributions. If alump-sum distribution, withhold at the rate ofsix percent (6%). If a periodic distribution,follow the computer formula or tax tables.

(16) Determining Proper Amount toWithhold. To determine income tax withhold-ing, take the following factors into account:

(A) Wages paid during the payroll period,including tips and vacation pay;

(B) Marital status�There are separatewithholding tables for single and marriedemployees; and

(C) Withholding allowances as indicated onthe MO W-4.

(17) Exemption for Nontaxable Individuals.Exemption from withholding for an individ-ual is valid only if the employee submits tothe employer a completed Form MO W-4(Employee�s Withholding Allowance Certifi-cate), certifying that the employee has noincome tax liability from the previous yearand expects none for the current year. Theemployee must file a Form MO W-4 annual-ly if s/he wishes to continue to be exempt.

(18) Employee Withholding AllowanceCertificate. Each employee is required to filea completed Form MO W-4 to determine thenumber of exemptions to which the employee

is entitled. The Form MO W-4 must be usedby the employer to determine the amount ofMissouri income tax which must be withheldfrom each paycheck. If an employee has morethan one (1) employer, s/he may want toreduce the number of allowances on any MOW-4 that does not pertain to his/her principalemployer. Failure to reduce the MO W-4allowances could cause an employee to havetoo little tax withheld and make the employ-ee subject to underpayment penalties. If anemployee expects to have income other thanhis/her wages, s/he may request to have addi-tional amounts withheld in addition to theamounts indicated by the allowances claimedon the employee�s MO W-4. The additionalamount should be included on line 6 of theMO W-4. Employers are required to submit acopy of each completed Form MO W-4 or anequivalent form for each new employee to theMissouri Department of Revenue withintwenty (20) days of completion of each form.The department will in turn forward the FormMO W-4 to the Division of Child SupportEnforcement.

(19) Withholding Tables. Withholding tablesprepared by the Missouri Department ofRevenue take into account allowable deduc-tions; therefore withholding is based on grosswages before any deductions, such as FederalInsurance Contribution Act (FICA), stateunemployment insurance, pension funds, orinsurance, etc. In determining the amount oftax to be withheld, the employer should usethe table for the correct payroll period�daily,weekly, bi-weekly, semimonthly and monthlyperiods. Any other period would be a miscel-laneous pay period. Tables show wage brack-ets in the two (2) left-hand columns. Thewithholding allowances are shown at the topof each of the remaining columns and corre-spond to the number of allowances claimedby an employee on the Form MO W-4.

(20) Percentage Formula Withholding. A per-centage withholding formula has been pub-lished by the director of revenue and it maybe used on electronic data processing equip-ment for withholding Missouri income tax.Any other method must be submitted to andapproved by the director of revenue. The for-mula is mathematically stated as grossincome minus standard deduction, minus per-sonal and dependent exemptions, minus fed-eral income tax withheld equals taxableincome. Taxable income multiplied by therate equals Missouri withholding. The for-mula is illustrated in the �Missouri Employ-er�s Tax Guide.�

(21) Filing Frequency Requirements. Mis-souri withholding returns must be filed by thedue date as long as an account is maintainedwith the Missouri Department of Revenue,even if there was no payroll for the reportingperiod. Returns must be filed each reportingperiod, even though there may not have beenany tax withheld. There are four (4) filingfrequencies: quarter-monthly, monthly, quar-terly and annually (section 143.221 and143.225, RSMo). A newly registeredemployer is initially assigned a filing fre-quency on the basis of his/her estimation offuture withholdings. If the assigned filing fre-quency differs from the filing requirementsestablished by statute, it is the employer�sresponsibility to immediately notify theDepartment of Revenue. The time for filingshall be as follows:

(A) Quarter-Monthly. Employers requiredto withhold nine thousand ($9,000) or moreper month for at least two (2) months duringthe preceding twelve (12) months shall file ona quarter-monthly basis;

(B) Monthly. Employers required to with-hold five hundred dollars ($500) per monthfor at least two (2) months during the preced-ing twelve (12) months shall file on a month-ly basis;

(C) Quarterly. Employers not required tofile and pay taxes withheld on a monthlybasis who withheld at least twenty dollars($20) per quarter during at least one (1) quar-ter of the preceding four (4) quarters shall fileon a quarterly basis; and

(D) Annually. Employers required to with-hold less than twenty dollars ($20) during anyof the preceding four (4) quarters shall file onan annual basis.

(22) Reporting Requirement. Every employerwithholding Missouri income tax fromemployee�s wages is required by statute toreport and remit the tax to the state ofMissouri on the Missouri Form MO-941. Seeregulation 12 CSR 10-2.016 for informationon filing a Form MO-941P to remit requiredpayments on Quarter-Monthly accounts.

(A) A separate reporting form must befiled for each reporting period. A personal-ized booklet of reporting forms detailing theemployer�s name, address, employer identifi-cation number, filing frequency and due dateis provided to each active account. Thevoucher booklet supplied to an employerrequired to pay on a quarter-monthly basisalso includes payment vouchers Form MO-941P, for the four (4) quarter-monthly peri-ods. If an employer misplaces, damages ordoes not receive the necessary reporting

forms, replacement forms should be request-ed, allowing sufficient time to file a timelyreturn. If a blank form is used, the employ-er�s name, address and identification numbermust appear as filed on previous returns andthe period for which the remittance is mademust be indicated. Failure to receive report-ing forms does not relieve the employer ofresponsibility to report and remit tax with-held. If an employer temporarily ceases topay wages a return must be filed for eachperiod indicating that no tax was withheld.Failure to do so will result in the issuance ofnon-filer notices.

(B) On or before February 28, or with thefinal return filed at an earlier date, eachemployer must file a Form MO W-3(Transmittal of Wage and Tax Statements) andcopies of all withholding tax statements,Form W-2/1099R, copy 1, for the year. Donot include the fourth quarter or twelfthmonth return with the Form W-2(s)/1099R(s)and Form MO W-3. The last annual remit-tance must be sent separately with Form MO-941. Large numbers of forms may be for-warded to the Department of Revenue inpackages of convenient size. Each packagemust be identified with the name and accountnumber of the employer and the packagesmust be consecutively numbered. Anyemployee�s copies of the WithholdingStatement (Form W-2/1099R) which cannotbe delivered to the employee after reasonableeffort is exerted, must be kept by the employ-er for at least four (4) years. The Departmentof Revenue will accept computer producedmagnetic tape records instead of the paperForm W-2/1099R. The employer must meettape data specifications which are establishedby the Department of Revenue. The depart-ment follows specifications outlined in SocialSecurity Administration Publication 42-007.Employers must also include the Supplemen-tal record (Code S or Code 1 S).

(C) If an employer goes out-of-business orceases to pay wages, a Final ReportMO-941F must be filed. This form, which isincluded in the voucher booklet, is providedto all active accounts.

(23) Time and Place for Filing Returns andRemitting Tax.

(A) All returns and remittances must befiled with the Department of Revenue at thespecific address indicated on the form. Thedates on which the returns and payments aredue are as follows:

1. Quarter-Monthly (see 12 CSR10-2.016). The quarter-monthly periods are:the first seven (7) days of a calendar month;

the eighth to the fifteenth day of a calendarmonth; the sixteenth to the twenty-second dayof a calendar month; and the twenty-third daythrough the last day of a calendar month.Payments must be mailed within three (3)banking days after the end of thequarter-monthly period or received by theDepartment of Revenue or its designateddepository within four (4) banking days afterthe end of the quarter-monthly period. Amonthly return (MO-941) reconciling thequarter-monthly payments and detailing anyunderpayment of tax is due by the fifteenthday of the following month except for thethird month of a quarter in which case theMO-941 is due the last day of the succeedingmonth;

2. Monthly. Return and payment mustbe made by the fifteenth day of the followingmonth except for the third month of a quarterin which case the return is due the last day ofthe succeeding month;

3. Quarterly. Return and payment mustbe made on or before the last day of themonth following the close of the calendarquarter; and

4. Annually. Return and payment mustbe made on or before January 31 of the suc-ceeding year.

(B) When the due date falls on a Saturday,Sunday or legal holiday, the return and pay-ment will be considered timely if made on thenext business day (section 143.851, RSMo).

(24) Correcting Mistakes in Reporting orWithholding.

(A) Overpayment. If withholding tax hasbeen over reported, the employer must file anEmployer�s Withholding Tax OverpaymentAmended Report, Form MO-941X alongwith supporting documentation; such as acopy of your payroll ledger, records or W-2s.A claim for credit or refund of an overpay-ment of withheld tax must be filed by the tax-payer within three (3) years from the time thereturn was filed or two (2) years from thetime the tax was paid, whichever periodexpires later. If no return was filed by the tax-payer, a claim for credit or refund must befiled within two (2) years from the time thetax was paid. No claim for credit or refundwill be allowed after the expiration of theperiod of limitation prescribed in section143.801, RSMo.

(B) Underpayment. If withholding tax hasbeen under-reported, the employer must filean Employer�s Withholding Tax Underpay-ment Amended Return, Form MO-941U toreport the additional withholding.

(25) Erroneous Withholding. If Missouri taxhas been withheld from an employee�s pay-check and the employee is not subject toMissouri tax, it is the employer�s responsibil-ity to complete an Employer�s WithholdingTax Overpayment Amended Report, FormMO-941X along with supporting documenta-tion; such as a copy of your payroll ledger,records or W-2s.

(26) Employer Compensation. For everyremittance made to the director of revenue,on or before the respective due date for thepayment involved, each employer (except theUnited States, the state of Missouri and allagencies and political subdivisions of thestate of Missouri or the United States govern-ment) may deduct and retain as compensationthe following percentages of the total amountof the tax withheld and paid annually: twopercent (2%) of the first five thousand dollars($5,000) or less; one percent (1%) of theamount in excess of five thousand dollars upto ten thousand dollars ($5,000�$10,000);one-half percent (1/2%) of the amount col-lected in excess of ten thousand dollars($10,000). The employer is not entitled toany compensation if any payment is not madeon or before the due date. Compensation forcomplex employers is covered in section (4).

(27) Failure to Pay Taxes Withheld�SpecialDeposits. Any employer who fails to remitincome tax withheld, or to file tax returns asrequired, may be required to deposit the taxesin a special trust account for Missouri (seesection 32.052, RSMo). Penalties are provid-ed for failure to make payment. If the direc-tor of revenue finds that the collection oftaxes required to be deducted and withheld byan employer may be jeopardized by delay,s/he may require the employer to remit thetax or make a return at any time. A lien out-standing with regard to any tax administeredby the director shall be a sufficient basis forthis action (see section 143.221.4, RSMo). Inaddition, any officer, director, statutorytrustee or employee of any corporation whohas direct control, supervision or responsibil-ity for filing returns and making payments ofthe tax, who fails to file and make payment,may be personally assessed the tax, includinginterest, additions to tax and penalties pur-suant to section 143.241.2, RSMo.

(28) Statements for Employees. Two (2) des-ignated copies of the �W-2 Wage and TaxStatement� must be provided to each employ-ee to whom wages were paid and were sub-ject to withholding whether or not tax was





withheld on the payments. Wages includesickness or injury payments made by anemployer under wage continuation plans andall remuneration whether paid in cash or oth-erwise. The W-2 form supplied by the IRSmust be used for this purpose unless theemployer uses a substitute form approved bythe Department of Revenue. If it becomesnecessary to correct Form W-2 after it hasbeen issued to an employee, two (2) correct-ed statements must be issued to the employeeand a copy mailed to the Department ofRevenue. The new copies must be clearlymarked �Corrected by Employer.� In case awithholding statement is lost or destroyed, asubstitute copy must be issued to the employ-ee and must be clearly marked �Reissued byEmployer.� If employment terminates duringthe year two (2) copies of Form W-2, copy 2and C, must be provided to the employeewithin thirty (30) days of the last payment ofwages. Interrupted or intermittent employ-ment is not considered terminated as long asthere is reasonable expectation of furtheremployment on the part of both the employerand the employee. If an employee�s servicesare terminated and a Form W-2 has been pro-vided for the period worked during the yearand the employee is later reemployed by thesame employer during the calendar year,another withholding statement must be pro-vided to the employee covering only the laterperiod of employment within the calendaryear. All withholding statements must be fur-nished to employees not later than January 31of the following calendar year for which theW-2 applies.

(29) Records to Be Kept by Employers.(A) The following records must be

retained for all employees:1. Name, address, Social Security num-

ber and period of employment; 2. Amounts and dates of all wage pay-

ments subject to the Missouri withholdingtax;

3. Employees� state income tax with-holding allowance certificate;

4. Employer�s state income tax with-holding registration number;

5. Record of quarter-monthly, monthly,quarterly and annual returns filed includingdates and amounts of payments;

6. Records that would assist theMissouri Department of Revenue in auditingthe employer�s records; and

7. All records should be kept for at leastthree (3) years after the date the taxes towhich they relate become due, or the date thetaxes are paid, whichever is later.

(B) In addition to the records listed in para-graphs (29)(A)1.�7., all records of the allo-cation of working days in the state ofMissouri must be retained for all nonresidentemployees.

(30) Penalties, Interest and Additions to Tax.(A) Interest at the statutory rate must be

included on all payments of tax not filed on atimely basis. Interest is subject to change onan annual basis pursuant to section 32.065,RSMo.

(B) An employer�s failure to file a timelyreturn, unless due to reasonable cause andnot due to willful neglect, will result in addi-tions to tax of five percent (5%) per month ora fraction of a month not to exceedtwenty-five percent (25%) pursuant to section143.741.1, RSMo.

(C) A deficiency is subject to an additionto tax of five percent (5%) if the delinquencyis due to negligence or disregard of rules, orfifty percent (50%) if the deficiency is due tofraud pursuant to section 143.751.1 and .2,RSMo.

(D) Failure to timely pay tax requires a fivepercent (5%) addition to tax pursuant to sec-tion 143.751.3, RSMo.

(E) A quarter-monthly penalty of five per-cent (5%) in lieu of all other penalties, inter-est or additions to tax will be imposed on aquarter-monthly period underpayment pur-suant to section 143.225.6, RSMo.

(F) A person who willfully fails to collect,account for or pay withholding taxes is sub-ject to a penalty equal to the amount not paidto the state, pursuant to section 143.751.4,RSMo. In addition, any officer, director,statutory trustee or employee of any corpora-tion who has direct control, supervision orresponsibility for filing returns and makingpayments of the tax, who fails to file andmake payment, may be personally assessedthe tax, including interest, additions to taxand penalties pursuant to section 143.241.1,RSMo.

(G) Penalties for criminal offenses are alsoprovided throughout sections 143.911�143.951, RSMo.

(H) A Certificate of Tax Lien may be filedfor record with the recorder�s office. The lienshall arise on the date an assessment becomesfinal and shall attach to all real and personalproperty owned by or acquired by the taxpay-er. A Certificate of Tax Lien also may befiled with the clerk of the circuit court andshall have the force and effect of a defaultjudgment pursuant to section 143.902,RSMo.

(I) Failure to file a timely Wage and Tax

Statement, W-2, is subject to a penalty of twodollars ($2) per statement not to exceed onethousand dollars ($1,000) unless the failure isdue to reasonable cause and not willfulneglect pursuant to section 143.741.2,RSMo.

AUTHORITY: section 143.961, RSMo 2000.*This rule was previously filed as �MissouriEmployer�s Tax Guide� Feb. 20, 1973, effec-tive March 2, 1973. Original rule filed Jan.29, 1974, effective Feb. 8, 1974. Emergencyamendment filed Jan. 13, 1983, effective Jan.23, 1983, expired May 23, 1983. Amended:Filed Jan. 13, 1983, effective April 11, 1983.Amended: Filed March 9, 1984, effective July1, 1984. Amended: Filed June 2, 1993, effec-tive Nov. 8, 1993. Amended: Filed July 28,1995, effective Jan. 30, 1996. Amended:Filed Feb. 6, 1998, effective Aug. 30, 1998.Emergency amendment filed Nov. 30, 1999,effective Dec. 10, 1999, expired June 6,2000. Amended: Filed Nov. 30, 1999, effec-tive June 30, 2000. Amended: Filed April 1,2002, effective Oct. 30, 2002.


12 CSR 10-2.016 Quarter-Monthly PeriodReporting and Remitting Withholding Tax

PURPOSE: Under the State Income Tax Law(section 143.011, RSMo), this rule establish-es the requirement of reporting and remittingwithholding taxes on a quarter-monthly peri-od to protect state revenue and improve thecash flow of revenue for the state.

(1) If an employer is required under sections143.191�143.265, RSMo to deduct and with-hold the aggregate amount of nine thousanddollars ($9,000) or more in each of at leasttwo (2) months during the prior twelve (12)months, the employer must file a return(MO-941P) and remit payment to the directorof revenue on a quarter-monthly basis.Amounts remitted on a quarter-monthly basisshall be treated as payments on the employ-er�s monthly return (MO-941). A monthlyreturn (MO-941) reconciling the quarter-monthly payments is required by the fifteenthday of the following month, except for thereturn for the third month of the quarterwhich is due the last day of the followingmonth. The employer shall mail a quar-ter-monthly payment voucher (MO-941P) andpayment to the address provided on FormMO-941P within three (3) banking days fol-lowing the end of the quarter-monthly period

or deliver the form and payment to the direc-tor of revenue in Jefferson City, Missouri orhis/her designated depository within four (4)banking days after the end of the quar-ter-monthly period. The compensation autho-rized in section 143.261, RSMo may be takenby the employer against the payment requiredto be made only if the payment is made by theemployer on a timely basis as provided insection 143.851, RSMo. Banking days shallnot include Saturday, Sunday or legal holi-days.

(2) A quarter-monthly filer has the optionto�

(A) Pay one hundred percent (100%) of theestimated quarter-monthly amount, as deter-mined by the department, within three (3)banking days after end of each quarter-monthly period (four (4) times a month); or

(B) Pay at least ninety percent (90%) of theactual tax due by the due date of that partic-ular quarter-monthly period. If there is nopayroll during a quarter-monthly period, noquarter-monthly payment voucher is neces-sary.

1. Example: An employer has a semi-monthly payroll cycle which falls on January15 and on January 31. The actual Missouriincome tax withholding for the January 15payroll is $12,000. The employer must remitat least 90% of the $12,000 ($10,800) withthe second quarter-monthly payment voucherthat is due no later than January 18. Theactual Missouri income tax withholding forthe January 31 payroll is $15,000. Theemployer must remit at least 90% of the$15,000 ($13,500) with the fourth quarter-monthly payment voucher that is due no laterthan February 3. Since the employer did nothave a payroll during the first or third quar-ter-monthly periods, a quarter-monthly pay-ment voucher does not need to be submittedfor those two periods.

2. Example: An employer has only onemonthly payroll period and it falls on January20 payroll. The actual Missouri income taxwithholding for the January 20 payroll is$30,000. The employer must remit at least90% of the $30,000 ($27,000) with the thirdquarter-monthly payment voucher that is dueno later than January 25. Since the employerdid not have a payroll during the first, secondor fourth quarter-monthly periods, a quarter-monthly payment voucher does not need to besubmitted for those three periods. Anyrequired additional tax due must be paid onor before the due date of the return.

(3) Quarter-monthly period means�

(A) The first seven (7) days of a calendarmonth;

(B) The eighth to fifteenth day of a calen-dar month;

(C) The sixteenth to twenty-second day ofa calendar month; and

(D) The twenty-third day through the lastday of a calendar month.

(4) A quarter-monthly penalty of five percent(5%) in lieu of all other penalties, interest oradditions to tax imposed by the statutes willbe charged on the amount of the underpay-ment for each quarter-monthly period. Thequarter-monthly penalty of five percent (5%)of underpayment for each quarter-monthlyperiod will not be imposed if one (1) of thefollowing exceptions is met:

(A) One hundred percent (100%) of theestimated quarter-monthly amount, as deter-mined by the department, is paid within three(3) banking days after the end of each quar-ter-monthly period (four (4) times a month);or

(B) At least ninety percent (90%) of theactual tax due is paid by the due date of thatparticular quarter-monthly period. If there isnot a payroll during a quarter-monthly peri-od, no quarter-monthly payment voucher isnecessary.

(5) If any employer reports withholding on acomplex unit reporting basis, then the ninethousand dollar ($9,000) aggregate amountas defined in section (1) is the total of allamounts required to be deducted and with-held by section 143.191, RSMo for all indi-vidual units of an employer.

(6) Overpayments. If withholding tax hasbeen over reported in any one (1) period, anEmployer�s Withholding Tax OverpaymentAmended Report (Form 941X) must be filedwith the Department of Revenue, along withsupporting documentation; such as a copy ofyour payroll ledger, records or W-2�s. Anoverpayment notice will be issued by thedirector for any excess remittance over theactual amount due for a period. An employercannot take credit for an overpayment untils/he has received notification from the direc-tor of revenue.

(7) Underpayments. If withholding tax hasbeen underported in any one (1) period, theemployer must file an Employers�Withholding Tax Underpayment AmendedReturn, Form MO-941U to report the addi-tional withholding. However, no penalty forunderpayment of any amount required to be

paid will be imposed on any employer forfailure to comply with the quarter-monthlyfiling requirements for the first two (2)months the employer is obligated to makequarter-monthly payments.

(8) Any employer who has been placed on aquarter-monthly filing frequency who consis-tently is not required to deduct and withholdnine thousand dollars ($9,000) or more for amonthly period may request permission fromthe director to file and pay on a less frequentbasis. An employer must file and pay on aquarter-monthly basis for a minimum oftwelve (12) months before requesting achange in filing frequency.

AUTHORITY: section 143.961, RSMo 1994.*Emergency rule filed Oct. 13, 1982, effectiveNov. 1, 1982, expired Feb. 28, 1983.Original rule filed Oct. 13, 1982, effectiveJan. 13, 1983. Emergency amendment filedNov. 12, 1982, effective Nov. 22, 1982,expired Feb. 28, 1983. Amended: FiledMarch 9, 1984, effective June 11, 1984.Amended: Filed June 2, 1993, effective Jan.31, 1994. Amended: Filed April 14, 1995,effective Sept. 30, 1995. Amended: FiledFeb. 6, 1998, effective Aug. 30, 1998.


12 CSR 10-2.017 Transient Employer Fin-ancial Assurance Instrument for Employ-er�s Withholding Tax

PURPOSE: This rule establishes guidelinesfor filing financial assurance instruments tosecure payment of withholding tax byout-of-state transient employers.


(1) Out-of-State Transient Employer Defined.





(A) Transient employer means an employ-er as defined in sections 143.191, 287.030and 288.032, RSMo making payment ofwages taxable under the Missouri income taxlaw, the Workers� Compensation Law and theMissouri employment security law who is notdomiciled in Missouri and who temporarilytransacts any business within Missouri. Thetransaction of business is considered tempo-rary at any time it cannot be reasonablyexpected to continue for a period of at leasttwenty-four (24) consecutive months.

(B) Transient employers shall not includeany employer who is not subject to Missouriincome tax because of the provisions of 15U.S.C. 381.

(C) Every transient employer shall filewith the director of revenue a financial assur-ance instrument including, but not limited to,a cash bond, surety bond or an irrevocableletter of credit as defined in the UniformCommercial Code Section 400.5-103,RSMo.

(2) Types of Financial Assurance Instru-ments. Financial assurance instrumentswhich may be posted to secure payments oftaxes by out-of-state transient employers shallbe in the form of a surety bond, cash bond oran irrevocable letter of credit issued by anystate or federal financial institution, or anyother financial assurance instrument which isdeemed acceptable by the director of revenue.Other financial assurance instruments will bereviewed for approval on a case-by-casebasis.

(A) A surety bond shall be issued by aninsurance company licensed for bonding inMissouri on behalf of the applicant on theform provided by the Department of Revenue.An example of this form is printed with thisrule. The form shall bear the seal of theinsurance company, the effective date and beaccompanied by a power of attorney letter ifsigned by the attorney-in-fact. It also shallcontain the signature of the applicant.

(B) A cash bond shall be paid to the direc-tor of revenue in the form of a cashier�scheck, money order or certified check and beaccompanied by a notarized cash bond formprovided by the Department of Revenue. Anexample of this form is printed with this rule.

(C) An irrevocable letter of credit issued byany state or federal financial institution maybe submitted to the Department of Revenueon a form provided by the department. Anexample of this form is printed with this rule.

1. The letter of credit shall be irrevoca-ble and the beneficiary shall be theDepartment of Revenue. Payment shall be

made immediately upon presentment of ademand for payment signed by the director ofrevenue or a designated representative.

2. All letters of credit shall conform tothe Department of Revenue�s required for-mat. A standard letter of credit form embody-ing this format shall be provided by theDepartment of Revenue. All letters of creditshall be accompanied by an authorization forrelease of confidential information allowingthe director of revenue or a designee torelease confidential tax information to theissuing bank.

3. A demand for payment upon a letter ofcredit shall be presented for payment only forreasons that bond proceeds are needed to sat-isfy any delinquencies or claims as providedfor in section 285.230, RSMo.

4. Letters of credit shall have a term ofone (1) year and shall be automaticallyrenewable on an annual basis for an addition-al one (1) year. A letter of credit may be can-celled by the issuer sixty (60) days after writ-ten notice is delivered to the Department ofRevenue. Upon the notice of cancellation, thetransient employer shall be required to file anew financial assurance instrument on orbefore the expiration of the sixty (60)-dayperiod. If the required financial assuranceinstrument is not received within that timeperiod, the employer commits the crime offailure to file a financial assurance instrumentif the employer knowingly fails to comply.

5. If a transient employer ceases busi-ness or desires to substitute a financial assur-ance instrument for his/her letter of credit,the director of revenue shall retain the letterof credit for a period of ninety (90) days oruntil the director of revenue is satisfied thatno claims exist against the letter of credit.

6. A transient employer shall berequired to increase the amount of the letterof credit in any situation where the employerwould be required to increase its financialassurance instrument as provided for in sec-tion 285.230, RSMo. This additional instru-ment may be satisfied by increasing the letterof credit or submitting an additional financialassurance instrument.

(3) Amount of Financial AssuranceInstrument. The amount of the financialassurance instrument shall be determined bythe director of revenue. This financial assur-ance instrument shall not be less than theaverage estimated quarterly withholding taxliability of the taxpayer, but in no case lessthan five thousand dollars ($5,000) nor morethan twenty-five thousand dollars ($25,000).

(A) Example 1: Mr. Kansas Contractor has

been awarded a contract to renovate a build-ing in Kansas City, Missouri. Mr. KansasContractor has employed ten (10) Missouriresidents to assist in the renovation. Theemployees are being paid four hundred dol-lars ($400) in wages per week. Each employ-ee is married, claiming one (1) personalexemption and no dependent exemptions. Mr.Kansas Contractor is required to post theminimum five thousand dollar ($5,000)financial assurance instrument.

(B) Example 2: Mrs. Illinois Drywalleraccepts a contract to drywall several newapartment complexes in St. Louis, Missouri.Mrs. Illinois Drywaller hires numerousMissouri resident drywallers to assist in thework. Mrs. Illinois Drywaller�s Missourimonthly withholding is twenty-three hundreddollars ($2,300). Mrs. Illinois Drywaller isrequired to post a financial assurance instru-ment in the amount of six thousand nine hun-dred dollars ($6,900). The six thousand ninehundred dollars ($6,900) is the approximateamount of withholding for these employeesfor one (1) calendar quarter.

(4) General Financial Assurance InstrumentExamples. The following are general exam-ples illustrating the out-of-state transientemployer financial assurance instrumentrequirement:

(A) Example 1: Mr. Jones, an out-of-statecontractor, has been awarded a contract toperform work in Missouri. He must obtainand file an application for a MissouriEmployer�s Withholding Tax Number.Furthermore, he does not meet the criteria tobe exempt from the financial assuranceinstrument requirement. Mr. Jones, therefore,must submit a financial assurance instrumentwith the application before he can obtain hisMissouri Withholding Tax IdentificationNumber;

(B) Example 2: Mrs. Davis is anout-of-state contractor whose principal placeof business is in a county of another statewhich borders Missouri. Mrs. Davis is a tran-sient employer and must file an applicationfor a Missouri Employer�s Withholding TaxNumber. Mrs. Davis has not been under con-tract to perform work in Missouri for at leastsixty (60) days each year for the past two (2)calendar years and, therefore, must submit afinancial assurance instrument with theMissouri Tax Registration Application; and

(C) Example 3: Mr. Smith, an out-of-statecontractor, has been awarded a contract toperform work in Missouri. Mr. Smith is atransient employer and must file an applica-tion for a Missouri Employer�s Withholding



Tax Number. Mr. Smith does meet all the cri-teria for exemption from the financial assur-ance instrument requirement. Therefore, heis not required to file a financial assuranceinstrument with the application but must noti-fy the Department of Revenue of his exemp-tion status.

(5) Replacing or Applying for Return ofFinancial Assurance Instrument.

(A) If a cash bond is replaced by a differ-ent type of financial assurance instrument,the cash bond will be refunded to the taxpay-er; provided, all taxes due are paid and thetaxpayer files a request for refund on theforms provided by the Department ofRevenue.

(B) If a surety bond is replaced by a dif-ferent type of financial assurance instrument,the surety bond will be cancelled; provided,the issuing insurance company provides theDepartment of Revenue with a written noticesixty (60) days prior to the cancellation date.This cancellation shall not affect any liabilityincurred or accrued prior to the terminationof the sixty (60)-day period.

(C) If an irrevocable letter of credit isreplaced by a different type of financialassurance instrument, the irrevocable letter ofcredit will be returned to the issuing financialinstitution; provided, the financial institutionprovides the Department of Revenue with awritten notice sixty (60) days prior to the can-cellation date. Cancellation shall not affectany liability incurred or accrued prior to thetermination of the sixty (60)-day period.

(6) Exemptions From the Out-of-StateTransient Employer Financial AssuranceInstrument Requirement. Employers meetingall the following criteria are not required tofile a transient employer withholding taxfinancial assurance instrument:

(A) The principal place of business of theemployer must be in a county of another statewhich borders Missouri;

(B) The employer must have been undercontract to perform work in Missouri for atleast sixty (60) days each year for the pasttwo (2) calendar years immediately precedingthe employer�s initial application for exemp-tion from the transient employer bondingrequirements; and

(C) The employer must have in his/herpossession a tax clearance issued by theDepartment of Revenue stating that the tran-sient employer has complied with the tax lawsof this state and with the provisions of theWorkers� Compensation and employmentsecurity laws during the period set out in sub-

section (6)(B) of this rule. On or beforeJanuary 31 of each year, except January 31following the year during which the employ-er meets these criteria, the employer shallsubmit a request to the Department ofRevenue for a renewed tax clearance.

(7) Certification of Workers� CompensationInsurance. Every transient employer shallcertify to the director of revenue that theemployer has sufficient Workers� Compen-sation insurance either through a self-insuredplan or through a private company (carrier).A transient employer shall provide theDepartment of Revenue with a copy of itsWorkers� Compensation insurance policy.The insurance policy shall be forwarded tothe Division of Workers� Compensation ofthe Missouri Department of Labor andIndustrial Relations for verification of theinsurance policy.

AUTHORITY: sections 143.961, RSMo 1986and Senate Bill 4477 of the 87th GeneralAssembly to be codified as section 285.230,RSMo in 1994.* Original rule filed Aug. 8,1989, effective Nov. 26, 1989. Emergencyamendment filed Aug. 18, 1994, effectiveAug. 28, 1994, expired Dec. 25, 1994.Emergency amendment filed Dec. 9, 1994,effective Dec. 26, 1994, expired April 24,1995. Amended: Filed Aug. 18, 1994, effec-tive Feb. 26, 1995.

*Original authority: 143.961, RSMo 1972 and 285.230,RSMo 1988, amended 1994.



12 CSR 10-2.020 Difference in Basis onDecember 31, 1972

PURPOSE: This rule serves as a guideline inthe determination of the amount of individual,corporate or other taxpayer�s allowable mod-ification upon the sale or other disposition ofproperty having a higher adjusted basis forMissouri income tax purposes than for feder-al income tax purposes on December 31,1972.


(1) If a taxpayer�s federal adjusted grossincome (FAGI) includes any gain from a saleor other disposition of property having ahigher adjusted basis to the taxpayer forMissouri income tax purposes than for feder-al income tax purposes on December 31,1972, a modification must be made to adjustfor this difference in basis. This modificationapplies only if and to the extent that the gainis included in the FAGI of the taxpayer.

(2) Computing the Modification for Differ-ence in Basis. This modification is made bysubtracting from FAGI the portion of the gainincluded in the adjusted gross income whichis not in excess of the amount by whichMissouri basis exceeds federal basis atDecember 31, 1972. If the gain is along-term capital gain for federal tax purpos-es, only fifty percent (50%) of that portion ofthe gain is to be deducted.

(3) Gain on Sale of Residence. A gain on thesale of a residence of a Missouri taxpayerillustrates the modification provided in thissection. Under Internal Revenue Code (IRC)section 1034, a taxpayer�s gain on the sale ofhis/her principal residence is not recognized,in whole or in part, under certain circum-stances. The nonrecognized gain reduces thebasis of the subsequent residence for federaltax purposes. For taxable years prior to the

application of sections 143.011�143.996,RSMo, no adjustment to Missouri basis wasapplicable, as any gain on the sale of a resi-dence was fully recognized at the time of salefor Missouri tax purposes. When the taxpay-er�s residence had a higher basis for Missouritax purposes than for federal tax purposes onDecember 31, 1972, the gain, to the extentincluded in FAGI, will be a modificationunder section 143.121-3(b), RSMo.

(4) As an example, assume that the taxpayerpurchased his/her present residence for$50,000. The adjusted basis for federal taxpurposes on December 31, 1972 was $40,000($50,000 less a $10,000 gain not recognizedunder IRC section 1034 on the sale of his/herold residence and subsequent purchase ofhis/her present residence). The adjusted basisfor Missouri tax purposes on December 31,1972 was $50,000. S/he sells his/her resi-dence in 1973 for $66,000 and does not pur-chase another home. The gain on the sale isfully recognized for federal tax purposes andis taxed as a long-term capital gain in 1973.There are no other capital gains or losses toreport in that year. The taxpayer also has$30,000 of other FAGI in 1973 and there areno other Missouri modifications. Missouriadjusted gross income (MAGI) would becomputed as follows:

Missouri adjusted basis $50,000Federal adjusted basis $40,000Difference in basis $10,000(A)

Sales price $66,000Federal adjusted basis $40,000Net long-term capital gain $26,000(B)50% deduction

(IRC Section 1202) $13,000Net long-term capital

gain after IRCSection 1202 deduction $13,000

Other income $30,000FAGI $43,000(C)Modification under

section 143.121-3(b),RSMo (1/2 of lesser of (A) or (B)but not more than (C)) ($ 5,000)

MAGI $38,000

(5) This example illustrates the principle ofthe last sentence of section (1) of this rule.An individual sells a nondepreciable capitalasset which s/he held over six (6) months for$100,000. The adjusted basis of this proper-ty for federal tax purposes was $50,000 onDecember 31, 1972 and for Missouri tax pur-poses was $70,000. In the same year, the

taxpayer also has $67,000 of short-term cap-ital losses and $40,000 of other FAGI. Thereare no other Missouri modifications. His/herMAGI would be computed as follows:

Missouri adjusted basis $ 70,000Federal adjusted basis $ 50,000Difference in basis $ 20,000(A)

Sales price $100,000Federal adjusted basis $ 50,000Long-term capital gain $ 50,000Short-term capital losses ($ 67,000)Net short-term capital loss ($ 17,000)(B)

Deduction for net capitalloss limited to (IRC Section1211) ($ 1,000)

Other income $ 40,000FAGI $ 39,000(C)Modification under section143.121-3(b), RSMo(1/2 of lesser (A) or (B)but not more than (C)) $ 0

MAGI $ 39,000

(6) As a further example, assume that a cor-poration sells a depreciable asset for$100,000 in 1973. The adjusted basis of thisproperty for federal tax purposes was$80,000 on December 31, 1972 and forMissouri tax purposes was $108,000. Due tothe federal depreciation recapture rules, all ofthe gain is reportable as ordinary income in1973 and there are no other gains or losses toreport for that year. Other federal taxableincome for 1973 is $50,000 and there are noother Missouri modifications. Missouri tax-able income would be computed as follows:

Missouri adjusted basis $108,000Federal adjusted basis $ 80,000Difference in basis $ 28,000(A)

Sales price $100,000Federal adjusted basis $ 80,000Ordinary gain $ 20,000(B)Other income $ 50,000Federal taxable income $ 70,000(C)Modification under section143.121-3(b), RSMo (lesser of (A) or (B) but not more than (C)) ($ 20,000)

Missouri taxable income $ 50,000

(7) Property Acquired After December 31,1972. Where a taxpayer realized a gain on thesale of property which was acquired afterDecember 31, 1972 in a manner that thebasis of that property is determined solely by



reference to its cost to the taxpayer, no mod-ification is allowed. The property necessarilyhas the same basis for both Missouri and fed-eral tax purposes.

(8) Where a taxpayer owns property whichhas a higher Missouri basis than federal basison December 31, 1972 and the property issubsequently exchanged for other property,the basis of which is determined by referenceto the basis of the property disposed of, thedifference in basis on December 31, 1972shall be carried forward to, and be associatedwith, the property received in the exchange,for purposes of determining the modificationprovided in this section.

(9) Where a taxpayer receives property whichhad a higher Missouri basis than federal basison December 31, 1972, in a manner that thebasis of the property in the hands of the trans-feror carries over to the transferee (for exam-ple, by gift�see IRC Section 1015); the dif-ference in basis on December 31, 1972 shallbe carried forward to, and be associated with,the property in the hands of the transferee,for purposes of determining the modificationprovided in this section.

(10) Separate Computation Required. Wheretwo (2) or more assets are sold at a gain dur-ing the same taxable year, and the adjustedbasis of each for Missouri tax purposes onDecember 31, 1972 was higher than its fed-eral adjusted basis, the amount of the modifi-cation provided by this section shall be com-puted separately for each asset sold.

(11) Modification Not Allowed in CertainCases. No modification is to be made whereproperty was disposed of at a loss during thetaxable year even though there was a differ-ence between the Missouri and federal basison December 31, 1972. No modification,adjustment or allowance under this section orany other section is to be made with respectto any federal capital loss carry-over.

(12) Installment Sales. In the case of aninstallment sale of an asset which onDecember 31, 1972 had a Missouri basishigher that its federal basis, the amount of themodification for any taxable year will be thatproportion of the total amount of the modifi-cation as the amount received in that yearbears to the total selling price from the sale.

(A) Example: Assume the same facts as insection (4) of this rule, except that the resi-dence was sold on the installment basis, thetaxpayer receiving $11,000 per year for six(6) years beginning in 1973. The Missouri

modification for each of the six (6) yearswould be computed as follows:

$5,000 × $11,000 = $833$66,000

(13) Tax Return and Recordkeeping Require-ments. Any modification permitted under thisrule shall be fully explained and computa-tions set forth in a statement attached to eachMissouri tax return in which the modificationis made. Taxpayer shall retain records as maybe necessary to establish a difference inadjusted basis on December 31, 1972 and amodification under section 143.121-3(b),RSMo, if and when the property is sold.

AUTHORITY: section 143.961, RSMo 1986.*Regulation 1.121-3(b) was originally filedMarch 15, 1974, effective March 25, 1974.


12 CSR 10-2.025 Adjustment to AvoidDouble Taxation

PURPOSE: This rule serves as a guideline inthe determination of the amount of a taxpay-er�s allowable modification with respect toany item of income or gain which was prop-erly included in taxable income and taxedunder the Missouri income tax law in effectprior to January 1, 1973.


(1) General Rule. There shall be subtractedfrom federal adjusted gross income (FAGI),to the extent included in the adjusted grossincome (AGI), any amount necessary to pre-vent the taxation under sections 143.011�143.996, RSMo of any item of income orgain properly included in the taxable incomeand taxed under the Missouri income tax lawin effect prior to January 1, 1973. This mod-ification applies to the income of a taxpayer

even though the right to receive the incomemay have been acquired by reason of thedeath of a decedent or from an estate or trust.

(2) Annuity. An annuitant is permitted todeduct from FAGI the amount, if any, bywhich the total annuity payments previouslytaxed for Missouri tax purposes exceed thetotal annuity payments previously taxed forfederal tax purposes. The reduction of FAGIrepresenting the excess amount previouslytaxed by Missouri is limited during the tax-able year to the amount of the income includ-ed in FAGI. The modification for each annu-ity must be computed separately.

(A) Example: A calendar year taxpayerpaid $20,000 for an annuity and began draw-ing $2,000 a year from that annuity in 1968when s/he was seventy (70) years old.Assuming his/her life expectancy at that timewas 12.1 years, his/her expected returnwould be $24,200 and s/he would be taxed on17.356% of his/her annuity for federal taxpurposes. For Missouri tax purposes for alltaxable years prior to January 1, 1973, s/hewould be taxed on three percent (3%) of theamount paid for the annuity contract ($600).The modification required under section143.121-3(c), RSMo would be computed asfollows:

Net AmountFederal Included inTaxable Missouri Missouri

Year Amount Modification AGI1968 $347.12 $600.001969 $347.12 $600.001970 $347.12 $600.001971 $347.12 $600.001972 $347.12 $600.001973 $347.12 $347.12 01974 $347.12 $347.12 01975 $347.12 $347.12 01976 $347.12 $223.04 $124.081977 and

later $347.12 0 $347.12

(3) Modification for Income From Keogh(Self-Employed) Retirement Plan. A KeoghAct Retirement Plan qualified under InternalRevenue Code (IRC) Section 401 provides fora tax deduction for a self-employed individualfor contributions to a qualified pension orprofit-sharing plan. An owner-employee cancontribute for him/herself each year a portionof his/her earned income for that year. Forthe years 1963�1967, only one-half (1/2) of acontribution on behalf of an owner-employeewas deductible for federal tax purposes.Income earned on the contributions is nottaxed until withdrawn from the retirementfund, at which time it is taxed as ordinaryincome. Under the Missouri income tax law

in effect prior to January 1, 1973, contribu-tions to a qualified retirement plan by aself-employed individual on his/her ownbehalf were not allowed as a deduction. Aself-employed taxpayer receiving paymentsfrom a Keogh retirement plan is permitted todeduct from FAGI, to the extent included inthe AGI, an amount equal to the differencebetween the sum of the contributions whichwere deductible for federal tax purposes andthe sum of the contributions which weredeductible for Missouri tax purposes.

(A) Example: A taxpayer contributed$2,500 to a Keogh plan every year from1963�1977 and receives the first of ten (10)equal annual payments of $7,000 in 1978.The modification required under section143.121-3(c), RSMo would be computed asfollows:

Summary of ContributionsFederal Missouri

Contri- Allowable AllowableYears butions Deductions Deductions1963�1967 $12,500 $ 6,250 01968�1972 $12,500 $12,500 01973�1977 $12,500 $12,500 $12,500

$37,500 $31,250 $12,500

The difference between allowable federaldeductions ($31,250) and allowable Missourideductions ($12,500) is $18,750. This is themaximum amount which can be deducted asmodifications for Missouri tax purposes.

Summary of Payments ReceivedNetAmount

Missouri Included inTotal Portion Modi- MissouriReceived Taxable fication AGI

1978 $ 7,000 $ 6,375 $ 6,375 01979 $ 7,000 $ 6,375 $ 6,375 01980 $ 7,000 $ 6,375 $ 6,000 $ 3751981 $ 7,000 $ 6,375 0 $ 6,3751982�1987 $42,000 $38,250 0 $38,250

$70,000 $63,750 $18,750 $45,000

(4) Modification for Installment Sales. Whereproperty which had a higher adjusted basisfor Missouri tax purposes was sold on theinstallment basis prior to the effective date ofsections 143.011�143.996, RSMo and theinstallment method of reporting the gain wasproperly used for both federal and Missouritax purposes, a modification under section143.121-3(c), RSMo is necessary to preventthe double taxation of that portion of the gainthat does not exceed the difference in basis.The amount of the modification shall be lim-ited to that portion of the modification as theamount received in the current year is to thetotal selling price.

(5) Tax Return Information Required. Anymodification permitted under this sectionshall be fully explained and computations setforth in a statement attached to each Missouritax return in which the modification is made.The taxpayer shall retain records as may benecessary to establish the amount of the mod-ification.

AUTHORITY: section 143.961, RSMo 1986.*Regulation 1.121-3(c) was originally filedMarch 15, 1974, effective March 25, 1974.


12 CSR 10-2.030 Subsequent Change ofAccounting Period

PURPOSE: This rule serves as a guideline inthe determination of the amount of an indi-vidual taxpayer�s allowable personal anddependency exemptions where a short taxableperiod income tax return is required due to achange in the taxpayer�s taxable year for fed-eral income tax purposes.

(1) If a taxpayer�s taxable year is changed forfederal income tax purposes, the Missouritaxable year will automatically be changed.No application for change of accounting peri-od for Missouri income tax purposes will berequired. If a short taxable period for federalincome tax purposes results from a change inthe taxpayer�s accounting period, the taxpay-er also shall file a Missouri income tax returnfor that short taxable period, attaching a copyof one (1) of the items indicating federal per-mission. Missouri taxable income shall becomputed on the basis of the period for whichthe return is made and in accordance with therules applicable to the determination ofMissouri taxable income generally, exceptthat the amount of allowable personal anddependency exemptions shall be reduced tothe amount which bears the same ratio to thefull amount for those exemptions as the num-ber of months in the period bears to twelve(12) months.

(2) Example: A resident individual has beenfiling his/her federal and Missouri incometax returns on the basis of a fiscal year end-ing September 30. S/he changes to a calendaryear basis and files a federal income taxreturn for the short taxable period October 1to December 31. S/he is entitled to one (1)personal exemption. His/her federal adjustedgross income (FAGI) for the short taxableperiod is as follows:

Salary $3,000United States bond interest $ 40Savings bank interest $ 60FAGI $3,100

His/her Missouri taxable income (before fed-eral income tax deduction) is as follows:FAGI $3,100

Less modification for UnitedStates bond interest $ (40)

Missouri adjusted gross income $3,060Federal itemized deduction

(no federal standard deductionis allowable for short-periodreturns; no Missouri modifi-cations applicable) $(250)

Personal exemption($1,200 × 3/12) $(300)

Missouri taxable income (beforefederal income tax deduction) $2,510

AUTHORITY: section 143.961, RSMo 1986.*Regulation 1.271-2 was originally filedMarch 8, 1974, effective March 18, 1974.


12 CSR 10-2.035 Conformity of MissouriWith Federal Accounting Methods

PURPOSE: The rule provides that a taxpayermust employ the same method of accountingfor Missouri income tax purposes as is usedfor federal income tax purposes.

(1) A taxpayer must employ the same methodof accounting in determining Missouri tax-able income as is used for federal income taxpurposes. The term method of accountingrefers not only to the overall method ofaccounting (such as cash or accrual) but alsoto the accounting treatment of particularitems of income, gain, loss or deduction,such as depreciation, bad debts, inventoryvaluation, research and experimental expen-ditures.

(2) If the taxpayer is allowed or is required tochange an accounting method for federalincome tax purposes, a similar change in theaccounting method for Missouri income taxpurposes will automatically be made. Noapplication for change of accounting methodfor Missouri income tax purposes shall berequired.





AUTHORITY: section 143.961, RSMo 1986.*Regulations 1.281-1 and 1.281-2 were origi-nally filed March 8, 1974, effective March18, 1974.


Armco Steel Corporation v. State TaxCommission, 580 SW2d 242 (Mo. banc1979). Appellant filed a consolidated federaltax return for 1969, making certain intercor-porate payments to its subsidiaries for theirtax losses incurred. Appellant then claimedas a deduction on its Missouri tax return theamount of federal tax that would have beenpaid if the appellant had filed as a separateentity. For deduction purposes on Missouriincome tax returns, United States incometaxes �assessed� are those that are actuallypaid. And, although the director of revenue isto �follow as nearly as practicable the rulesand regulations prescribed by the UnitedStates government on income tax assessmentsand collection,� the director cannot interpretthe statute in accordance with the federalregulations if to do so will change the sub-stantive rules of the Missouri statute.

12 CSR 10-2.040 Transitional Adjustmentsin Accounting Methods(Rescinded October 30, 2002)

AUTHORITY: section 143.301, RSMo 1986.Regulation 1.301 was originally filed April 3,1974, effective April 13, 1974. Rescinded:Filed April 4, 2002, effective Oct. 30, 2002.

12 CSR 10-2.045 Missouri ConsolidatedIncome Tax Returns

PURPOSE: This rule sets forth the require-ments for the filing of Missouri consolidatedincome tax returns by affiliated groups orcorporations.

PUBLISHER�S NOTE: The secretary of statehas determined that the publication of theentire text of the material which is incorpo-rated by reference as a portion of this rulewould be unduly cumbersome or expensive.Therefore, the material which is so incorpo-rated is on file with the agency who filed thisrule, and with the Office of the Secretary ofState. Any interested person may view thismaterial at either agency�s headquarters orthe same will be made available at the Officeof the Secretary of State at a cost not toexceed actual cost of copy reproduction. Theentire text of the rule is printed here. This

note refers only to the incorporated by refer-ence material.

(1) Authority for Regulation. This rule is pro-mulgated under the general regulatory powersgranted to the director of revenue and the spe-cific authority set forth in section143.431.3(5), RSMo relating to Missouriconsolidated income tax returns.

(2) Affiliated group. The term affiliatedgroup means those members of an affiliatedgroup of corporations as defined by InternalRevenue Code (IRC) Section 1504 and theapplicable treasury regulations which partici-pate or are required to participate in the fil-ing of a federal consolidated income taxreturn for the taxable year.

(3) Missouri consolidated return year. Theterm Missouri consolidated return yearmeans a taxable year for which a Missouriconsolidated return is filed or required to befiled by an affiliated group under this rule.

(4) New member. The term new membershall mean a corporation which is a memberof an affiliated group during the currentMissouri consolidated return year but whichwas not a member of the group for the imme-diately preceding Missouri consolidatedreturn year.

(5) Multistate Tax Compact. The termMultistate Tax Compact shall mean theMultistate Tax Compact as enacted into lawin Missouri as section 32.200, RSMo.

(6) IRC section. The term IRC section shallmean the pertinent provision of the InternalRevenue Code for the taxable year.

(7) Required member. The term requiredmember shall mean any corporation includedon the federal consolidated return for theaffiliated group, except:

(A) An express company which pays anannual tax on its gross receipts in this state;

(B) An insurance company which pays anannual tax on its gross premium receipts inthis state;

(C) A Missouri mutual or extendedMissouri mutual insurance company orga-nized under Chapter 380, RSMo; or

(D) An association or credit union whichpays an annual tax pursuant to section148.620, RSMo.

(8) Treas. Reg. Section. The term Treas.Reg. Section shall mean the pertinent provi-

sions of the regulation promulgated by theUnited States Treasury for the taxable year.

(9) Director of revenue. The term director ofrevenue, except as otherwise specifically pro-vided in this rule, shall mean the director ofrevenue or his/her duly authorized agent ordesignee.

(10) Computing Missouri consolidated tax-able income from all sources. The Missouriconsolidated taxable income (all sources) ofan affiliated group shall be its federal consol-idated taxable income for the taxable year,adjusted to reflect the modifications providedin section 143.121, RSMo and the applicablemodifications provided in section 143.141,RSMo, and to reflect the exclusion of anymembers of the affiliated group that are notrequired members. There shall be subtractedthe federal income tax deduction provided insection 143.171, RSMo. There shall be sub-tracted, to the extent included in federal con-solidated taxable income, corporate dividendsfrom sources within Missouri.

(11) Computing Missouri consolidated tax-able income from Missouri sources.

(A) The Missouri consolidated taxableincome (Missouri sources) of an affiliatedgroup shall be so much of its Missouri con-solidated taxable income (all sources) as isderived from sources within Missouri pur-suant to the interstate division of incomerules set forth in section (18) of this rule. Ifonly part of the Missouri consolidated taxableincome (all sources) is derived from sourceswithin Missouri, the Missouri consolidatedtaxable income (Missouri sources) shall onlyreflect the effect of the following listeddeductions to the extent applicable toMissouri:

1. The deduction for federal income taxprovided in section 143.171, RSMo; and

2. The effect on Missouri consolidatedtaxable income (all sources) of the deductionfor consolidated net operating loss allowed byIRC Section 172 and the applicable Treas.Reg. issued under IRC Section 1502. Theextent these deductions applicable toMissouri shall be determined by multiplyingthe amount that would otherwise affectMissouri consolidated taxable income (allsources) by the ratio of Missouri consolidat-ed taxable income (Missouri sources) for theyear divided by the Missouri consolidatedtaxable income (all sources) for the year. Forthe purpose of the preceding sentence,Missouri consolidated taxable income shall

not reflect the deductions listed in subsec-tions (A) and (B) of this section.

(B) If an affiliated group files a Missouriincome tax return in which one or moremembers of the affiliated group are notrequired members, the federal income taxdeduction for such Missouri income taxreturn shall be determined by multiplying thefederal income tax liability of the affiliatedgroup by a fraction, the numerator of whichis the sum of the federal taxable incomes ofthe required members and the denominator ofwhich is the sum of the federal taxableincomes of all members of the affiliatedgroup.

(12) Qualifying for Privilege to FileConsolidated Return. An affiliated group(other than one which is required to file aMissouri consolidated return for the year)shall be qualified to file a Missouri consoli-dated return if�

(A) It files a federal consolidated return forthe taxable year;

(B) Each corporation which has been amember of the affiliated group during anypart of the taxable year for which theMissouri consolidated return is to be filedconsents to this rule in the manner providedin sections (24)�(26) of this rule; and

(C) The affiliated group is not disqualifiedfrom filing a Missouri consolidated return forthe year under section (16) of this rule.

(13) Election to File. For tax years with a duedate for filing the common parent�s Missourireturn (including extensions of time to file)after December 28, 1998, if an affiliatedgroup qualified to file a Missouri consolidat-ed return wishes to elect to file a Missouriconsolidated return, the election must beexercised by the filing of a Missouri consoli-dated return on or before the due date(including extensions of time) for the filing ofthe common parent�s separate Missourireturn. For tax years with a due date for fil-ing the common parent�s Missouri return(including extensions of time to file) beforeDecember 28, 1998, an affiliated group qual-ified to file a Missouri consolidated returncould elect to file a Missouri consolidatedreturn by the filing of�

(A) A Missouri consolidated return on orbefore the due date (including extensions oftime) for the filing of the common parent�sseparate Missouri return; or

(B) If the affiliated group did not file aMissouri consolidated return within suchtime because it was precluded from doing sounder Missouri law, a Missouri consolidated

return within the statute of limitations applic-able to the filing of an amended return.

(14) Election Irrevocable. The exercise of anelection to file a Missouri consolidated returnis irrevocable and may not be withdrawn afterthe due date (including extensions of time)for the filing of the common parent�s separateMissouri return.

(15) Continued Filing Requirement. Exceptas provided in sections (32)�(35) of this rule,an affiliated group which filed (or wasrequired to file) a Missouri consolidatedreturn for the immediately preceding taxableyear is required to file a Missouri consolidat-ed return for the current taxable year.

(16) Disqualification to File. If an affiliatedgroup filed (or was required to file) aMissouri consolidated return for the immedi-ately preceding taxable year and, by virtue ofsections (32)�(35) of this rule, it does not fileor is not permitted to file a Missouri consol-idated return for the current taxable year,then it shall not be qualified to file a Missouriconsolidated return for a period of five (5)years after its last preceding Missouri consol-idated return year.

(17) Filing Consolidated Return in SpecialCircumstances. Notwithstanding that an affil-iated group may be disqualified to file aMissouri consolidated return for the currenttaxable year under section (16) of this rule,the director of revenue may permit the affili-ated group to file a Missouri consolidatedreturn for the current taxable year.Application for permission shall be directedto the personal attention of the director ofrevenue, shall be made in writing and shallset forth in detail the factual and legal argu-ments which the director of revenue is beingrequested to consider. No application for per-mission shall be granted until the affiliatedgroup receives written permission bearing thesignature of the director of revenue.

(18) Interstate Division of Income Rules forFirst Missouri Consolidated Return Year. Inthe determination of that portion of theMissouri consolidated taxable income (allsources) as is derived from sources withinMissouri, the affiliated group shall select inits first Missouri consolidated return year,one (1) of the applicable interstate division ofincome methods set forth in the followingsubsection:

(A) Method Under Section 143.451.2.,RSMo. If each member of the affiliatedgroup, if filing separate Missouri returns,

would qualify to determine that portion of itsMissouri taxable income as is derived fromsources within Missouri by application of theinterstate division of income methods setforth in section 143.451.2., RSMo, then theaffiliated group, as a whole, shall useeither�

1. The single factor sales (businesstransactions) method provided in section143.451.2., RSMo; or

2. The uniform method for division ofincome provided in the Multistate TaxCompact and the corresponding rules of theMissouri Department of Revenue;

(B) Method Under Section 143.451.3.�143.451.6., RSMo. If each member of theaffiliated group, if filing separate Missourireturns, would qualify to determine that por-tion of its Missouri taxable income derivedfrom sources within Missouri by applicationof the interstate division of income methods,set forth in section 143.451.3�143.451.6.,RSMo (and each member uses the samemethod), then the affiliated group, as awhole, shall use either�

1. The applicable method set forth insection 143.451.3.�143.451.6., RSMo; or


(C) Method Under Section 143.461,RSMo. If each member of the affiliatedgroup, if filing separate Missouri returns,would qualify to determine that portion of itsMissouri taxable income as is derived fromsources within Missouri by application of theelective division of income method approvedunder section 143.461, RSMo (and eachmember uses the same approved method)then the affiliated group, as a whole, shalluse either�

1. The elective division of incomemethod approved under section 143.461,RSMo; or


(D) Members to Which Different InterstateDivision of Income Methods Apply�GeneralRule. If the affiliated group is composed of amembership such that if separate Missourireturns were filed by each member, the sameinterstate division of income method undersection 143.451.2., RSMo (relating to gener-al business corporations), 143.451.3., RSMo(relating to transportation), 143.451.4.,RSMo (relating to railroads, and the like),143.451.5., RSMo (relating to interstate





bridges), 143.451.6., RSMo (relating to tele-phone or telegraph companies) or 143.461,RSMo (other approved methods) would notapply to each member, then the affiliatedgroup, as a whole, shall determine that por-tion of its Missouri consolidated taxable income (all sources) as is derived fromsources within Missouri by application of�

1. The uniform method for division ofincome provided in the Multistate TaxCompact and the corresponding rules of theMissouri Department of Revenue; or

2. The percentage obtained by themethod set forth in subsection (18)(E) of thisrule; and

(E) Members to Which Different InterstateDivisions of Income Methods Apply�Special Rule. If an affiliated group describedin subsection (18)(D) of this rule and it electsto use the interstate division of incomemethod referred to in paragraph (18)(D)2. ofthis rule, it shall arrive at an interstate divi-sion of income percentage in the followingmanner:

1. Each member shall determine its ownfederal taxable income (loss) for the year,computed as though each member had filed aseparate federal income tax return for theyear. For the purposes of this paragraph, theseparate federal taxable income (loss) of eachmember shall not reflect the deduction for netoperating loss allowable by IRC Section 172and shall not reflect dividend income fromsources within Missouri;

2. Each member shall adjust its ownseparate federal taxable income (loss) sodetermined to reflect the modifications pro-vided in sections 143.121 and 143.141,RSMo applicable to those members. If, as aresult of the computation contained in thisparagraph (18)(E)2., a member has a sepa-rate Missouri taxable loss for the year, thatmember, for purposes of subsection (18)(E),shall be considered to have had a positiveMissouri taxable income for the year in anamount equal to the loss;

3. The amount determined pursuant toparagraphs (18)(E)1. and 2., for the purpos-es of subsection (18)(E), shall be consideredthe separate Missouri taxable income (allsources) of each member for the year;

4. Each member shall determine thatportion of its own separate Missouri taxableincome (all sources) as is derived fromsources within Missouri by application ofwhichever interstate division of incomemethod under section 143.451 or 143.461,RSMo is applicable to each member; and

5. The combined amounts of theMissouri taxable income (Missouri sources)

of each member, so determined, shall bedivided by the combined amounts of theMissouri taxable income (all sources) of eachmember, so determined, to arrive at a per-centage and the percentage thus obtainedshall be deemed to be that percentage of theMissouri consolidated taxable income (allsources) as is derived from sources withinMissouri.

(19) Intercompany Transactions. For the pur-poses of determining the amount of sales orbusiness transactions under the interstatedivision of income methods provided in sec-tions 143.451.2. and 143.461, RSMo and inthe Multistate Tax Compact, the term salesand business transactions shall include allintercompany sales (business transactions) asdefined in Treas. Reg. Section 1.1502�13.

(20) Subsequent Missouri Consolidated Re-turn Years. In the determination of Missouriconsolidated taxable income (Missourisources) for its second and succeedingMissouri consolidated return years, the affil-iated group shall use the same interstate divi-sion of income method as it used in its firstyear, or select a different interstate divisionof income method pursuant to section (18) ofthis rule.

(21) Election of Interstate Division of IncomeMethod. For any taxable year, the interstatedivision of income method may not bechanged following the due date (includingextensions of time) for filing the return forsuch year.

(22) Computation of Tax Liability. The Mis-souri income tax liability of an affiliatedgroup for a Missouri consolidated return yearshall be determined by adding together�

(A) The tax imposed by section 143.071,RSMo on the Missouri consolidated taxableincome (Missouri sources) for each year;

(B) The additions to tax imposed by sec-tion 143.741, RSMo;

(C) The additions to tax and penaltiesimposed by section 143.751, RSMo; and

(D) The additions to tax imposed by sec-tion 143.761, RSMo.

(23) Liability For Tax. The common parentcorporation and each required member whichwas a member of the affiliated group duringany part of the Missouri consolidated returnyear shall be jointly and severally liable forthe tax computed in accordance with thisrule, together with the interest on the tax,computed in accordance with section143.731, RSMo. No agreement entered into

by one (1) or more members of the affiliatedgroup with any other member of the group orwith any other person in any case shall havethe effect of reducing the liability prescribed.

(24) Consent to This Rule. Each requiredmember must execute a Form MO-22(Authorization and Consent of SubsidiaryCorporation to be Included in a MissouriConsolidated Income Tax Return) for the firstMissouri consolidated return year in which itfirst becomes a member of the affiliatedgroup. If a required member fails to executea Form MO-22, the director of revenue may:a) treat such failure as a request by the affili-ated group to discontinue, for good cause, thefiling of a Missouri consolidated return withrespect to the year of the failure and allMissouri consolidated return years after that;b) recalculate the Missouri tax liability of theaffiliated group to include the required mem-ber; or c) accept the return without the con-sent pursuant to section (25) of this regula-tion. The affiliated group shall continue to besubject to section (15) of this rule unless anduntil the director of revenue grants writtenpermission to the affiliated group to discon-tinue the filing of Missouri consolidatedreturns.

(25) Consent Under Facts and Circum-stances. If a required member fails to executea Form MO-22, the director of revenue maydetermine that the member has joined in themaking of the Missouri consolidated return ofthe affiliated group.

(26) Failure to Consent Due to Mistake. Ifany required member has failed to join in themaking of a Missouri consolidated return andthe common parent establishes to the satis-faction of the director of revenue that the fail-ure was due to a mistake of law or fact, or toinadvertence, then the member shall beallowed to file a Form MO-22 and join in themaking of the Missouri consolidated return.

(27) Consolidated Return Made by CommonParent. The Missouri consolidated returnshall be made by the common parent on FormMO-1120 (Corporation Income Tax Return)and shall be filed by the common parent.

(28) Attachments to Form MO-1120. In addi-tion to those matters required of all corpora-tions, an affiliated group shall be required tosubmit the following items:

(A) For the first Missouri consolidatedreturn year, a Form MO-22 executed by eachmember of an affiliated group;



(B) For the second and succeedingMissouri consolidated return years, a FormMO-22 executed by each new required mem-ber of an affiliated group;

(C) A detailed schedule i) identifying anymembers of the affiliated group that are notrequired members and the reason for exclu-sion, and ii) showing all adjustments to fed-eral consolidated taxable income due to theexclusion of any members of the affiliatedgroup that are not required members; and

(D) The affiliated group shall attach to itsForm MO-MS (Corporation Allocation andApportionment of Income) a detailed sched-ule which the interstate division of incomedata of each member of the affiliated group isset forth.

(29) Common Parent as Agent for All OtherMembers. The common parent, for all pur-poses other than the making of the consentrequired by subsection (12)(B) of this rule,shall be the sole agent for each subsidiarymember in the affiliated group, duly autho-rized to act in its own name in all mattersrelating to the Missouri tax liability for theMissouri consolidated return year. No sub-sidiary member shall have authority to act foror to represent itself in any matter. For exam-ple, all correspondence will be carried ondirectly with the common parent; the com-mon parent shall file for all extensions oftime, including extensions of time for pay-ment of Missouri tax; notices of deficiencieswill be mailed to the common parent and themailing only to the common parent shall beconsidered as a mailing to each subsidiarymember in the affiliated group; notice anddemand for payment of taxes will be givenonly to the common parent and the notice anddemand will be considered as a notice anddemand to each subsidiary member; the com-mon parent will file petitions and conductproceedings before the director of revenueand the Administrative Hearing Commission;and any petition shall be considered as alsohaving been filed by each subsidiary. Thecommon parent will file claims for refund orcredit and any refund will be made directly toand in the name of the common parent andwill discharge any liability of Missouri inrespect to that refund to any subsidiary mem-ber; and the common parent in its name willexecute closing agreements and all other doc-uments and any agreement or any other doc-uments so executed shall be considered ashaving also been given or executed by eachsubsidiary member. Notwithstanding the pro-visions of this section, any notice of deficien-cy, in respect to the tax for a Missouri con-

solidated return year, will name each corpo-ration which was a member of the affiliatedgroup during any part of the period (but afailure to include the name of any memberwill not affect the validity of the notice ofdeficiency as to the other members); anynotice and demand for payment will nameeach corporation which was a member of theaffiliated group during any part of the period(but a failure to include the name of anymember will not effect the validity of thenotice and demand as to the other members);and any other proceeding to collect theamount of any assessment, after the assess-ment has been made, will name the corpora-tion from which the collection is to be made.The provisions of this section shall applywhether or not a Missouri consolidatedreturn is made for any subsequent year andwhether or not one (1) or more subsidiarieshave become or have ceased to become mem-bers of the affiliated group at any time.Notwithstanding the provisions of this sec-tion, the director of revenue, upon notifyingthe common parent, may deal directly withany subsidiary member of the affiliated groupwith respect to its liability, in which eventthat member shall have full authority to actfor itself.

(30) Notification of Deficiency to Corpora-tion Which Has Ceased to be a Member of anAffiliated Group. If a subsidiary has ceasedto be a member of an affiliated group and ifthe subsidiary files written notice of the ces-sation with the director of revenue, then thedirector of revenue, upon written request ofthat subsidiary, will furnish it with a copy ofany notice of deficiency with respect to thetax for a Missouri consolidated return yearfor which it was a member and a copy of anynotice and demand for payment of the defi-ciency. The filing of the written notificationand request by a subsidiary corporation shallnot limit the scope of the agency of the com-mon parent provided in section (29) of thisrule: Failure by the director of revenue tocomply with the written request shall notlimit the liability of the corporation providedin section (29) of this rule.

(31) Effect of Dissolution of CommonParent. If a common parent contemplates dis-solution, or is about to be dissolved, or if forany other reason its existence is about to ter-minate, it shall notify the director of revenueof that fact and designate, subject to theapproval of the director of revenue, anothermember of the affiliated group to act as agentin its place to the same extent and subject to

the same conditions and limitations as areapplicable to the common parent. If thenotice thus required is not given by the com-mon parent, or the designation is notapproved by the director of revenue, theremaining members of the affiliated group,subject to the approval of the director of rev-enue, may designate another member of thegroup to act as the agent and notice of thatdesignation shall be given to the director ofrevenue. Until a notice in writing designatinga new agent has been approved by the direc-tor of revenue, any notice of deficiency orother communication mailed to the commonparent shall be considered as having beenproperly mailed to the agent of the affiliatedgroup; or if the director of revenue has rea-son to believe that the existence of the com-mon parent has terminated, if s/he deems itadvisable, s/he may deal directly with anymember of the affiliated group with respectto its Missouri consolidated tax liability.

(32) Automatic Termination of Right to FileMissouri Consolidated Return. The right ofan affiliated group to file a Missouri consoli-dated return for the taxable year shall bedependent upon that group filing a federalconsolidated return for the same year. Uponthe discontinuance of the filing of a federalconsolidated return, the filing of a Missouriconsolidated return shall similarly be discon-tinued.

(33) Permission to Discontinue Filing Mis-souri Consolidated Return�SubstantialChange in Law or Regulation. Upon timelywritten application to the director of revenue,an affiliated group may discontinue the filingof a Missouri consolidated return for the tax-able year (or may withdraw a Missouri con-solidated return previously filed for the tax-able year) if the net result of all amendmentsto applicable law and the corresponding ruleswith effective dates commencing within thetaxable year has a substantial adverse effecton the Missouri consolidated tax liability ofthe affiliated group for that year relative towhat the aggregate Missouri tax liabilitywould be if the members of the affiliatedgroup filed separate Missouri returns for theyear.

(A) Prima Facie Substantial Change. Thedifference between the Missouri consolidatedtax liability, taking into account the changesin the law or regulations effective for the yearand the aggregate Missouri tax liability of themembers of the affiliated group computed asif each member filed a separate Missourireturn for the year, also taking into account



the changes in the law or regulations effectivefor the year (postlaw difference) shall becompared with the difference between theMissouri consolidated tax liability of theaffiliated group for the taxable year, withoutregard to the changes in the law or regula-tions, and the aggregate Missouri tax liabili-ty of the members of the affiliated groupcomputed as if separate Missouri returns hadbeen filed by the members for the year, alsowithout regard to the changes in the law orregulations (prelaw difference). If the postlawdifference is one hundred fifteen percent(115%) greater than the prelaw differenceand that difference is at least five thousanddollars ($5,000), a substantial adverse changeshall be deemed to have occurred.

(B) Timely Application. Any application todiscontinue the filing of Missouri consolidat-ed returns on account of section (33) shall bemade in writing to the director of revenue onor before the later of�

1. The due date (including extensions oftime) for the filing of the Missouri consoli-dated return for the taxable year; or

2. Ninety (90) days after the effectivedate of the Missouri law or MissouriDepartment of Revenue regulation on accountof which a substantial change is alleged tohave occurred.

(34) Permission to Discontinue FilingMissouri Consolidated Returns For GoodCause. Upon the timely written applicationby the affiliated group and upon showing ofgood cause for the action, the director of rev-enue may permit the affiliated group to dis-continue the filing of Missouri consolidatedreturns upon the terms and conditions as s/hemay prescribe. Any application for permis-sion to discontinue the filing of Missouri con-solidated return on account of section (34)shall be made to the director of revenue on orbefore the due date (including extensions oftime) for the filing of the Missouri consoli-dated return for the year.

(35) Revocation of Right to File MissouriConsolidated Return. The director of rev-enue, upon finding that the filing of Missouriconsolidated returns by the affiliated groupdoes not clearly reflect the Missouri taxableincome derived from sources within Missouriand for the purpose of preventing avoidanceof Missouri tax liability, may terminate theright of an affiliated group to file a Missouriconsolidated return for that year or, in thealternative, may distribute, apportion or allo-cate items of income, deductions, credits orallowances between or among the members of

the affiliated group so that the portion of theMissouri consolidated taxable income (allsources) as is derived from sources withinMissouri is clearly reflected. The procedureoutlined in sections 143.611�143.691, RSMoinclusive, shall be applicable to actions of thedirector of revenue under this section.

(36) Estimated Tax on Consolidated Basis.Beginning with its third Missouri consolidat-ed return year, an affiliated group shall file itsdeclaration of estimated tax on a consolidat-ed basis for that year and for each subsequentMissouri consolidated return year. The groupshall be treated as a single corporation forpurposes of sections 143.531 and 143.541,RSMo (relating to the declaration and pay-ment of estimated tax). If separate Missourireturns are filed by the members for a taxableyear, the amount of any estimated tax pay-ments made with respect to a Missouri con-solidated declaration of estimated tax for thatyear shall be credited against the separateMissouri tax liabilities of the members in anymanner designated by the common parentwhich is satisfactory to the director of rev-enue. The consolidated declaration of esti-mated tax shall be filed and payment shall bemade by the common parent.

(37) Estimated Tax on Separate Basis. Foreach taxable year preceding the thirdMissouri consolidated return year, eachmember of the affiliated group shall be treat-ed as a separate corporation for the purposesof sections 143.531 and 143.541, RSMo. Forthe first two (2) Missouri consolidated returnyears, the amount of any estimated tax pay-ments made for the year by the members ofthe affiliated group shall be credited againstthe Missouri consolidated tax liability of theaffiliated group for that year. A statementshall be attached to the declaration settingforth the name, address and federal employeridentification number of each member of theaffiliated group as well as the amount of dec-laration of estimated tax payments by eachmember together with the date of each pay-ment.

(38) Additions to Tax For Failure to PayEstimated Tax on Consolidated Basis. If theaffiliated group is required to file a Missouriconsolidated declaration of estimated taxunder section (36) of this rule, then, if thegroup�

(A) Files a Missouri consolidated returnfor the taxable year with the term tax shownon the return, for the purposes of section143.761.4(1), RSMo, the tax shall be shown

on the Missouri consolidated return for thepreceding taxable year, and the term factsshown on the return, for purposes of section143.761.4(4), RSMo, the facts shall beshown on the Missouri consolidated returnfor the preceding taxable year; or

(B) Does not file a Missouri consolidatedreturn for the taxable year, the term amount,if any, of the installment paid by any member,for the purposes of section 143.761.2(2),RSMo, an amount shall be apportioned tothat member in a manner designated by thecommon parent which is satisfactory to thedirector of revenue. For the purposes of sec-tion 143.761.4(1), RSMo, the tax shown onthe return for any member shall be the por-tion of the tax shown on the Missouri consol-idated return for the preceding year allocatedto that member in a manner designated by thecommon parent which is satisfactory to thedirector of revenue. For purposes of section143.761.4(4), RSMo, the facts shown on thereturn shall be the facts shown on theMissouri consolidated return for the preced-ing year and the tax computed under that sec-tion shall be allocated to the members in amanner designated by the common parent andsatisfactory to the director of revenue.

(39) Additions to Tax For Failure to PayEstimated Tax on Separate Basis. If the mem-bers of an affiliated group are treated as sep-arate corporations for the taxable year undersection (37) of this rule and the affiliatedgroup files a Missouri consolidated return forthe year, then, for the purposes of section143.761.2(1), RSMo, the tax shown on thereturn for any member shall be the portion ofthe tax shown on the Missouri consolidatedreturn allocable to that member in a mannerdesignated by the common parent and satis-factory to the director of revenue.

AUTHORITY: section 143.431.3(5), RSMo2000.* Regulation 1.431-3 was first filed July21, 1975, effective July 31, 1975. Amended:Filed Oct. 16, 2002, effective June 30, 2003.


12 CSR 10-2.050 Elective Division ofIncome

PURPOSE: This rule sets forth the funda-mental requirements for a petition by a cor-porate taxpayer for permission to use a spe-cial method of allocating income to Missouri.



(1) Authority for Rule. This rule is beingissued under the general regulatory powersgranted to the director of revenue in section143.961, RSMo which became effective onJanuary 1, 1973.

(2) Applicability and Scope of Rule. This ruleis intended as an interpretive guideline in theapplication of section 143.461, RSMo and itsets forth the fundamental requirements for apetition for permission to use a specialmethod of allocation under section143.461.2., RSMo. This rule applies to alltaxable years beginning on or after January 1,1973, and it also applies with respect to allfiscal year taxable periods which containedparts of each of the years 1972 and 1973 forthose corporate taxpayers which had properlyelected to determine their tax and taxableincome under the provisions of sections143.011�143.996, RSMo. Chapter 143,RSMo and the corresponding regulationsshall continue in force and effect with respectto all other taxable years.

(3) Definitions. As used in this rule�(A) The term director, except as specifical-

ly otherwise provided in this rule, shall meanthe director of revenue or his/her duly autho-rized agent or designee; and

(B) The term Missouri taxable incomefrom all sources shall mean so much of thefederal taxable income of the corporation forthe taxable year increased or decreased, asthe case may be, by the modifications provid-ed for in sections 143.121 and 143.141,RSMo. There shall be subtracted, to theextent included in federal taxable income,corporate dividends from sources withinMissouri and there also shall be subtractedthe federal income tax deduction provided forin section 143.171.1., RSMo. The amount ofdividends deducted shall depend on theapportionment method selected. If single fac-tor apportionment is selected, the corporationshall deduct dividends based on whether theyare Missouri source dividends ornon-Missouri source dividends. This alsoapplies to special methods selected.

1. If the three (3)-factor apportionmentmethod is selected, the dividend deductionshall be based on the apportionment percent-age calculated before taking into account anyallowable nonbusiness income. Business div-idends, as defined by the Multistate TaxCompact, are to be multiplied by the appor-tionment factor in order to calculate thededuction. Also, a corporation with a com-mercial domicile in Missouri can deduct any

nonbusiness dividends as defined by the com-pact.

2. The director of revenue may adoptprocedures for verifying the actual amount ofdividends deducted and may prescribe whatdocuments are necessary for verification.

(4) Required Use of Statutory Methods. Acorporate taxpayer shall determine incomeapplicable to this state for the taxable year byeither�a) multiplying the total Missouri tax-able income from all sources for the taxableyear by the fraction determined under section143.451, RSMo, or b) allocating and appor-tioning the total Missouri taxable incomefrom all sources for the year in the mannerdetermined under section 32.200 article IV.1.�17., RSMo and by subtracting from theamount so determined, its deduction, if any,for a prior year�s federal income tax undersection 143.171.2., RSMo. The precedingsentence shall not apply to those corporationswhich have received written permission fromthe director of revenue him/herself to�a) useanother method of allocation pursuant to sec-tion 143.461, RSMo for the taxable year, orb) use another method of allocation andapportionment pursuant to section 32.200article IV.18., RSMo if the other approvedmethod is applicable to the taxpayer year andthe corporate taxpayer actually uses the otherapproved method for the taxable year. A cor-porate taxpayer which uses an authorizedmethod of determining income applicable tothis state for the taxable year shall not beentitled to subsequently change to anothermethod with respect to that same taxableyear.

(5) Request for Permission to Use OtherMethod. A corporation may make a writtenpetition to the director for permission todetermine income applicable to this state forthe taxable year by use of its own allocationmethod if the books and records of the tax-payer are kept in a manner as to show suchother method of allocation between this stateand other states involved, of income fromtransactions partly within and partly withoutthis state, including gross income and deduc-tions applicable to gross income, and themethod does show the income applicable tothis state, including gross income and deduc-tions applicable to gross income.

(6) Petition for Use of Other ApprovedMethod. A petition for permission to use amethod of allocation disclosed in the taxpay-er�s books and records shall be typewritten,delivered to the director of revenue in

Jefferson City, Missouri at least sixty (60)days before the end of the taxable year withrespect to which the permission is sought,shall be made on the best information, knowl-edge and belief of the petitioner and shall besubscribed under a declaration that it is madeunder penalties of perjury. The petition shallcontain the name, federal identification num-ber and address of the principal place ofbusiness of the petitioner; the address of eachlocation at which the taxpayer conducts busi-ness and the nature of the business conductedat each location; the place(s) at which thebooks and records of the taxpayer are locat-ed; the beginning and ending dates of the firsttaxable year with respect to which permissionto use another method is sought; a detailedexplanation of the allocation method dis-closed in the corporation�s books andrecords; a clear demonstration of the applica-tion of the method by showing each item ofincome and expense for the taxable yearimmediately preceding the taxable year withrespect to which permission is sought, thestates to which income and expense are allo-cated, and the amounts of each item ofincome and expense allocated to each state;and other data and information which thecorporate taxpayer would urge upon thedirector in his/her consideration of the peti-tion.

(7) Granting of Permission to Use OtherApproved Method. If, upon the basis of thefacts contained in the petition, other factswhich may come to the attention of the direc-tor of revenue and all hearings, if any, heldwith respect to the petition, the director ofrevenue shall find that the allocation methoddisclosed in the books and records of the cor-porate taxpayer does show the income applic-able to this state including gross income anddeductions applicable to gross income, thedirector of revenue him/herself or his/herspecifically designated representative shallsend written notification over his/her person-al signature to the corporation at least thirty(30) days prior to the last day on which thecorporation�s return for that taxable year isrequired to be filed (determined with regardto extensions of time for filing) that it mayuse that method as long as the method showsthe income applicable to this state, includinggross income and deductions applicable togross income. No permission shall bedeemed to have been granted unless it isgranted by the director of revenue him/herselfor his/her specifically designated representa-tive in writing over his/her personal signa-ture. The mere use or continued use by the



corporate taxpayer of a special method with-out specific disapproval by the director of rev-enue or his/her specifically designated repre-sentative shall not constitute the granting ofpermission. A corporate taxpayer which doesnot receive explicit written permission fromthe director of revenue him/herself or his/herspecifically designated representative as pro-vided shall be required to determine incomeapplicable to this state under section (4) ofthis rule.

(8) Revocation of Prior Approved Method. Acorporation having previously receivedexplicit written permission from the directorof revenue him/herself of his/her specificallydesignated representative to use a specialmethod of allocation shall cease using thatmethod whenever that method ceases to showincome applicable to this state, includinggross income and deductions applicable togross income and shall further cease usingthat method whenever the director of revenuehim/herself or his/her specifically designatedrepresentative finds and notifies the corpora-tion in writing on or before ninety (90) daysbefore the end of the taxable year that themethod does not so show. The revocation of aprior approved method shall not preclude thetaxpayer from petitioning to the director ofrevenue, as prescribed, for permission to usesome other method of allocation determinedunder its books and records.

(9) Failure to Timely Acquire Permission forOther Approved Method or to Continue Useof a Prior Approved Method. The failure,after a prior approved method has beenrevoked, to timely submit a petition for per-mission to use another method or the failureto make a return on a basis which has beenapproved by the director of revenue andwhich stands unrevoked shall constitute anelection by the taxpayer to determine incomeapplicable to this state by use of the methodprovided for in section (4) of this rule. A cor-poration may use a method which had beenapproved by the director of revenue for thetaxable year only if the prior approvedmethod was applicable to the immediatelypreceding taxable year and the corporate tax-payer used that other approved method in theimmediately preceding taxable year.

(10) Information Required to be SubmittedWith Missouri Income Tax Return. For eachtaxable year with respect to which a corpora-tion files a Missouri income tax return deter-mining income applicable to this state by useof a special method approved by the directorof revenue, there shall be submitted with the

return for that taxable year the followingitems: a copy of the written notice bearing thesignature of the director of revenue him/her-self where permission to use the otherapproved method was granted and a statementindicating whether or not there has been amaterial change in the business operations oraccounting procedures from those in exis-tence in the first taxable year with respect towhich the permission was originally granted.The failure, refusal or inability of a corpora-tion to submit the items mentioned in the pre-ceding sentence shall constitute an election bythe corporation to determine income applica-ble to this state by use of the methodsdescribed in section (4) of this rule.

AUTHORITY: section 143.961, RSMo 1986.*Regulation 1.461 was originally filed on Dec.22, 1975, effective Jan. 2, 1976. Amended:Filed April 4, 1984, effective July 12, 1984.Amended: Filed Aug. 14, 1990, effective Feb.14, 1991.


In re Kansas City Star Co., 142 SW2d 1029(1940). Trial court did not err by rejectingoffered finding that state auditor had promul-gated a rule during the years 1934, 1935 and1936 declaring the total net income of manu-facturing and business companies subject toincome tax unless they had a branch house orcapital investment outside the state. This rulehad been promulgated under former MissouriSt. Ann. section 10115, but subsequentlyoverturned by Supreme Court.

12 CSR 10-2.055 Failure to File TaxReturns

PURPOSE: This rule sets forth the circum-stances under which an additional tax will beimposed against an individual, corporationor other taxpayer for failing to file income taxreturns on time.

(1) Applicability and Scope of Rule. This ruleis intended as an interpretive guideline in theapplication of section 143.741, RSMo and isapplicable only with respect to taxable peri-ods beginning after December 31, 1972. Thisrule applies to the failure to file income taxreturns, amended income tax returns andemployer withholding returns which arerequired to be filed. It does not apply to thefailure to file a declaration of estimated tax.

(2) Determination of Addition to Tax. Section143.741.1., RSMo imposes an addition to thetax at the rate of five percent (5%) permonth, or fraction of a month, up to a maxi-mum of twenty-five percent (25%) in the

aggregate, for the failure by a taxpayer to fileany required return by the date prescribed forits filing unless the failure is due to reason-able cause and not due to willful neglect. Thedate prescribed for filing includes anyapproved extensions of time for filing.

(3) Determination of Percentage. If the dateprescribed for filing a return is the last day ofa calendar month, each succeeding calendarmonth or fraction of a month during whichthe failure to file the return continues shallconstitute a month. For example, if a returndue on March 31 is filed any time betweenApril 1 and April 30, the rate would be fivepercent (5%); if filed any time between May1 and May 31, the rate would be ten percent(10%); and so on, up to an aggregate oftwenty-five percent (25%). If the date pre-scribed for filing a return is a date other thanthe last day of a calendar month, the periodwhich terminates with the date numericallycorresponding to the last day in the succeed-ing calendar month and each successive peri-od shall constitute a month. If, in the monthof February, there is no date corresponding tothe date prescribed for filing the return, theperiod from the date in January through thelast day of February shall constitute a month.For example, if a return due on January 30is filed any time between January 31 andFebruary 28 (29 if a leap year) the rate wouldbe five percent (5%); if filed any timebetween March 1 and March 30, the ratewould be ten percent (10%); if filed betweenMarch 31 and April 30, the rate would be fif-teen percent (15%); and so on, up to anaggregate of twenty-five percent (25%). Thefact that the date prescribed for filing thereturn or the corresponding date in any suc-ceeding month falls on a Saturday, Sunday orlegal holiday is immaterial in determining thenumber of months for which the addition totax applies.

(4) Determination of Amount Upon Whichthe Addition to Tax Will be Applied. Theamount upon which the addition to tax undersection 143.741.1., RSMo is to be appliedshall be determined by subtracting from theamount required to be shown as tax on thereturn, the amount of the tax which is paid onor before the last date prescribed for paymentand the amount of any credit which may beclaimed against the tax.

(5) The application of the addition to taxunder section 143.741.1., RSMo is illustrat-ed by the following examples:



(A) Assume an individual calendar yeartaxpayer files his/her 1991 income tax returnon July 20, 1992, and the failure to file on orbefore the prescribed date (April 15, 1992) isnot due to reasonable cause. The total tax lia-bility for the year was $1,000 of which $600had been paid by withholding from wages and$400 was paid when the return was filed. Inthis case, there will be imposed an addition totax under section 143.741.1., RSMo of $80,determined as follows:

1. Total tax liability forthe year $1,000

2. Less taxes timely paid $ 6003. Net amount due $ 400

Twenty percent of line 3. (5% permonth for 3 months fromApril 15 through July 15 and5% for fraction part of the monthfrom July 15 through July 20) $ 80

(B) Assume the same facts as in subsection(5)(A) of this rule except that the $400 waspaid on May 1, 1992. In this case there isimposed an addition to tax under section143.741.1., RSMo of $80, determined in thesame manner as in subsection (5)(A) of thisrule. Note that the tax liability for the year isonly reduced by the amount of the tax paid onor before the last date prescribed for payment(April 15, 1992);

(C) Assume an employer is required towithhold and remit taxes on a monthly filingfrequency. The employer withholds taxesfrom its employees� wages in January in theamount of $200. The employer remits $50 ofthe amount withheld on February 15 and theremaining $150 on March 15. The employerdoes not file monthly returns for Januaryuntil June 1. The failure to file the return onor before the prescribed date (February 15) isnot due to reasonable cause. In this case therewill be imposed an addition to tax under sec-tion 143.741.1., RSMo of $30, determinedas follows:

1. Amount required to be shown onJanuary�s return $200

2. Less amounts timely paid (seesection 143.221, RSMo) $ 50

3. Net amount due $1504. Twenty percent of line 3. (5% per

month for four months fromFebruary 15 through June 1) $ 30

(D) Assume the same facts as in subsection(5)(C) of this rule except that January�s returnis filed on February 15. In this case, there isno addition to tax under section 143.741.1.,RSMo since the monthly withholding returnwas filed on or before the last date prescribed

for its filing (February 15). However, anaddition to tax under section 143.751.3.,RSMo would be imposed.

(6) Addition to Tax Not Imposed�Rea-sonable Cause. A taxpayer who wishes toavoid the addition to tax for failure to file areturn by the date prescribed for its filingmust submit a written statement showing allfacts relied upon in support of the contentionthat the failure to file was on account of rea-sonable cause. The statement shall contain awritten declaration that it is made underpenalties of perjury and may be submitted tothe director of revenue with the return. Themere absence of willful neglect is not suffi-cient reason for avoiding imposition of theaddition to tax for failure to file a return.There must be an affirmative showing of rea-sonable cause for the failure and the burdenof proof is upon the taxpayer to establish thereasonable cause. If the taxpayer can showdelinquency was due to a reasonable causeand not to willful neglect, the addition to taxwill not be imposed. If the taxpayer exercisedordinary business care and prudence and wasnevertheless unable to file the return withinthe prescribed time, then the delay is due to areasonable cause. This rule prescribes nospecific standards of reasonable cause forfailure to file the return on time, but the fol-lowing examples will provide guidelines as towhat might constitute reasonable cause:

(A) Death or serious illness of the taxpay-er or the death or serious illness of an imme-diate member of the taxpayer�s family. In thecase of a corporation, estate, trust, and thelike, the death or serious illness must havebeen of an individual having sole authority toexecute the return or of a member of thatindividual�s immediate family;

(B) Unavoidable absence of the taxpayer.In the case of a corporation, estate, trust, andthe like, the absence must have been of anindividual having sole authority to executethe return;

(C) Destruction by fire or other casualty ofthe taxpayer�s place of business or businessrecords; or

(D) The taxpayer�s ability to file the returnhas been materially impaired by civil distur-bances.

AUTHORITY: section 143.961, RSMo 1986.*Regulation 1.741 was originally filed Dec.22, 1975, effective Jan. 2, 1976. Amended:Filed Sept. 1, 1993, effective April 9, 1994.


United States v. Boyle, 105 S. Ct. 687(1985). The issue in this case was whether

the taxpayer had proved reasonable cause forthe late filing of a federal estate tax returnunder Internal Revenue Code 6651(a)(1). Thelanguage in this section is very similar to thelanguage contained in section 143.741,RSMo and other Missouri revenue penaltystatutes. To show reasonable cause, theSupreme Court said the taxpayer must�demonstrate that he exercised �ordinarybusiness care and prudence� but neverthelesswas �unable to file the return within the pre-scribed time;�

Estate of Clifford Bockelman v. Director ofRevenue, Case No. RV-83-3510 (A.H.C.5/14/86). The personal representative�s attor-ney had told her that they did not need toworry about the Missouri estate tax returnuntil such time as all federal estate tax mat-ters had been completed. The AdministrativeHearing Commission determined that thepersonal representative had exercised ordi-nary business care and prudence and thus thefailure to file Missouri estate tax return in atimely fashion was due to reasonable causeand not willful neglect.

Estate of Orpha T. Neusteter v. Director ofRevenue, Case No. RV-86-2063 (A.H.C.11/6/87). The personal representative hadnot established the daily volume of mail han-dled by his office nor a record of timely filingsover a period of time. These facts, the com-mission stated, were essential. In addition,the commission noted that the personal rep-resentative had nine months to file and thetaxpayer in Armco had fifteen days. Based onthis, the personal representative did notestablish that his failure to file was due toreasonable cause and not willful neglect.Therefore, the additions were properlyimposed by the department.

12 CSR 10-2.060 Failure to Pay Tax

PURPOSE: This rule clarifies the circum-stances under which an additional tax will beimposed for failing to pay tax on time.

(1) Applicability and Scope of Rule. This ruleis intended as an interpretive guideline in theapplication of section 143.751, RSMo andshall apply only with respect to taxable peri-ods beginning after December 31, 1972.

(2) Deficiency. The term deficiency shallmean the amount by which the actualMissouri income tax liability of the taxpayerfor the taxable year exceeds the total amountof Missouri income tax payments made bythe taxpayer for the taxable year on or beforethe last date prescribed for the payment of the



tax (determined with regard to extensions oftime for paying the tax but without regard toextensions of time for filing the tax return).

(3) Addition to Tax for Negligence orDisregard of Rules. If any part of a deficien-cy is due to negligence or intentional disre-gard of the rules (but without intent todefraud) there shall be added to the tax anamount equal to five percent (5%) of theentire amount of the deficiency. If the amountof a taxpayer�s federal taxable income report-ed on the federal income tax return for anytaxable year is changed or corrected by theUnited States Internal Revenue Service (IRS)or other competent authority or as the resultof a renegotiation of a contract or subcontractwith the United States, and the taxpayer doesnot report the change or correction in federaltaxable income within ninety (90) days afterthe final determination of the change, correc-tion or renegotiation, there shall be added tothe tax an amount equal to five percent (5%)of the entire amount of deficiency for failureto report the change and to pay the addition-al tax within that ninety (90)-day period. Ifthe taxpayer does report the change, correc-tion or renegotiation and pays the additionaltax within the ninety (90)-day period, thedirector of revenue will not ordinarily imposethe five percent (5%) addition to tax unlessthe IRS or other competent authority imposeda similar addition to tax. This general rule,however, does not preclude the director fromimposing an addition to tax in those instancesif it is deemed necessary.

(4) Examples: The application of the additionto tax under section 143.751.1., RSMo maybe illustrated in the following examples:

(A) Assume that an individual calendaryear taxpayer files his/her 1991 income taxreturn with the Department of Revenue onApril 18, 1992 showing a total tax liability of$1,000 with a total amount paid before April15, 1992 of $600 and a balance due of $400which taxpayer pays with the return. Furtherassume that the failure to pay the $400 on orbefore the last date prescribed for its paymentis due to negligence or intentional disregardof rules. In this case, there is an addition totax of $20 (5% × $400); and

(B) Assume the same facts as in subsection(4)(A) of this rule except that $10 of the $400deficiency is due to negligence or intentionaldisregard with the $390 being due to reason-able cause. In this case, there is an additionto tax of $20 (5% × $400). Note that if anypart of the deficiency is due to negligence orintentional disregard of the rules, then the

addition to tax is imposed on the entireamount of the deficiency.

(5) Avoiding the Addition to Tax UnderSection 143.751.1., RSMo. The addition totax for failure to pay taxes on time will not beimposed if no part of the deficiency is due tonegligence or intentional disregard of rules.In the absence of fraud, no part of the defi-ciency will be considered to be due to negli-gence or intentional disregard if the amountof the tax paid on or before the due date ofthe return (determined without regard toextensions of time for filing the return) is atleast ninety percent (90%) of the total amountof the tax shown on the Missouri income taxreturn; and if the balance of the tax due ispaid on or before the due date of the return,determined with regard to any extensions oftime for filing the return. The taxpayer mayavoid the addition to tax for failure to payincome taxes on time by making an affirma-tive showing that the failure to pay was notdue to negligence or intentional disregard ofrules in that the taxpayer exercised ordinarybusiness care and prudence in providing forpayment of the tax liability and was neverthe-less unable to pay the tax on or before the lastdate prescribed by law. In determiningwhether the taxpayer was unable to pay thetax in spite of the exercise of ordinary busi-ness care and prudence in providing for pay-ment of the tax liability, consideration will begiven to the amount and the nature of the tax-payer�s expenditures in light of the incomethe taxpayer, at the time of those expendi-tures, could reasonably expect to receiveprior to the date prescribed for the paymentof the tax. As an example, a taxpayer incur-ring lavish or extravagant living expenses insuch an amount that the remainder of his/herassets and anticipated income will be insuffi-cient to pay the tax has not exercised ordinarybusiness care and prudence in providing forthe payment of the tax liability. The taxpayermust make an affirmative showing of all thefacts relating to his/her failure to pay the taxon time in the form of a written statementcontaining a declaration that it is made underpenalties of perjury. The addition to taxunder section 143.751.1., RSMo will not beassessed when the director of revenue makesa determination on the basis of the taxpayer�swritten statement that no part of the deficien-cy was due to negligence or intentional disre-gard of rules. The mere absence of negli-gence or intentional disregard with respect tosome part of the deficiency is insufficient andthe taxpayer must show that no part of the

deficiency was due to negligence or inten-tional disregard of rules.

(6) Additions to Tax Under Section143.751.1., RSMo Not Applicable�When.The five percent (5%) addition to tax provid-ed for in section 143.751.1., RSMo will notapply when the provisions of section143.751.2., RSMo (relating to addition to taxfor fraud) or section 143.751.4., RSMo(relating to penalties for willful failure toremit withholding taxes) apply to the samedeficiency.

(7) Addition to Tax For Fraud. If any part ofa deficiency is due to fraud, there shall beadded to the tax an amount equal to fifty per-cent (50%) of the entire amount of the defi-ciency. For example, assume an individualcalendar year taxpayer files his/her 1991income tax return on April 18, 1992 showinga total tax liability of $1,000 with a totalamount paid before April 15, 1992 of $600and a balance due of $400 which the taxpay-er pays with the return. Further assume thatthe taxpayer had reasonable cause for failureto pay the $400 on or before the last date pre-scribed for its payment. Further assume thatthe taxpayer fraudulently claimed charitablecontributions on his/her income tax return byunderstating his/her income tax liability by$6. In this case, an addition to tax of $203will be imposed under section 143.751.2.,RSMo computed as follows: 50% × $406 =$203. Note that if any part of a deficiency isdue to fraud, then the addition to tax of fiftypercent (50%) applies with respect to theentire amount of the deficiency.

(8) Taxpayer Fraudulent Intent�Penalty. Anyperson who, with fraudulent intent, shall failto pay any tax or to make, render, sign or cer-tify any return or to supply any informationwithin the time required by law shall be liablefor a penalty of not more than $1,000 in addi-tion to any tax, addition to tax, other penaltyor interest which is required to be imposed,assessed and collected by the director of rev-enue.

(9) Failure of Employer to Remit TaxesWithheld From Employees�Addition to Tax.If an employer, without intent to evade ordefeat the tax or its payment, fails to make areturn and pay to the director of revenue anytaxes withheld by him/her from the wages ofhis/her employees on or before the date pre-scribed for payment, s/he shall be liable forthose taxes and shall pay the same togetherwith interest and an addition to tax of five



percent (5%). This addition to tax is imposedwithout regard to whether or not extenuatingcircumstances disclose a reasonable cause orlack of willful neglect for the nonpayment.For example, assume an employer withholdstaxes from its employees� wages in the monthof January of $800. Also assume that the tax-payer pays the taxes (less the employer com-pensation under section 143.261, RSMo) onFebruary 17 and that the employer has rea-sonable cause for failure to pay the taxes onor before the last date prescribed for its pay-ment (February 15). In this case, an additionto tax of $40 will be imposed under section143.751.3., RSMo computed as follows: 5%× $800 = $40. Note that the employer com-pensation is not allowed unless the withhold-ing taxes are paid on or before the last dateprescribed for their payment.

(10) Employer�s Willful Failure to Collect,Truthfully Account For or Pay OverEmployee Taxes. If any person willfully failsto collect, truthfully account for, pay over orwillfully attempt, in any manner, to evade ordefeat the tax or its payment, that personshall be liable for a penalty equal to the totalamount of the tax evaded, or not collected, ornot accounted for and paid over in addition toany tax, interest, addition to tax or otherpenalty provided for by law.

(11) Employer Fraudulent Intent�Penalty. Ifany person, with fraudulent intent, shall failto pay, or to deduct or withhold and pay, anytax or to make, render, sign or certify anyreturn or to supply any information within thetime required by law, that person shall beliable to a penalty of not more than $1,000 inaddition to any other amounts required to beimposed, assessed and collected by the direc-tor of revenue.

AUTHORITY: section 143.961, RSMo 1986.*Regulation 1.751 was first filed Dec. 22,1975, effective Jan. 2, 1976. Amended: FiledSept. 1, 1993, effective April 9, 1994.


12 CSR 10-2.065 Failure to Pay EstimatedTax(Rescinded October 30, 2002)

AUTHORITY: section 143.961, RSMo 1986.Regulation 1.761 was originally filed Dec.22, 1975, effective Jan. 2, 1976. Amended:Filed Nov. 5, 1982, effective Feb. 11, 1983.Rescinded: Filed April 4, 2002, effective Oct.30, 2002.

12 CSR 10-2.067 Failure to Pay EstimatedTax for Tax Years Ending After December31, 1983

PURPOSE: This rule clarifies the require-ment for filing declaration of estimatedincome tax by individuals and corporationsand the determination of the amount of theinstallments required to be paid by the appro-priate due dates.

(1) Authority for Rule. This rule is beingissued under the general regulatory powersgranted to the director of revenue in section143.961, RSMo which became effective onJanuary 1, 1973.

(2) Applicability and Scope of Rule. This ruleis applicable only with respect to taxableyears ending after December 31, 1983 and isintended as an interpretive guideline in theapplication of Chapter 143, RSMo.

(3) Definitions. As used in this rule�(A) The term director shall mean the direc-

tor of revenue or his/her duly authorizedagent or designee;

(B) The term farmer shall mean an indi-vidual having an estimated Missouri adjustedgross income (MAGI) from farming for thetaxable year which is at least two-thirds (2/3)of his/her total estimated MAGI taxable inthis state for the taxable year. The term doesnot include a fisherman or a corporation;

(C) The term large corporation shall meanthat the corporation (or any predecessor cor-poration) in any of the three (3) precedingtaxable years had a federal taxable income ofat least one (1) million dollars and had aMissouri taxable income of at least one hun-dred thousand dollars ($100,000); and

(D) The term other corporation shall meanany corporation not defined in subsection(3)(C).

(4) General Rule. Section 143.761.1., RSMoimposes an addition to tax in the case of anyunderpayment of estimated tax by an individ-ual or a corporation (with certain exceptionsdescribed in section 143.761.4., RSMo).This addition to tax is in addition to anyapplicable civil or criminal penalties and isimposed without regard to whether or notextenuating circumstances disclosed a reason-able cause or lack of willful neglect for theunderpayment. There are no provision for thepayment of interest with respect to any under-payment of estimated tax.

(5) Amount and Period of Underpayment.The amount of the underpayment for anyinstallment date is the excess of�

(A) Ninety percent (90%) in the case ofcorporations, eighty percent (80%) in thecase of individuals, sixty-six and two-thirdspercent (66 2/3%) in the case of a farmer) ofthe tax shown on the return for the taxableyear, or if no return was filed, ninety percent(90%) in the case of corporations, eighty per-cent (80%) in the case of individuals,sixty-six and two-thirds percent (66 2/3%) inthe case of a farmer of the tax for the year,divided by the number of installment datesprescribed for the taxable year, over; and

(B) The amount, if any, of the installmentpaid on or before the last day prescribed forits payment.

(6) The amount of the addition is determinedat the rate set forth in section (8) of this ruleupon the underpayment of any installment ofestimated tax for the year from the date theinstallment is required to be paid until the fif-teenth day of the fourth month following taxunderpayment is paid, whichever is earlier.For the purpose of determining the period ofunderpayment, the date prescribed for thepayment of any installment of estimated taxshall be determined without regard to anyextension of time; and a payment of estimat-ed tax on any installment date, to the extentthat it exceeds the amount of the installmentdetermined under subsection (5)(A) of thisrule for the installment date, shall be consid-ered a payment of any previous underpay-ment.

(7) In determining the amount of the install-ment paid on or before the last day prescribedfor payment of the installment, the estimatedtax shall be computed without any reductionfor the amount which the taxpayer estimatesas his/her credit for taxes withheld at thesource on wages, and the amount of that cred-it shall be deemed a payment of estimatedtax. An equal part of the amount of the cred-it shall be considered paid on each install-ment date for the taxable year unless the tax-payer establishes the dates on which allamounts were actually withheld. In the lattercase, all amounts withheld shall be consid-ered as payments of estimated tax on thedates the amounts were actually withheld.

(8) Beginning January 1, 1983, the rate ofadditions to tax is the same as established bythe director of revenue under authority of sec-tion 32.065, RSMo and 12 CSR 10-41.010Annual Adjusted Rate of Interest.



(9) Statement Relating to Underpayment. Ifthere has been an underpayment of estimatedtax as of any installment date prescribed forits payment and the taxpayer believes that one(1) or more of the exceptions described insection 143.761.4., RSMo precludes theimposition of the addition to the tax, theappropriate Missouri form should be attachedto the income tax return for the taxable yearshowing the applicability of an exception.Any error in computation of the estimate willresult in the imposition of the additions to taxon the total amount of the underpayment andnot on the amount by which the taxpayer failsto come within one (1) of the five (5) excep-tions.

(10) Exceptions to Imposition of Additions toTax. Exceptions shown in subsections(10)(A)�(D) apply to individuals. Exceptionsshown in subsections (10)(A)�(E) apply to allcorporations except large corporations asdefined in subsection (3)(C) of this rule. Onlythe exceptions shown in subsections (10)(B),(C) and (E) apply to large corporations. Theaddition to the tax under section 143.761,RSMo will not be imposed for any underpay-ment of any installment of estimated tax, if,on or before the date prescribed for paymentof the installment, the total amount of all pay-ments of estimated tax equals or exceeds theleast of the following amounts:

(A) The amount which would have beenrequired to be paid on or before the date pre-scribed for payment if the estimated tax werethe tax shown on the return for the precedingtaxable year was a year of twelve (12) monthsand a return showing a liability for tax wasfiled for that year;

(B) The amount which would have beenrequired to be paid on or before the date pre-scribed for payment if the estimated tax werean amount equal to ninety percent (90%) inthe case of other corporations, eighty percent(80%) in the case of individuals, (sixty-sixand two-thirds percent (66 2/3%) in the caseof a farmer) of the tax computed by placingon an annualized basis the taxable income forthe calendar months in the taxable year pre-ceding that date. The taxable income shall beplaced on an annualized basis by�

1. Multiplying by twelve (12) (or thenumber of months in the taxable year if lessthan twelve (12)) the taxable income (com-puted without the standard deduction andwithout the deduction for personal anddependency exemptions) or the AGI if thestandard deduction is to be used for the cal-endar months;

2. Dividing the resulting amount by thenumber of those calendar months;

3. Deducting from that amount the stan-dard deduction, if applicable, the deductionsfor personal and dependency exemptionsdetermined as of the date prescribed for pay-ment and the deduction for federal incometax liability; and

4. Multiplying, in the case of a corpora-tion other than a large corporate taxpayer, theamount determined in paragraph (10)(B)3. ofthis rule by the applicable percentage deter-mined under section 143.451 or 32.300,RSMo as of the last day of the month preced-ing the date prescribed for payment;

(C) An amount equal to ninety percent(90%) of the tax computed, at the rate applic-able to the taxable year, on the basis of theactual taxable income for the calendarmonths in the taxable year preceding the dateprescribed for payment;

(D) The amount which would have beenrequired to be paid on or before the date pre-scribed for payment if the estimated tax werean amount equal to a tax determined on thebasis of the tax rates and the taxpayer�s statuswith respect to personal and dependencyexemptions for the taxable year, but other-wise on the basis of the facts shown on thereturn for the preceding taxable year and thelaw applicable to that year, in case of a tax-payer required to file a return for the preced-ing taxable year;

(E) The amount which would have beenrequired to be paid on or before the date pre-scribed for payment if the estimated tax werean amount equal to ninety percent (90%) ofthe tax computed by placing on an annualizedbasis the taxable income for the calendarmonths in the taxable year preceding thatdate. The taxable income shall be placed onan annualized basis by�

1. Multiplying by twelve (12) the taxableincome;

2. Dividing the resulting amount by thenumber of months in the taxable year (3, 5,6, 8, 9 or 11) as the case may be; and

3. Using the calculations in paragraphs(10)(E)1. and 2. as follows:

A. For the first three (3) months ofthe taxable year, in the case of an installmentrequired to be paid in the fourth month;

B. For the first three (3) months or forthe first five (5) months of the taxable year, inthe case of an installment required to be paidin the sixth month;

C. For the first six (6) months or forthe first eight (8) months of the taxable year,in the case of an installment required to bepaid in the ninth month; and

D. For the first nine (9) months or forthe first eleven (11) months of the taxableyear, in the case of the installment required tobe paid in the twelfth month;

(F) For example, illustrating the applica-tion of the provisions for imposition of addi-tion to tax for any underpayment of estimatedtax in the case of an individual, see the exam-ples set out in 12 CSR 10-2.065(10); and

(G) Taxpayer, a farmer, files an income taxreturn on February 15 of the succeeding yearpaying his/her total tax liability of five thou-sand dollars ($5,000) on that date. In thiscase, there is no underpayment of estimatedtax since the filing of the return and paymentof the tax on or before February 28 of thesucceeding year is considered as the taxpay-er�s declaration of estimated tax which wasrequired to be filed by January 15 of the suc-ceeding taxable year under section143.521.6., RSMo. In the event that the tax-payer in this example had filed his/her decla-ration of estimated tax on or before January15 of the succeeding year, s/he would havebeen required to pay sixty-six and two-thirdspercent (66 2/3%) of his/her total tax liabili-ty for the year on that date.

(11) Example: The following example illus-trates the application of the new exception tothe imposition of the addition to tax for anunderpayment of estimated tax for a calendaryear large corporation:

(A) The Y Corporation is a large corpora-tion meeting all requirements in subsection(3)(C). Assume in the first three (3) monthsof the taxable year its federal taxable incomefrom all sources was two (2) million dollarsand that it had no positive or negative modi-fications for the period under sections143.121 and 143.141, RSMo. Further as-sume that its apportionment factor for theperiod is fifty percent (50%). The followingprocedure would be followed in determiningwhether the exception in subsection (10)(E)of this rule would apply to its required firstinstallment payment due in the fourth month:

1. Net income all sourcesJanuary through March

$ 2,000,000;2. Annualized income�

line 1. × 12/3 $ 8,000,000;3. Less estimated

federal tax $ 3,659,750;4. Annualized Missouri

taxable incomeall sources $ 4,340,250;

5. Annualized Missouritaxable income at 50% $ 2,170,125;

and



6. Estimated Missouritax at 100% $108,506.25.

If the large corporation estimated tax pay-ments paid on or before the date due for thefirst installment is at least $24,413.82($108,506.25 × 90% × 1/4) no addition totax would be imposed with respect to the firstinstallment.

(12) Statutory Changes Require AmendedInstallment. Taxpayers required to make adeclaration of estimated tax shall make arecalculation of the installment due whenthere is a change in statute which affects theestimated liability and installments for theirtaxable period. Example: Assume ZCorporation had a state income tax estimatedtax for their fiscal year beginning July 1,1983 and ending June 30, 1984 based upon aMissouri taxable income of $2,000,000 witha tax of $100,000. To avoid additions to tax,the exception provided in section143.761.4(2), RSMo of eighty percent (80%)was used. Effective January 1, 1984, HouseBill No. 10, First Extraordinary Session,82nd General Assembly, increased the eightypercent (80%) to ninety percent (90%) forcorporations. The taxpayer had paid two (2)installments of $20,000 each prior to thechange in statute. The calculation to deter-mine the amount of the third and fourthinstallment would be as follows:

(A) Missouri taxableincome $2,000,000;

(B) Missouri tax (5% rate) $ 100,000;(C) Estimated tax after

change of statute90% × $100,000 $ 90,000;

(D) Amount required to be paidthrough 3 installments($90,000 ÷ 4 × 3) $ 67,500;

(E) Amount paid first 2installments($20,000 × 2) $ 40,000;

(F) Amount of 3rd installment(line (D) minus (E)) $ 27,500;

and(G) Amount of 4th installment

(line (C) × 1/4) $ 22,500.

If the corporations estimated tax paymentequals ninety percent (90%) of the amountdue for the three (3) installments no additionsto tax would be imposed with respect to thethird installment. This same calculationmethod would apply to a calendar year situa-tion when the statute was changed andapplied during their taxable period.

(13) Determination of Taxable Income forInstallment Periods. In determining theapplicability of the exceptions in section

143.761.4(2) or (3), RSMo, there must be anaccurate determination of the amount ofincome and deductions for the calendarmonths in the taxable year preceding theinstallment date as of which the determina-tion is made. For example, if a taxpayer dis-tributes year-end bonuses to its employeesbut does not determine the amount of thebonuses until the next to the last month of thetaxable year, it may not deduct any portion ofthe year-end bonuses in determining the tax-able income for any installment period otherthan the final installment period for the tax-able year. If a taxpayer on an accrual methodof accounting wishes to use either of theexceptions in section 143.761.4(2) or (3),RSMo, s/he must establish the amount ofincome and deductions for each applicableinstallment period. If income is derived frombusiness in which the production, purchaseor sale of merchandise is an income-produc-ing factor requiring the use of inventories, thetaxpayer will be unable to determine accu-rately the amount of the taxable income forthe applicable period unless there can beestablished, with reasonable accuracy, thecost of goods sold for the applicable install-ment period. The cost of goods sold for theperiod shall be considered, unless a moreexact determination is available, as that partof the cost of goods sold during the entire tax-able year as the gross receipts from the salesfor the installment period is to the grossreceipts from the sale for the entire taxableyear.

(14) Members of Partnerships. In determin-ing a partner�s taxable income for the monthsin his/her taxable year which precede themonth in which the installment date occurs,each partner shall take into account all itemsfor any partnership taxable year ending withor within this taxable year to the extent thatthose items are attributable to months in thepartnership taxable year which preceded themonth in which the installment date occurstogether with any guaranteed payments fromthe partnership to the extent that the guaran-teed payments are includable in his/her tax-able income for those months. The provisionsof this section may be illustrated by the fol-lowing examples:

(A) A, who is an individual calendar yeartaxpayer, is a member of a partnership whosetaxable year ends on January 31. A must takeinto account, in the determination of his/hertaxable income for the installment due onApril 15, 1984, all of his/her distributiveshare of partnership items and the amount ofany guaranteed payments made to him/her

which were deductible by the partnership inthe partnership taxable year beginning onFebruary 1, 1983 and ending on January 31,1984; and

(B) Assume that the taxable year of thepartnership of which A, a calendar year tax-payer, is a member ends on June 30. A musttake into account, in the determination ofhis/her taxable income for the installment dueon April 15, 1984, his/her distributive shareof partnership items for the period July 1,1983 through March 31, 1984; and for theinstallment due on June 15, 1984 s/he musttake into account the amounts for the periodJuly 1, 1983 through May 31, 1984; and forthe installment due on September 15, 1984,s/he must take into account the amounts forthe entire partnership taxable year of July 1,1983 through June 30, 1984 (the date onwhich the partnership taxable year ends).

(15) Beneficiaries of Estates and Trusts. Indetermining the applicability of the excep-tions in subsections (10)(A) and (B) of thisrule as of any installment date, the beneficia-ry of an estate or trust must take into accounthis/her distributable share of income from theestate or trust for the applicable period(whether or not actually distributed) if thetrust or estate is required to distribute incometo him/her currently. If the estate or trust isnot required to distribute income currently,only the amounts actually distributed to thebeneficiary during the period must be takeninto account. If the taxable year of the bene-ficiary and the taxable year of the estate ortrust are different, there shall be taken intoaccount the beneficiary�s distributable shareof income, or the amount actually distributedto him/her, as the case may be, during themonths in the taxable year of the estate ortrust ending within the taxable year of thebeneficiary which precedes the month inwhich the installment date occurs. This ruleis similar to the rule that applies for a mem-ber of a partnership when a partner and apartnership of which s/he is a member havedifferent taxable years.

AUTHORITY: section 143.961, RSMo 1986.*Original rule filed Dec. 30, 1983, effectiveApril 12, 1984.


12 CSR 10-2.070 Interest on Overpayments

PURPOSE: This rule sets forth the circum-stances under which a taxpayer who has paid



too much tax will receive interest on theamount of the tax refund.

(1) Authority for Rule. This rule is beingissued under the general regulatory powersgranted to the director of revenue and the spe-cific authority set forth in section 143.811,RSMo.

(2) Applicability and Scope of Rule. This ruleshall apply to those instances in which anoverpayment of the taxes imposed by sections143.011�143.996, RSMo has occurred andshall apply only with respect to taxable peri-ods beginning on or after January 1, 1973. Itis intended to serve as an interpretive guide-line in the application of section 143.811.1.,2., 4. and 5., RSMo as affected by sections143.601 and 143.801, RSMo.

(3) The term sections 143.011�143.996,RSMo shall mean the Missouri Income TaxLaw, which became effective on January 1,1973.

(4) As used in this rule, the term directorshall mean the director of revenue or his/herduly authorized agent or designee.

(5) Subject to the limitations provided in thisrule, interest shall be allowed and paid uponany overpayment with respect to the taxpay-er�s liability for taxes, computed on a dailybasis at the rate provided by statute, from thedates of the overpayment to the date shown onthe refund check that is issued by the treasur-er of Missouri. If the taxpayer elects to haveall or a part of the overpayment shown on thereturn applied to the taxpayer�s estimated taxfor a succeeding year, the portion of the over-payment that is credited to the estimated taxfor the succeeding year or any installmentshall be considered to be refunded to the tax-payer on the date that the original return wasfiled and no interest shall be allowed on theportion of the overpayment so credited orapplied.

(6) Time Return Filed. For purposes of thisrule, a return filed before the last day pre-scribed for the filing of the return shall beconsidered as filed on the last day (deter-mined without regard to any extensions oftime for filing the return). For returns filedafter the fifteenth day of the fourth month fol-lowing the close of the taxpayer�s taxableyear, the time filed shall be the actual timefiled.

(7) Time Tax Paid. For purposes of this rule,payment of any portion of the tax made

before the fifteenth day of the fourth monthfollowing the close of the taxpayer�s taxableyear shall be considered as paid on the fif-teenth day of the fourth month. For paymentsmade after the fifteenth day of the fourthmonth following the close of the taxpayer�staxable year, whether or not a valid extensionof time to pay is in effect, the time paid shallbe the actual time paid.

(8) Limitations. If any overpayment is refund-ed within four (4) months after the last dateprescribed (or permitted by extension oftime) for filing the original return of the taxor within four (4) months after the return wasfiled, whichever is later, no interest shall beallowed on the overpayment as provided bysection 143.811.4., RSMo. Where the tax-payer�s return is not complete, delaying theprocessing by the director and requiring thedirector to request additional informationfrom the taxpayer, the four (4)-month periodreferred to in this rule shall begin at suchtime as the additional requested informationis submitted.

(9) Carrybacks of Net Operating Loss andCorporate Capital Loss. Any overpaymentresulting from a carryback, including a netoperating loss and a corporate capital loss,shall be deemed not to have been made priorto the close of the taxable year in which theloss arises, per section 143.811.5., RSMo.The carryback will be deemed to be anamended federal income tax return undersection 143.601, RSMo which requires thatany taxpayer filing an amended federalincome tax return shall also file, within nine-ty (90) days after that, an amended returnunder sections 143.011�143.996, RSMo.

(10) Examples: The amounts used in any ofthe following examples for additions to taxand interest are for illustrative purposes onlyand do not necessarily reflect the actual addi-tions to tax and interest that might be due inthose situations. For purposes of these exam-ples, current year returns shall mean returnsfiled, or required to be filed, for the immedi-ately preceding taxable year for taxesimposed by sections 143.011�143.996,RSMo:

(A) Taxpayer files his/her 1974 calendaryear return on January 15, 1975 indicating anoverpayment. If the director makes a refundof the overpayment on or before August 15,1975, no interest shall be allowed on theoverpayment. In this example, the return isconsidered filed on the last day prescribed forthe filing (April 15, 1975) and the director

has four (4) months in which to make therefund. If the refund is not made by August15, 1975, interest shall be allowed and paidfor the period April 15, 1975 (the date the taxis considered paid) until the date of therefund;

(B) Taxpayer files his/her 1974 calendaryear return on June 15, 1975 with a validsixty (60)-day extension of time to file ineffect, indicating an overpayment. All taxpayments were made on or before April 15,1975. If the director makes a refund of theoverpayment on or before October 15, 1975,no interest shall be allowed on the overpay-ment. In this example, even though the tax isconsidered paid on April 15, 1975, the direc-tor has four (4) months in which to make therefund from the date the return is filed. If therefund is not made by October 15, 1975,interest shall be allowed and paid for the peri-od April 15, 1975 until the date of therefund. The result in this example would bethe same whether or not a valid extension oftime to file or pay the tax had been in effect;

(C) Taxpayer files his/her 1974 calendaryear return on June 15, 1975 indicating a bal-ance due of one hundred fifty dollars ($150)which is paid with the return, there being novalid extension of time to file the return orpay the tax in effect. Upon subsequent reviewof the return, a mathematical error is discov-ered overstating the taxpayer�s 1974 tax lia-bility by two hundred dollars ($200). If thedirector makes a refund of the overpaymenton or before October 15, 1975, no interestshall be allowed on the overpayment. If therefund is not made on or before October 15,1975, interest shall be allowed and paid onthe overpayment in the following manner. Onthe fifty-dollar ($50) overpayment that wouldhave been shown on the original return, ifcorrectly filed, from April 15, 1975 to thedate of the refund; and on the one hundredand fifty dollars ($150) paid with the originalreturn, from June 15, 1975 (the date the taxwas paid) to the date of the refund. The resultin this example would be the same whether ornot a valid extension of time to file or pay thetax had been in effect; and

(D) Taxpayer, a corporation, files its esti-mated tax declaration for calendar year 1975with the director and pays the first two install-ment payments of five hundred dollars ($500)each on April 15, 1975 and June 15, 1975,respectively. Taxpayer incurs a net operatingloss for calendar year 1975 and files his/herMissouri income tax return on April 15,1976, requesting a refund of the resultingoverpayment. The taxpayer fails to attach toits Missouri return a copy of the federal form



1120 as required. Upon timely review of thetaxpayer�s Missouri return, the directorrequests from the taxpayer a copy of the fed-eral return which is not submitted untilDecember 15, 1976. If the director makes arefund of the overpayment on or before April15, 1977, no interest shall be allowed on theoverpayment. If the refund is made afterApril 15, 1977, interest shall be allowed andpaid from April 15, 1976 to the date of therefund. In this example, the four (4)-monthnoninterest payment period does not beginuntil the required information is submitted.

(11) Change in Federal Taxable Income.Section 143.601, RSMo provides that if theamount of the taxpayer�s federal taxableincome reported on his/her federal incometax return, for any taxable year, is changed orcorrected by the United States InternalRevenue Service (IRS) or other competentauthority, or as the result of a renegotiation ofa contract or subcontract with the UnitedStates, the taxpayer shall report the change orcorrection in federal taxable income withinninety (90) days after the final determinationof the change, correction or renegotiation.Any taxpayer filing an amended federalincome tax return also shall file, within nine-ty (90) days after that, an amended returnunder sections 143.011�143.996, RSMo andshall provide information as the director mayrequire. The examples under this section donot apply where the federal change is onaccount of a net operating or a corporate cap-ital loss carryback.

(A) On January 15, 1975, taxpayer�s fed-eral taxable income for calendar year 1973 ischanged by the United States IRS indicatingan overpayment. Taxpayer files an amendedreturn with the director on April 15, 1975(the ninetieth day) reflecting the federalchanges and indicating an overpayment ofhis/her 1973 income tax liability. Taxpayerfiled his/her 1973 income tax return and paidthe tax on or before April 15, 1974. In thissituation, interest shall be allowed and paidfrom April 15, 1974 until the date of therefund.

(B) On January 15, 1975, taxpayer�s fed-eral taxable income for calendar year 1973 ischanged by the United States IRS indicatingan overpayment. Taxpayer files an amendedreturn with the director on April 30, 1975(after the ninetieth day) reflecting the federalchange and indicating an overpayment ofhis/her 1973 income tax liability. Taxpayerfiled his/her 1973 income tax return and paidthe tax prior to April 15, 1974. In this situa-tion, interest shall be allowed and paid from

April 15, 1974 until April 15, 1975 (theninetieth day). Note that in this case, failureto file an amended return within the ninety(90)-day period required by section 143.601,RSMo shall cause the interest to cease toaccrue after the ninetieth day.

(C) Assume the same fact as in subsection(11)(A) of this rule except taxpayer filedhis/her original 1973 income tax return onJune 15, 1974, with a valid extension of timeto file attached, and all taxes were paid on orbefore April 15, 1974 until the date of therefund. Note that an extension of time to filehas no bearing on the interest payment peri-od if all taxes were paid before April 15,1974. In this situation, interest shall beallowed and paid from April 15, 1974. If theamended return was filed with the directorafter the ninetieth day, the interest wouldcease to accrue on the ninetieth day.

(D) On January 15, 1975, taxpayer�s fed-eral taxable income for calendar year 1973 ischanged by the United States IRS indicatingan overpayment. Taxpayer files an amendedreturn with the director on April 10, 1975(before the ninetieth day) reflecting the feder-al change and indicating an overpayment ofhis/her 1973 income tax liability. Taxpayerfiled his/her 1973 income tax return on July1, 1974 indicating a balance due, indicatingadditions to tax and interest, and paid the lia-bility on that date. In this situation, interestshall be allowed and paid from July 1, 1974,the date the tax was actually paid, until thedate of the refund. If the taxpayer�s amendedreturn was not filed on or before the ninetiethday, interest would be allowed and paid onlyuntil the ninetieth day (July 1, 1974 throughApril 15, 1975). Note that interest will bepaid not only with respect to the taxes previ-ously paid by the taxpayer but also withrespect to the additions to tax and interestpreviously paid.

(E) On April 15, 1976, taxpayer�s federaltaxable income for calendar year 1973 ischanged by the United States IRS resulting inan overpayment of his/her 1973 tax liability.On April 16, 1977, taxpayer files an amend-ed return with the director, reflecting the fed-eral changes, and also indicating an overpay-ment. Taxpayer filed his/her original 1973income tax return on April 15, 1974 and alltaxes were paid on that date. In this example,the taxpayer has filed his/her claim for cred-it or refund within one (1) year from the timethe amended return was required to be filed(within one (1) year after ninety (90) daysafter April 15, 1976). Note that even thoughthe three (3)-year limitation of section143.801.1., RSMo, and the two (2)-year lim-

itation of section 143.801.2., RSMo haveelapsed, section 143.801.4., RSMo allowsthe claim to be filed within one (1) year.Interest shall be allowed and paid in this sit-uation from April 15, 1974 until the ninetiethday after April 15, 1976.

(12) Carrybacks�Example 1: In calendaryear 1976, taxpayer incurs a net operatingloss, or a corporate capital loss, which isallowable as a carryback to calendar year1973. Taxpayer�s original 1973 Missouriincome tax return was filed on April 15,1974, and all tax payments were made priorto that date. Taxpayer files an amended 1973federal income tax return on January 1,1977, and an amended 1973 Missouri incometax return on the same day requesting refundof the resulting overpayment for 1973. In thissituation, interest shall be allowed and paidfrom January 1, 1977 to the date of therefund. In this example, the overpayment isdeemed not to have been made prior to theclose of the taxable year in which the lossarises.

(13) Carrybacks�Example 2: Assume thesame facts as in section (12) of this ruleexcept the taxpayer does not file his/heramended Missouri income tax return untilApril 2, 1977, which is after the ninetieth dayafter January 1, 1977. In this situation, inter-est shall be allowed and paid for the periodJanuary 1, 1977 until the ninetieth day(March 31, 1977). Note that the failure of thetaxpayer to file within the ninety (90)-dayperiod required under section 143.601,RSMo caused the interest to cease to accrueon the ninetieth day.

(14) Amended Returns�Example 1: OnJanuary 15, 1975, taxpayer files an amendedMissouri income tax return for calendar year1973 correcting an error or omission onhis/her original 1973 return. The originalreturn for 1973 was filed on March 3, 1974with a balance due that was paid on that date.The amended return indicates an overpay-ment for 1973. In this situation, interest shallbe allowed and paid for the period April 15,1974 until the date of the refund.

(15) Amended Returns�Example 2: OnJanuary 15, 1975, taxpayer files an amendedMissouri income tax return for calendar year1973 correcting an error or omission on the1973 return. The original return for 1973 wasfiled on June 15, 1974 (with no valid exten-sion of time to file or pay the tax) indicatinga balance due of two hundred dollars ($200)



which was paid on that date. On November15, 1974, taxpayer was assessed additions totax and interest of twenty-five dollars ($25)under sections 143.731 and 143.741, RSMowhich s/he remitted on that date. The amend-ed return indicates an overpayment for 1973of three hundred dollars ($300). Interest shallbe allowed and paid in the following manner:on the one hundred dollar ($100) overpay-ment that would have been shown on the orig-inal return, if correctly filed, from April 15,1974 to the date of the refund; on the twohundred dollars ($200) paid with the originalreturn, from June 15, 1974 to the date of therefund; and on the twenty-five dollar ($25)additions to tax and interest, from November15, 1974 to the date of the refund. The inter-est payments begin from the time the tax waspaid or considered paid. Note that the inter-est payment dates would not have been affect-ed if a valid extension of time to file thereturn or pay the tax had been in effect.

(16) Amended Returns�Example 3: On May15, 1977, taxpayer files an amendedMissouri income tax return for calendar year1973 indicating an overpayment. Taxpayerfiled his/her original 1973 return on April15, 1974. In this example, no credit or refundshall be allowed or paid. A claim for credit orrefund of an overpayment of any tax imposedby sections 143.011�143.996, RSMo shall befiled by the taxpayer within three (3) yearsfrom the time the return was filed, or two (2)years from the time the tax was paid,whichever of those periods expires the later;or if no return was filed by the taxpayer, with-in two (2) years from the time the tax waspaid. Nor credit or refund shall be allowed ormade after the expiration of the period of lim-itation prescribed for the filing of a claim forcredit or refund, unless the claim for credit orrefund is filed by the taxpayer within thatperiod.

(17) Amended Returns�Example 4: On May15, 1977, taxpayer files an amendedMissouri income tax return for calendar year1973 indicating an overpayment of one thou-sand dollars ($1,000). Taxpayer filed his/heroriginal 1973 return on May 14, 1974 show-ing a balance due of five hundred dollars($500) which the taxpayer did not pay untilJune 15, 1975. Taxpayer was assessed andpaid additions to tax and interest in theamount of fifty dollars ($50) on August 15,1975. In this example, taxpayer has not fileda claim within three (3) years of the date thereturn was filed (which would expire on May14, 1977) but has filed within two (2) yearsfrom the time some (but not all) of the tax

was paid. In this situation, the refund shallnot exceed the portion of the tax paid duringthe two (2) years immediately preceding thefiling of the claim, section 143.801.2.,RSMo. In this example, interest shall beallowed and paid in the following manner: onthe five hundred dollar ($500) overpaymentfrom June 15, 1975 to the date of the refund;and on the fifty dollars ($50) from August15, 1975 until the date of the refund.

(18) Flood Loss. If the taxpayer elects underthe Disaster Relief Act of 1974 to deduct adisaster loss in the taxable year immediatelypreceding the taxable year in which the lossoccurs, the overpayment will deemed to haveoccurred in the taxable year for which thededuction is claimed on the federal return.

(A) Example: On January 15, 1975, tax-payer files an amended federal income taxreturn and an amended Missouri income taxreturn for calendar year 1973 as the result ofa flood loss which occurred in 1974, indicat-ing an overpayment for 1973. Taxpayer�soriginal 1973 income tax return was filedbefore April 15, 1974, with all taxes paid bythat date. In this example, interest shall beallowed and paid from April 15, 1974 untilthe date of the refund. The interest calcula-tion date begins on April 15, 1974, becausethe overpayment on account of the 1974 floodloss is deemed to have occurred in the 1973taxable year (the taxable year immediatelypreceding the taxable year in which the lossactually did occur).

(B) Example: On January 15, 1975, tax-payer files an amended federal income taxreturn and an amended Missouri income taxreturn for calendar year 1973 as the result ofa flood loss which occurred in 1974.Taxpayer�s original 1973 income tax returnwas filed on June 1, 1974 showing a balancedue of five hundred dollars ($500) which waspaid on that date. On November 15, 1974,taxpayer was assessed additions to tax andinterest in the amount of fifty dollars ($50)under sections 143.731 and 143.741, RSMowhich was paid by the taxpayer on that date.Taxpayer�s amended 1973 income tax returnindicates an overpayment of his/her 1973income tax liability of seven hundred dollars($700). In this situation, interest shall beallowed and paid in the following manner: onthe two hundred dollar ($200) overpaymentthat would have been shown on the originalreturn had the amount of the disaster lossbeen shown on the original return from April15, 1974 to the date of the refund; on the fivehundred dollars ($500) paid with the originalreturn from June 1, 1974 to the date of the

refund; and on the fifty dollars ($50) addi-tions to tax and interest from November 15,1974 to the date of the refund.

AUTHORITY: section 143.811, RSMo 1986.*Regulation 1.811 was originally filed Dec.22, 1975, effective Jan. 2, 1976.

*Original authority: 143.811, RSMo 1972, amended1982, 1988.

12 CSR 10-2.075 Multistate Allocation andApportionment

PURPOSE: This rule represents the methodsto be used in allocating and apportioningincome to Missouri under that part ofChapter 32, RSMo which is commonly knownas the Multistate Tax Compact.


(1) Authority for Rule. This rule is beingissued under the general regulatory powersgranted to the director of revenue in section143.961, RSMo which became effectiveJanuary 1, 1973, and in accordance with sub-section 3 of article VII of the Multistate TaxCompact, section 32.200, RSMo.

(2) Applicability and Scope of Rule. This ruleis intended as an interpretive guideline in theapplication of Article VI of the Multistate TaxCompact, section 32.200, RSMo, imple-mented by adopting the Multistate TaxCommission�s allocation and apportionmentregulations which were adopted by the com-mission February 21, 1973. The apportion-ment rules set forth in this rule are applicableto any taxpayer having business income,regardless of whether or not it has nonbusi-ness income, and the allocation rules set forthin this rule are applicable to any taxpayerhaving nonbusiness income, regardless ofwhether or not it has business income. The



numerical references contained in this ruleare to Article IV of the Multistate TaxCompact, section 32.200, RSMo, and itssubsections. The only exceptions to the allo-cation and apportionment rules contained inthis rule are those set forth in sections(63)�(66) of this rule under the authority ofArticle IV.18. of the Multistate Tax Compact,section 32.200, RSMo. This rule is notintended to modify existing regulations con-cerning jurisdictional standards.

(3) As used in this rule, the term director ofrevenue shall mean the director of revenue orhis/her duly authorized agent or designee.

(4) Business and Nonbusiness Income.Section 32.200 (Article IV.1.), RSMo definesbusiness income as income arising fromtransactions and activity in the regular courseof the taxpayer�s trade or business andincludes income from tangible and intangibleproperty if the acquisition, management anddisposition of the property constitute integralparts of the taxpayer�s regular trade or busi-ness operations. In essence, all income whicharises from the conduct of trade or businessoperations of a taxpayer is business income.For purposes of administration of section32.200 (Article IV), RSMo, the income ofthe taxpayer is business income unless clear-ly classifiable as nonbusiness income.Nonbusiness income means all income otherthan business income. The classification ofincome by the labels occasionally used, suchas manufacturing income, compensation forservices, sales income, interest, dividends,rents, royalties, gains, operating income, non-operating income, and the like, is of no aid indetermining whether income is business ornonbusiness income. Income of any type orclass and from any source is business incomeif it arises from transactions and activityoccurring in the regular course of a trade orbusiness. Accordingly, the critical element indetermining whether income is businessincome or nonbusiness income is the identifi-cation of the transactions and activity whichare the elements of a particular trade or busi-ness. In general all transactions and activitiesof the taxpayer which are dependent upon orcontribute to the operations of the taxpayer�seconomic enterprise as a whole constitute thetaxpayer�s trade or business and will be trans-actions and activity arising in the regularcourse of, and will constitute integral partsof, a trade or business.

(5) Business and Nonbusiness Income�Ap-plication of Definitions. The following are

rules and examples for determining whetherparticular income is business or nonbusinessincome (The examples used throughout thisrule are illustrative only and do not purport toset forth all pertinent facts.):

(A) Rents From Real and TangiblePersonal Property. Rental income from realand tangible property is business income ifthe property with respect to which the rentalincome was received is used in the taxpayer�strade or business, or incidental to the trade orbusiness and therefore is includable in theproperty factor under sections (21)�(24) ofthis rule.

1. Example: The taxpayer operates amultistate car rental business. The incomefrom car rentals is business income.

2. Example: The taxpayer is engaged inthe heavy construction business in which ituses equipment such as cranes, tractors andearth-moving vehicles. The taxpayer makesshort-term leases of the equipment when par-ticular pieces of equipment are not needed onany particular project. The rental income isbusiness income.

3. Example: The taxpayer operates amultistate chain of men�s clothing stores. Thetaxpayer purchases a five (5)-story officebuilding for use in connection with its tradeor business. It uses the street floor as one (1)of its retail stores and the second and thirdfloors for its general corporate headquarters.The remaining two (2) floors are leased toothers. The rental of the two (2) floors is inci-dental to the operation of the taxpayer�s tradeor business. The rental income is businessincome.

4. Example: The taxpayer operates amultistate chain of grocery stores. It purchas-es as an investment an office building inanother state with surplus funds and leasesthe entire building to others. The net rentalincome is not business income of the grocerystore trade or business. Therefore, the netrental income is nonbusiness income.

5. Example: The taxpayer operates amultistate chain of men�s clothing stores. Thetaxpayer invests in a twenty (20)-story officebuilding and uses the street floor as one (1) ofits retail stores and the second floor for itsgeneral corporate headquarters. The remain-ing eighteen (18) floors are leased to others.The rental of the eighteen (18) floors is notincidental to but rather is separate from theoperation of the taxpayer�s trade or business.The net rental income is not business incomeof the clothing store trade or business.Therefore, the net rental income is nonbusi-ness income.

6. Example: The taxpayer constructed aplant for use in its multistate manufacturingbusiness and twenty (20) years later the plantwas closed and put up for sale. The plant wasrented for a temporary period from the timeit was closed by the taxpayer until it was soldeighteen (18) months later. The rental incomeis business income and the gain on the sale ofthe plant is business income.

7. Example: The taxpayer operates amultistate chain of grocery stores. It ownedan office building which it occupied as itscorporate headquarters. Because of inade-quate space, taxpayer acquired a new andlarger building elsewhere for its corporateheadquarters. The old building was rented toan investment company under a five (5)-yearlease. Upon expiration of the lease, taxpayersold the building at a gain (or loss). The netrental income received over the lease periodis nonbusiness income and the gain (or loss)on the sale of the building is nonbusinessincome;

(B) Gains or Losses From Sales of Assets.Gain or loss from the sale, exchange or otherdisposition of real or tangible or intangiblepersonal property constitutes businessincome if the property while owned by thetaxpayer was used in the taxpayer�s trade orbusiness. However, if the property was uti-lized for the production of nonbusinessincome or otherwise was removed from theproperty factor before its sale, exchange orother disposition, the gain or loss will consti-tute nonbusiness income.

1. Example: In conducting its multistatemanufacturing business, the taxpayer system-atically replaces automobiles, machines andother equipment used in the business. Thegains or losses resulting from those sales con-stitute business income.

2. Example: The taxpayer constructed aplant for use in its multistate manufacturingbusiness and twenty (20) years later sold theproperty at a gain while it was in operation bythe taxpayer. The gain is business income.

3. Example: Same as paragraph (5)(B)2.of this rule except that the plant was closedand put up for sale but was not in fact solduntil a buyer was found eighteen (18) monthslater. The gain is business income.

4. Example: Same as paragraph (5)(B)2.of this rule except that the plant was rentedwhile being held for sale. The rental incomeis business income and the gain on the sale ofthe plant is business income.

5. Example: The taxpayer operates amultistate chain of grocery stores. It ownedan office building which it occupied as its



corporate headquarters. Because of inade-quate space, taxpayer acquired a new andlarger building elsewhere for its corporateheadquarters. The old building was rented toan unrelated investment company under afive (5)-year lease. Upon expiration of thelease, taxpayer sold the building at a gain (orloss). The gain (or loss) on the sale is non-business income and the rental incomereceived over the lease period is nonbusinessincome;

(C) Interest. Interest income is businessincome where the intangible with respect towhich the interest was received arises out of,or was created in, the regular course of thetaxpayer�s trade or business operations orwhere the purpose for acquiring and holdingthe intangible is related to or incidental to thetrade or business operations.

1. Example: The taxpayer operates amultistate chain of department stores, sellingfor cash and on credit. Service charges, inter-est or time-price differentials and the like arereceived with respect to installment sales andrevolving charge accounts. These amountsare business income.

2. Example: The taxpayer conducts amultistate manufacturing business. Duringthe year the taxpayer receives a federalincome tax refund and collects a judgmentagainst a debtor of the business. Both the taxrefund and the judgment bore interest. Theinterest income is business income.

3. Example: The taxpayer is engaged ina multistate manufacturing and wholesalingbusiness. In connection with that business,the taxpayer maintains special accounts tocover these items as Workers� Compensationclaims, rain and storm damage, machineryreplacement, and the like. The moneys inthose accounts are invested at interest.Similarly, the taxpayer temporarily investsfunds intended for payment of federal, stateand local tax obligations. The interest incomeis business income.

4. Example: The taxpayer is engaged ina multistate money order and traveler�schecks business. In addition to the feesreceived in connection with the sale of themoney orders and traveler�s checks, the tax-payer earns interest income by the investmentof the funds pending their redemption. Theinterest income is business income.

5. Example: The taxpayer is engaged ina multistate manufacturing and selling busi-ness. The taxpayer usually has working capi-tal and extra cash totaling two hundred thou-sand dollars ($200,000) which it regularlyinvests in short-term interest bearing securi-ties. The interest income is business income.

6. Example: In January, the taxpayersold all the stock of subsidiary for twenty(20) million dollars. The funds are placed inan interest-bearing account pending a deci-sion by management as to how the funds areto be utilized. The interest income is non-business income;

(D) Dividends. Dividends are businessincome where the stock with respect to whichthe dividends are received arises out of orwas acquired in the regular course of the tax-payer�s trade or business operations or wherethe purpose for acquiring and holding thestock is related to or incidental to the trade orbusiness operations.

1. Example: The taxpayer operates amultistate chain of stock brokerage houses.During the year the taxpayer receives divi-dends on stock it owns. The dividends arebusiness income.

2. Example: The taxpayer is engaged ina multistate manufacturing and wholesalingbusiness. In connection with that business,the taxpayer maintains special accounts tocover such items as Workers� Compensationclaims, etc. A portion of the moneys in thoseaccounts is invested in interest-bearingbonds. The remainder is invested in variouscommon stocks listed on national stockexchanges. Both the interest income and anydividends are business income.

3. Example: The taxpayer and severalunrelated corporations own all of the stock ofa corporation whose business operations con-sist solely of acquiring and processing mate-rials for delivery to the corporate owners.The taxpayer acquired the stock in order toobtain a source of supply of materials used inits manufacturing business. The dividends arebusiness income.

4. Example: The taxpayer is engaged ina multistate heavy construction business.Much of its construction work is performedfor agencies of the federal government andvarious state governments. Under state andfederal laws applicable to contracts for theseagencies, a contractor must have adequatebonding capacity, as measured by the ratio ofits current assets (cash and marketable secu-rities) to current liabilities. In order to main-tain an adequate bonding capacity, the tax-payer holds various stocks and interest-bear-ing securities. Both the interest income andany dividends received are business income.

5. Example: The taxpayer receives divi-dends from the stock of its subsidiary or affil-iate which acts as the marketing agency forproducts manufactured by the taxpayer. Thedividends are business income.

6. Example: The taxpayer is engaged ina multistate glass manufacturing business. Italso holds a portfolio of stock andinterest-bearing securities, the acquisitionand holding of which are unrelated to themanufacturing business. The dividends andinterest income received are nonbusinessincome; and

(E) Patent and Copyright Royalties. Patentand copyright royalties are business incomewhere the patent or copyright with respect towhich the royalties were received arises outof or was created in the regular course of thetaxpayer�s trade or business operations orwhere the purpose of acquiring and holdingthe patent or copyright is related to or inci-dental to the trade or business operations.

1. Example: The taxpayer is engaged inthe multistate business of manufacturing andselling industrial chemicals. In connectionwith that business the taxpayer obtainedpatents on certain of its products. The tax-payer licensed the production of the chemi-cals in foreign countries, in return for whichthe taxpayer receives royalties. The royaltiesreceived by the taxpayer are business income.

2. Example: The taxpayer is engaged inthe music publishing business and holdscopyrights on numerous songs. The taxpayeracquires the assets of a smaller publishingcompany, including music copyrights. Afterthese acquired copyrights are used by the tax-payer in its business, any royalties receivedon these copyrights are business income.

3. Example: Same as example in para-graph (5)(E)2. of this rule, except that theacquired company also held the patent on atype of phonograph needle. The taxpayerdoes not manufacture or sell phonographs orphonograph equipment. Any royaltiesreceived on the patent would be nonbusinessincome.

(6) Proration of Deductions. In most cases,an allowable deduction of a taxpayer will beapplicable only to the business income aris-ing from a particular trade or business or toa particular item of nonbusiness income. Insome cases, an allowable deduction may beapplicable to the business incomes of morethan one (1) trade or business or to severalitems of nonbusiness income. In those cases,the deduction shall be prorated among thetrades or businesses and the items of non-business income in a manner which fairlydistributes the deduction among the classes ofincome to which it is applicable. In filingreturns with this state, if the taxpayer departsfrom or modifies the manner of prorating anyof the deduction used in returns for prior



years, the taxpayer shall disclose in the returnfor the current year the nature and extent ofthe modification. If the return or reports filedby a taxpayer with all states to which the tax-payer reports under section 32.200 (ArticleIV), RSMo of this Compact or the UniformDivision of Income for Tax Purposes Act arenot uniform in the application or proration ofany deduction, the taxpayer shall disclose inits return to this state the nature and extent ofthe variance.

(7) Taxpayer means any corporation, partner-ship, firm, association, governmental unit oragency or person acting as a business entityin more than one (1) state.

(8) Apportionment refers to the division ofbusiness income between states by the use ofa formula containing apportionment factors.

(9) Allocation refers to the assignment ofnonbusiness income to a particular state.

(10) Business activity refers to the transac-tions and activity occurring in the regularcourse of a particular trade or business of ataxpayer.

(11) Application of Article IV�Apportion-ment. If the business activity in respect to anytrade or business of a taxpayer occurs bothwithin and without this state and, if by reasonof that business activity the taxpayer is tax-able in another state, the portion of the netincome (or net loss) arising from the trade orbusiness which is derived from sources with-in this state shall be determined by appor-tionment in accordance with section 32.200(Articles IV.9.�IV.17), RSMo.

(12) Application of Article IV�Allocation.Any taxpayer subject to the taxing jurisdic-tion of this state shall allocate all of its non-business income or loss within or without thisstate in accordance with section 32.200(Articles IV.4.�IV.8), RSMo.

(13) Consistency and Uniformity in Report-ing. In filing returns with this state if the tax-payer departs from or modifies the manner inwhich income has been classified as businessincome or nonbusiness income in returns forprior years, the taxpayer shall disclose in thereturn for the current year the nature andextent of the modification. If the returns orreports filed by a taxpayer for all states towhich the taxpayer reports under section32.200 (Article IV), RSMo of the Compactor the Uniform Division of Income for TaxPurposes Act are not uniform in the classifi-

cation of income as business or nonbusinessincome, the taxpayer shall disclose in itsreturn to this state the nature and extent of thevariance.

(14) Taxable in Another State�In General.Under section 32.200 (Article IV.2.), RSMothe taxpayer is subject to the allocation andapportionment provisions of section 32.200(Article IV), RSMo if it has income frombusiness activity that is taxable both withinand without this state. A taxpayer�s incomefrom business activity is taxable without thisstate if the taxpayer, by reason of the businessactivity (that is, the transaction and activityoccurring in the regular course of a particu-lar trade or business), is taxable in anotherstate within the meaning of section 32.200(Article IV.3.), RSMo. A taxpayer is taxablewithin another state if it meets either one (1)of two (2) tests�

(A) If by reason of business activity inanother state, the taxpayer is subject to one(1) of the types of taxes specified in section32.200 (Article IV.3(1)), RSMo, namely, anet income tax, a franchise tax measured bynet income, a franchise tax for the privilegeof doing business or a corporate stock tax; or

(B) If by reason of the business activity,another state has jurisdiction to subject thetaxpayer to a net income tax, regardless ofwhether or not the state imposes this tax onthe taxpayer.

(15) Taxable in Another State�NonbusinessIncome Only. A taxpayer is not taxable inanother state with respect to a particular tradeor business merely because the taxpayer con-ducts activities in the other state pertaining tothe production of nonbusiness income orbusiness activities relating to a separate tradeor business.

(16) Taxable in Another State. A taxpayer issubject to one (1) of the taxes specified insection 32.200 (Article IV.3(1)), RSMo if itcarries on business activities in the state andthat state imposes the tax on business activi-ties. Any taxpayer which asserts that it is sub-ject to one (1) of the taxes specified in section32.200 (Article IV.3(1)), RSMo in anotherstate shall furnish to the director of revenueof this state, upon his/her request, evidenceto support the assertion. The director of rev-enue of this state may request that the evi-dence include proof that the taxpayer hasfiled the requisite tax return in the other stateand has paid any taxes imposed under the lawof the other state; the taxpayer�s failure toproduce proof that may be taken into account

in determining whether the taxpayer in fact issubject to one (1) of the taxes specified insection 32.200 (Article IV.3(1)), RSMo inthe other state. If the taxpayer voluntarilyfiles and pays one (1) or more of the taxeswhen not required to do so by the laws of thatstate or pays a minimal fee for qualification,organization or for the privilege of doingbusiness in the state, but does not actuallyengage in business activity in that state, ordoes actually engage in some business activi-ty, not sufficient for nexus, and the minimumtax bears no relation to the taxpayer�s busi-ness activity within that state, the taxpayer isnot subject to one (1) of the taxes specifiedwithin the meaning of section 32.200 (ArticleIV.3(1)), RSMo. Example: State A has a cor-poration franchise tax measured by netincome, for the privilege of doing business inthat state. Corporation X files a return andpays the fifty-dollar ($50) minimum tax,although it carries on no business activity inState A. Corporation X is not taxable in StateA.

(17) Taxability. The concept of taxability inanother state is based upon the premise thatevery state in which the taxpayer is engagedin business activity may impose an incometax even though every state does not do so. Instates which do not, other types of taxes maybe imposed as a substitute for an income tax.Therefore, only those taxes enumerated insection 32.200 (Article IV.3(1)), RSMowhich may be considered as basically revenueraising rather than regulatory measures shallbe considered in determining whether thetaxpayer is subject to one (1) of the taxesspecified in section 32.200 (Article IV.3(1)),RSMo in another state.

(A) Example: State A requires all nonresi-dent corporations which qualify or register inState A to pay to the secretary of state anannual license fee or tax for the privilege ofdoing business in the state regardless ofwhether the privilege is in fact exercised. Theamount paid is determined according to thetotal authorized capital stock of the corpora-tion; the rates are progressively higher bybracketed amounts. The statute set a mini-mum fee of fifty dollars ($50) and a maxi-mum fee of five hundred dollars ($500).Failure to pay the tax bars a corporation fromutilizing the state courts for enforcement ofits rights. State A also imposes a corporationincome tax. Nonresident Corporation X isqualified in State A and pays the required feeto the secretary of state but does not carry onany business activity in State A (although it



may utilize the courts of State A).Corporation X is not taxable in State A.

(B) Example: Same facts as in subsection(17)(A) of this rule except that Corporation Xis subject to and pays the corporation incometax. Payment is prima facie evidence thatCorporation X is subject to the net incometax of State A and is taxable in State A.

(C) Example: State B requires all nonresi-dent corporations qualified or registered inState B to pay to the secretary of state anannual permit fee or tax for doing business inthe state. The base of the fee or tax is the sumof outstanding capital stock, surplus andundivided profits. The fee or tax base attrib-utable to State B is determined by a three(3)-factor apportionment formula. Nonre-sident Corporation X which operates a plantin State B pays the required fee or tax to thesecretary of state. Corporation X is taxable inState B.

(D) Example: State A has a Corporationfranchise tax measured by net income for theprivilege of doing business in that state.Corporation X files a return based upon itsbusiness activity in the state but the amountof computed liability is less than the mini-mum tax. Corporation X pays the minimumtax. Corporation X is subject to State A�s cor-poration franchise tax.

(18) Taxable in Another State. The secondtest, that of section 32.200 (Article IV.3(2)),RSMo, applies if the taxpayer�s businessactivity is sufficient to give the state jurisdic-tion to impose a net income tax by reason ofthe business activity under the Constitutionand statutes of the United States. Jurisdictionto tax is not present where the state is pro-hibited from imposing the tax by reason ofthe provisions of P.L. 86-272, 15 U.S.C.A.Sections 381�385. In the case of any state asdefined in section 32.200 (Article IV.1(8)),RSMo, other than a state of the United Statesor political subdivision of that state, thedetermination of whether that state has juris-diction to subject the taxpayer to a net incometax shall be made as though the jurisdiction-al standard applicable to a state of the UnitedStates applies in that state. If jurisdiction isotherwise present, that state is not consideredas without jurisdiction by reason of the provi-sions of a treaty between that state and theUnited States. Example: Corporation X isactively engaged in manufacturing farmequipment in State A and in Foreign CountryB. Both State A and Foreign Country Bimpose a net income tax but Foreign CountryB exempts corporations engaged in manufac-turing farm equipment. Corporation X is sub-

ject to the jurisdiction of State A and ForeignCountry B.

(19) Apportionment Formula. All businessincome of each trade or business of the tax-payer shall be apportioned to this state by useof the apportionment formula set forth in32.200 (Article IV.9), RSMo. The elementsof the apportionment formula are the proper-ty factor (see sections (20)�(24) of this rule),the payroll factor (see sections (34)�(41) ofthis rule) and the sales factor (see sections(42)�(46) of this rule) of the trade or businessof the taxpayer.

(20) Property Factor�In General. The prop-erty factor of the apportionment formula foreach trade or business of the taxpayer shallinclude all real and tangible personal proper-ty owned or rented by the taxpayer and usedduring the tax period in the regular course ofthat trade or business. The term real and tan-gible personal property includes land, build-ings, machinery, stocks of goods, equipmentand other real and tangible personal propertybut does not include coin or currency.Property used in connection with the produc-tion of nonbusiness income shall be excludedfrom the property factor. Property used bothin the regular course of taxpayer�s trade orbusiness and in the production of nonbusinessincome shall be included in the factor only tothe extent the property is used in the regularcourse of taxpayer�s trade or business. Themethod of determining that portion of thevalue to be included in the factor will dependupon the facts of each case. The property fac-tor shall include the average value of proper-ty includable in the factor (see sections(31)�(33) of this rule).

(21) Property Factor�Property Used for theProduction of Business Income. Propertyshall be included in the property factor if it isactually used or is available for or capable ofbeing used during the tax period in the regu-lar course of the trade or business of the tax-payer. Property held as reserves or standbyfacilities or property held as a reserve sourceof materials shall be included in the factor.For example, a plant temporarily idle or rawmaterial reserves not currently beingprocessed are includable in the factor.Property or equipment under constructionduring the tax period (except inventory typegoods in process) shall be excluded from thefactor until that property is actually used inthe regular course of the trade or business ofthe taxpayer. If the property is partially usedin the regular course of the trade or business

of the taxpayer while under construction, thevalue of the property to the extent used shallbe included in the property factor. Propertyused in the regular course of the trade orbusiness of the taxpayer shall remain in theproperty factor until its permanent withdraw-al is established by an identifiable event suchas its conversion to the production of non-business income, its sale or the lapse of anextended period of time (normally five (5)years) during which the property is held forsale.

(A) Example: Taxpayer closed its manufac-turing plant in State X and held the propertyfor sale. The property remained vacant untilits sale one (1) year later. The value of themanufacturing plant is included in the prop-erty factor until the plant is sold.

(B) Example: Same as subsection (21)(A)of this rule except that the property was rent-ed until the plant was sold. The plant isincluded in the property factor until the plantis sold.

(C) Example: Taxpayer closed its manufac-turing plant and leased the building under afive (5)-year lease. The plant is included inthe property factor until the commencementof the lease.

(D) Example: The taxpayer operates achain of retail grocery stores. Taxpayerclosed Store A, which was then remodeledinto three (3) small retail stores such as adress shop, dry cleaning and barber shop,which were leased to unrelated parties. Theproperty is removed from the property factoron the date the remodeling of Store A com-menced.

(22) Property Factor�Consistency in Report-ing. In filing returns with this state, if the tax-payer departs from or modifies the manner ofvaluing property, or of excluding or includingproperty in the property factor used in returnsfor prior years in the return for the currentyear, the taxpayer shall disclose the natureand extent of the modification. If the returnsor reports filed by the taxpayer with all statesto which the taxpayer reports under section32.200 (Article IV), RSMo of the MultistateTax Compact or the Uniform Division ofIncome for Tax Purposes Act are not uniformin the valuation of property and in the exclu-sion or inclusion of property in the propertyfactor, in its return to this state, the taxpayershall disclose the nature and extent of thevariance.

(23) Property Factor�Numerator. The num-erator of the property factor shall include theaverage value of the real and tangible person-al property owned or rented by the taxpayerand used in this state during the tax period in



the regular course of the trade or business ofthe taxpayer. Property in transit betweenlocations of the taxpayer to whom it belongsshall be considered to be at the destination forpurposes of the property factor. Property intransit between a buyer and seller which isincluded by a taxpayer in the denominator ofits property factor in accordance with its reg-ular accounting practices shall be included inthe numerator according to the state of desti-nation. The value of mobile or movable prop-erty, such as construction equipment, trucksor leased electronic equipment, which arelocated within and without this state duringthe tax period shall be determined for pur-poses of the numerator of the factor on thebasis of total time within the state during thetax period. An automobile assigned to a trav-eling employee shall be included in thenumerator of the factor or the state to whichthe employee�s compensation is assignedunder that payroll factor or in the numeratorof the state in which the automobile islicensed.

(24) Property Factor�Valuation of OwnedProperty. Property owned by the taxpayershall be valued at its original cost. As a gen-eral rule, original cost is deemed to be thebasis of the property for federal income taxpurposes (prior to any federal adjustments) atthe time of acquisition by the taxpayer andadjusted by subsequent capital additions orimprovements and partial disposition, by rea-son of sale, exchange, abandonment, and thelike.

(A) Example: The taxpayer acquired a fac-tory building in this state at a cost of fivehundred thousand dollars ($500,000) andeighteen (18) months later expended one hun-dred thousand dollars ($100,000) for majorremodeling of the building. Taxpayer filed itsreturn for the current taxable year on the cal-endar-year basis. Depreciation deduction inthe amount of twenty-two thousand dollars($22,000) was claimed on the building for itsreturn for the current taxable year. The valueof the building includable in the numeratorand denominator of the property factor is sixhundred thousand dollars ($600,000) as thedepreciation deduction is not taken intoaccount in determining the value of the build-ing for purposes of the factor.

(B) Example: During the current taxableyear, X Corporation merges into Y Corp-oration in a tax-free reorganization under theInternal Revenue Code (IRC). At the time ofthe merger, X Corporation owns a factorywhich X built five (5) years earlier at a costof one (1) million dollars. X has been depre-

ciating the factory at the rate of two percent(2%) per year, and its basis in X�s hands atthe time of the merger is nine hundred thou-sand dollars ($900,000). Since the propertyis acquired by Y in a transaction in which,under the IRC, its basis in Y�s hands is thesame as its basis in X�s, Y includes the prop-erty in Y�s property factor at X�s originalcost, without adjustment for depreciation,that is one (1) million dollars.

(C) Example: Corporation Y acquires theassets of Corporation X in a liquidation bywhich Y is entitled to use its stock cost as thebasis of the X assets under Section 334(b)(2)of the 1954 IRC (that is, stock possessingeighty percent (80%) control is purchasedand liquidated within two (2) years). Underthese circumstances, Y�s cost of the assets isthe purchase price of the X stock proratedover the X assets.

(D) If original cost of property is unascer-tainable, the property is included in the fac-tor at its fair market value as of the date of theacquisition by the taxpayer.

(E) Inventory of stock of goods shall beincluded in the factor in accordance with thevaluation method used for federal income taxpurposes.

(F) Property acquired by gift or inheritanceshall be included in the factor at its basis fordetermining depreciation for federal incometax purposes.

(25) Property Factor�Valuation of RentedProperty. Property rented by the taxpayer isvalued at eight (8) times its net annual rentalrate. The net annual rental rate for any itemof rented property is the annual rental ratepaid by the taxpayer for the property, less theaggregate annual subrental rates paid by sub-tenants of the taxpayer (see sections (61) and(62) of this rule for special rules where theuse of the net annual rental rate produces anegative or clearly inaccurate value or whereproperty is used by the taxpayer at no chargeor rented at a nominal rental rate).

(26) Subrentals. Subrents are not deductedwhen the subrents constitute business incomebecause the property which produces the sub-rents is used in the regular course of a tradeor business of the taxpayer when it is pro-ducing that income. Accordingly there is noreduction in its value.

(A) Example: The taxpayer receives sub-rents from a baker�s concession in a foodmarket operated by the taxpayer. Since thesubrents are business income, they are notdeducted from rent paid by the taxpayer forthe food market.

(B) Example: The taxpayer rents a five(5)-story office building primarily for use inits multistate business, uses three (3) floorsfor its offices and subleases two (2) floors tovarious other businesses and persons such asprofessional people, shops and the like. Therental of the two (2) floors is incidental to theoperation of the taxpayer�s trade or business.Since the subrents are business income, theyare not deducted from the rent paid by thetaxpayer.

(C) Example: The taxpayer rents a twenty(20)-story office building and uses the lowertwo (2) stories for its general corporationheadquarters. The remaining eighteen (18)floors are subleased to others. The rental ofthe eighteen (18) floors is not incidental tobut rather is separate from the operation ofthe taxpayer�s trade or business. Since thesubrents are nonbusiness income, they are tobe deducted from the rent paid by the taxpay-er.

(27) Annual rental rate is the amount paid asrental for property for a twelve (12)-monthperiod (that is, the amount of the annualrent). Where property is rented for less thana twelve (12)-month period, the rent paid forthe actual period of rental shall constitute theannual rental rate for the tax period.However, where a taxpayer has rented prop-erty for a term of twelve (12) or more monthsand the current tax period covers a period ofless than twelve (12) months (due, for exam-ple, to a reorganization or change of account-ing period), the rent paid for the short taxperiod shall be annualized. If the rental termis for less than twelve (12) months, the rentshall not be annualized beyond its term. Rentshall not be annualized because of the uncer-tain duration when the rental term is on amonth-to-month basis.

(A) Example: Taxpayer A which ordinari-ly files its returns based on a calendar year ismerged into taxpayer B on April 30. The netrent paid under a lease with five (5) yearsremaining is two thousand five hundred dol-lars ($2,500) a month. The rent for the taxperiod January 1 to April 30 is ten thousanddollars ($10,000). After the rent is annual-ized, the net rent is thirty thousand dollars($30,000) ($2,500 × 12).

(B) Example: Same facts as in subsection(27)(A) of this rule except that the leasewould have terminated on August 31. In thiscase, the annualized net rent is twenty thou-sand dollars ($20,000) ($2,500 × 8).

(28) Annual rent is the actual sum of moneyor other consideration payable, directly or



indirectly, by the taxpayer or for its benefitfor the use of the property and includes:

(A) Any amount payable for the use of realor tangible personal property, or any part ofthat property, whether designated as a fixedsum or money, or as a percentage of sales,profits or otherwise. Example: A taxpayer,pursuant to the terms of a lease, pays a lessorone thousand dollars ($1,000) per month as abase rental and at the end of the year pays thelessor one percent (1%) of its gross sales offour hundred thousand dollars ($400,000).The annual rent is sixteen thousand dollars($16,000) � (($12,000) plus one percent(1%) of four hundred thousand dollars($400,000) or four thousand dollars($4,000)); and

(B) Any amount payable as additional rentor in lieu of rents, such as interest, taxes,insurance, repairs or any other items whichare require to be paid by the terms of thelease or other arrangement, not includingamounts paid as service charges, such as util-ities, janitor services, and the like. If a pay-ment includes rent and other charges unseg-regated, the amount of rent shall be deter-mined by consideration of the relative valuesof the rent and the other items.

1. Example: A taxpayer, under the termsof a lease, pays the lessor twelve thousanddollars ($12,000) a year rent plus taxes in theamount of two thousand dollars ($2,000) andinterest on a mortgage in the amount of onethousand dollars ($1,000). The annual rent isfifteen thousand dollars ($15,000).

2. Example: A taxpayer stores part of itsinventory in a public warehouse. The totalcharge for the year was one thousand dollars($1,000) of which seven hundred dollars($700) was for the use of storage space andthree hundred dollars ($300) for inventoryinsurance, handling and shipping charges,and cash on delivery collections. The annualrent is seven hundred dollars ($700).

(29) Annual rent does not include incidentalday-to-day expenses such as hotel or motelaccommodations, daily rental of automobilesand the like.

(30) Leasehold improvements, for the pur-poses of the property factor, shall be treatedas property owned by the taxpayer regardlessof whether the taxpayer is entitled to removethe improvements or the improvements revertto the lessor upon expiration of the lease.Hence, the original cost of leaseholdimprovements shall be included in the factor.

(31) Property Factor�Averaging PropertyValues. As a general rule, the average value of

property owned by the taxpayer shall bedetermined by averaging the values at thebeginning and ending of the tax period.However, the director of revenue may requireor allow averaging by monthly values if thatmethod of averaging is required to properlyreflect the average value of the taxpayer�sproperty for the tax period.

(32) Averaging by monthly values will gener-ally be applied if substantial fluctuations inthe values of the property exist during the taxperiod or where property is acquired after thebeginning of the tax period or disposed ofbefore the end of the tax period. Example:The monthly value of the taxpayer�s propertywas as follows:

January $ 2,000February $ 2,000March $ 3,000April $ 3,500May $ 4,500June $ 10,000July $ 15,000August $ 17,000September $ 23,000October $ 25,000November $ 13,000December $ 200

Total $120,000

The average value of the taxpayer�s propertyincludable in the property factor for theincome year is determined as follows:

$120,000 = $10,00012

(33) Averaging with respect to rented proper-ty is achieved automatically by the method ofdetermining the net annual rental rate of thatproperty as set forth in sections (25)�(30) ofthis rule.

(34) Payroll Factor�In General. The payrollfactor of the apportionment formula for eachtrade or business of the taxpayer shall includethe total amount paid by the taxpayer in theregular course of its trade or business forcompensation during the tax period.

(35) The total amount paid to employees isdetermined upon the basis of the taxpayer�saccounting method. If the taxpayer has adopt-ed the accrual method of accounting, all com-pensation properly accrued shall be deemedto have been paid. Notwithstanding the tax-payer�s method of accounting, at the electionof the taxpayer, compensation paid toemployees may be included in the payroll fac-tor by use of the cash method if the taxpayeris required to report that compensation under

the method for unemployment compensationpurposes. The compensation of any employeeon account of activities which are connectedwith the production of nonbusiness incomeshall be excluded from the factor.

(A) Example: The taxpayer uses some ofits employees in the construction of a storagebuilding which, upon completion, is used inthe regular course of taxpayer�s trade or busi-ness. The wages paid to those employees aretreated as a capital expenditure by the taxpay-er. The amount of those wages is included inthe payroll factor.

(B) Example: The taxpayer owns varioussecurities which it holds as an investmentseparate and apart from its trade or business.The management of the taxpayer�s investmentportfolio is the only duty of Mr. X, anemployee. The salary paid for Mr. X isexcluded from the payroll factor.

(36) The term compensation means wages,salaries, commissions and any other form ofremuneration paid to employees for personalservices. Payments made to an independentcontractor or any other person not properlyclassifiable as an employee are excluded.Only amounts paid directly to employees areincluded in the payroll factor. Amounts con-sidered paid directly include the value ofboard, rent, housing, lodging and other ben-efits or services furnished to employees bythe taxpayer in return for personal services;provided, that those amounts constituteincome to the recipient under the federalIRC. In the case of employees not subject tothe federal IRC (for example, those employedin foreign countries), the determination ofwhether the benefits or services would con-stitute income to the employees shall be madeas though those employees are subject to thefederal IRC.

(37) The term employee means any officer ofa corporation, or any individual who, underthe usual common-law rules applicable indetermining the employer-employee relation-ship, has the status of an employee. Generallya person will be considered to be an employ-ee if s/he is included by the taxpayer as anemployee for purposes of the payroll taxesimposed by the Federal Insurance Contribu-tions Act (FICA); except that, since certainindividuals are included within the term,employees in FICA who would not beemployees under the usual common-lawrules, it may be established that a person whois included as an employee for purposes ofFICA is not an employee for purposes of thisrule.



(38) Return Consistency. In filing returnswith this state, if the taxpayer departs from ormodifies the treatment of compensation paidused in returns for prior years, the taxpayershall disclose in the return for the currentyear the nature and extent of the modifica-tion. If the returns or reports filed by the tax-payer with all states to which the taxpayerreports under section 32.200 (Article IV),RSMo of this the Multistate Tax Compact orthe Uniform Division of Income for TaxPurposes Act are not uniform in the treatmentof compensation paid, the taxpayer shall dis-close in its return to this state the nature andextent of the variance.

(39) Payroll Factor�Denominator. Thedenominator of the payroll factor is the totalcompensation paid everywhere during the taxperiod. Accordingly, compensation paid toemployees whose services are performedentirely in a state where the taxpayer isimmune from taxation, for example, by P.L.86-272, is included in the denominator of thepayroll factor. Example: A taxpayer hasemployees in its state of legal domicile (StateA) and is taxable in State B. In addition thetaxpayer has other employees whose servicesare performed entirely in State C where thetaxpayer is immune from taxation by P.L.86-272. As to these latter employees, thecompensation will be assigned to State Cwhere their services are performed (that is,included in the denominator�but not thenumerator�of the payroll factor) even thoughthe taxpayer is not taxable in State C.

(40) Payroll Factor�Numerator. The numer-ator of the payroll factor is the total amountpaid in this state during the tax period by thetaxpayer for compensation. The tests in sec-tion 32.200 (Article IV.14.), RSMo to beapplied in determining whether compensationis paid in this state are derived from theModel Unemployment Compensation Act.Accordingly, if compensation paid to employ-ees is included in the payroll factor by use ofthe cash method of accounting or if the tax-payer is required to report the compensationunder that method for unemployment com-pensation purposes, it shall be presumed thatthe total wages reported by the taxpayer tothis state for unemployment compensationpurposes constitute compensation paid in thisstate except for compensation excluded undersections (34)�(41) of this rule. The presump-tion may be overcome by satisfactory evi-dence that an employee�s compensation is notproperly reportable to this state for unem-ployment compensation purposes.

(41) Payroll Factor�Compensation Paid inThis State. Compensation is paid in this stateif any one (1) of the following tests, appliedconsecutively, are met:

(A) The employee�s service is performedentirely within the state;

(B) The employee�s service is performedboth within and without the state, but the ser-vice performed without the state is incidentalto the employee�s service within the state.The word incidental means any service whichis temporary or transitory in nature or whichis rendered in connection with an isolatedtransaction; and

(C) If the employee�s services are per-formed both within and without this state, theemployee�s compensation will be attributed tothis state if�

1. The employee�s base of operations isin this state. The term base of operations isthe place of more or less permanent naturefrom which the employee starts his/her workand to which s/he customarily returns inorder to receive instructions from the taxpay-er or communications from his/her customersor other persons or to replenish stock orother materials, repair equipment or performany other functions necessary to the exerciseof his/her trade or profession at some otherpoint(s);

2. There is no base of operations in anystate in which some part of the service is per-formed, but the place from which the serviceis directed or controlled is in this state; or

3. The base of operations or the placefrom which the service is directed or con-trolled is not in any state in which some partof the service is performed, but the employ-ee�s residence is in this state. The term placefrom which the service is directed or con-trolled refers to the place from which thepower to direct or control is exercised by thetaxpayer.

(42) Sales Factor�In General. Section32.200 (Article IV.1(7)), RSMo defines theterm sales to mean all gross receipts of thetaxpayer not allocated under section 32.200(Article IV.5.�8.), RSMo. Thus, for the pur-poses of the sales factor of the apportionmentformula for each trade or business of the tax-payer, the term sales means all gross receiptsderived by the taxpayer from transactions andactivity in the regular course of that trade orbusiness. The following are rules for deter-mining sales in various situations:

(A) In the case of a taxpayer engaged inmanufacturing and selling or purchasing andreselling goods or products, sales includes allgross receipts from the sales of those goods

or products (or other property of a kindwhich would properly be included in theinventory of the taxpayer if on hand at theclose of the tax period) held by the taxpayerprimarily for sale to customers in the ordi-nary course of its trade or business. Grossreceipts for this purpose means gross salesless returns and allowances, and includes allinterest income, service charges, carryingcharges or time-price differential chargesincidental to those sales. Federal and stateexcise taxes (including sales taxes) shall beincluded as part of the receipts if those taxesare passed on to the buyer or included as partof the selling price of the product;

(B) In the case of cost plus fixed fee con-tracts, such as the operation of a govern-ment-owned plant for a fee, sales include theentire reimbursed cost, plus the fee;

(C) In the case of a taxpayer engaged inproviding services, such as the operation ofan advertising agency, or the performance ofequipment service contracts, research anddevelopment contracts, sales include thegross receipts from the performance of thoseservices including fees, commission and sim-ilar items;

(D) In the case of a taxpayer engaged inrenting real or tangible property, salesinclude the gross receipts from the rental,lease or licensing the use of the property;

(E) In the case of a taxpayer engaged in thesale, assignment or licensing of intangiblepersonal property, such as patents and copy-rights, sales include the gross receipts fromthem; and

(F) If a taxpayer derives receipts from thesale of equipment use in its business, thesereceipts constitute sales. For example, a truckexpress company owns a fleet of trucks andsells its trucks under a regular replacementprogram. The gross receipts from the sales ofthe trucks are included in the sales factor.

(43) Exceptions. In some cases certain grossreceipts should be disregarded in determiningthe sales factor in order that the apportion-ment formula will operate fairly to apportionto this state the income of the taxpayer�s tradeor business.

(44) Return Consistency. In filing returnswith this state, if the taxpayer departs from ormodifies the basis for excluding or includinggross receipts in the sales factor used inreturns for prior years, the taxpayer shall dis-close in the return for the current year thenature and extent of the modification. If thereturns or reports filed by the taxpayer withall states to which the taxpayer reports under



section 32.200 (Article IV), RSMo of thisCompact or the Uniform Division of Incomefor Tax Purposes Act are not uniform in theinclusion of exclusion of gross receipts, thetaxpayer shall disclose in its return to thisstate the nature and extent of the variance.

(45) Sales Factor�Denominator. The denom-inator of the sales factor shall include thetotal gross receipts derived by the taxpayerfrom transactions and activity in the regularcourse of its trade or business except receiptsexcluded under section (64) of this rule.

(46) Sale Factor�Numerator. The numeratorof the sales factor shall include gross receiptsattributable to this state and derived by thetaxpayer from transactions and activity in theregular course of its trade of business. Allinterest income, service, charges, carryingcharges or time-price differential chargesincidental to the gross receipts shall beincluded regardless of the place where theaccounting records are maintained or thelocation of the contract or other evidence ofindebtedness.

(47) Sales of Tangible Personal Property inThis State. Gross receipts from sales of tan-gible personal property (except sales to theUnited States government; see section (54) ofthis rule) are in this state if the property is�

(A) Delivered or shipped to a purchaserwithin this state regardless of the free onboard (f.o.b.) point or other conditions ofsale; or

(B) Shipped from an office, store, ware-house, factory or other place of storage in thisstate and the taxpayer is not taxable in thestate of the purchaser.

(48) Property shall be deemed to be deliveredor shipped to a purchaser within this state ifthe recipient is located in this state, eventhough the property is ordered from outsidethis state. Example: The taxpayer, withinventory in State A, sold one hundred thou-sand dollars ($100,000) of its products to apurchaser having branch stores in severalstates including this state. The order for thepurchase was placed by the purchaser�s cen-tral purchasing department located in State B.Twenty-five thousand dollars ($25,000) ofthe purchaser�s order was shipped directly topurchaser�s branch store in this state. Thebranch store in this state is the purchaserwithin this state with respect to twenty-fivethousand dollars ($25,000) of the taxpayer�ssales.

(49) Property is delivered or shipped to apurchaser within this state if the shipmentterminates in this state, even though the prop-erty is subsequently transferred by the pur-chaser to another state. Example: The tax-payer makes a sale to a purchaser who main-tains a central warehouse in this state atwhich all merchandise purchases arereceived. The purchaser reships the goods toits branch stores in another state for sale. Allof taxpayer�s products shipped to the pur-chaser�s warehouse in this state is propertydelivered or shipped to a purchaser withinthis state.

(50) The term purchaser within this stateshall include the ultimate recipient of theproperty if the taxpayer in this state, at thedesignation of the purchaser, delivers to orhas the property shipped to the ultimaterecipient within this state. Example: A tax-payer in this state sold merchandise to a pur-chaser in State A. Taxpayer directed themanufacturer or supplier of the merchandisein State B to ship the merchandise to the pur-chaser�s customer in this state pursuant topurchaser�s instructions. The sale by the tax-payer is in this state.

(51) When property being shipped by a sellerfrom the state of origin to a consignee inanother state is diverted while enroute to apurchaser in this state, the sales are in thisstate. Example: The taxpayer, a producegrower in State A, begins shipment of per-ishable produce to the purchaser�s place ofbusiness in State B. While enroute, the pro-duce is diverted to the purchaser�s place ofbusiness in this state in which state the tax-payer is subject to tax. The sale by the tax-payer is attributed to this state.

(52) If the taxpayer is not taxable in the stateof the purchaser, the sale is attributed to thisstate if the property is shipped from an office,store, warehouse, factory or other place ofstorage in this state. Example: The taxpayerhas its head office and factory in State A. Itmaintains a branch office and inventory inthis state. Taxpayer�s only activity in State Bis the solicitation of orders by a residentsalesman. All orders by the State B salesmanare sent to the branch office in this state forapproval and are filled by shipment from theinventory in this state. Since taxpayer isimmune under P.L. 86-272 from tax in StateB, all sales of merchandise to purchasers inState B are attributed to this state, the statefrom which the merchandise was shipped.

(53) If a taxpayer whose salesman operatesfrom an office located in this state makes asale to a purchaser in another state in whichthe taxpayer is not taxable and the property isshipped directly by a third party to the pur-chaser, the following rules apply: if the tax-payer is taxable in the state from which thethird party ships the property, then the sale isin that state; and if the taxpayer is not taxablein the state from which the property isshipped, then the sale is in this state.Example: The taxpayer in this state sold mer-chandise to a purchaser in State A. Taxpayeris not taxable in State A. Upon direction ofthe taxpayer, the merchandise was shippeddirectly to the purchaser by the manufacturerin State B. If the taxpayer is taxable in StateB, the sale is in State B. If the taxpayer is nottaxable in State B, the sale is in this state.

(54) Sales Factor�Sales of Tangible PersonalProperty to United States Government in ThisState. Gross receipts from sales of tangiblepersonal property to the United States gov-ernment are in this state if the property isshipped from an office, store, warehouse, fac-tory or other place of storage in this state. Forpurposes of this rule, only sales for which theUnited States government makes direct pay-ment to the seller under the terms of a con-tract constitute sales to the United States gov-ernment. Thus, as a general rule, sales by asubcontractor to the prime contractor, theparty to the contract with the United Statesgovernment, do not constitute sales to theUnited States government.

(A) Example: A taxpayer contracts withGeneral Services Administration to deliver Xnumber of trucks which were paid for by theUnited States government. The sale is a saleto the United States government.

(B) Example: The taxpayer as a subcon-tractor to a prime contractor with theNational Aeronautics and Space Administra-tion contracts to build a component of a rock-et for one (1) million dollars. The sale by thesubcontractor to the prime contractor is not asale to the United States government.

(55) Sales Factor�Sales Other Than Sales ofTangible Personal Property in This State.Section 32.200 (Article IV.17.), RSMo pro-vides for the inclusion in the numerator of thesales factor of gross receipts from transac-tions other than sales of tangible personalproperty (including transactions with theUnited States government); under that sec-tion, gross receipts are attributed to this stateif the income-producing activity which gave

rise to the receipts is performed wholly with-in this state. Also, gross receipts are attrib-uted to this state if, with respect to a particu-lar item of income, the income-producingactivity is performed within and without thisstate but the greater proportion of theincome-producing activity is performed inthis state, based on costs of performance.

(56) Income-Producing Activity. The termincome-producing activity applies to eachseparate item of income and means the trans-actions and activity directly engaged in by thetaxpayer in the regular course of its trade orbusiness for the ultimate purpose of obtaininggains or profit. This activity does not includetransactions and activities performed onbehalf of a taxpayer, such as those conductedon its behalf by an independent contractor.Accordingly, income-producing activityincludes, but is not limited to, the following:

(A) The rendering of personal services byemployees or the utilization of tangible andintangible property by the taxpayer in per-forming a service;

(B) The sale, rental, leasing, licensing orother use of real property;

(C) The rental, leasing, licensing or otheruse of tangible personal property; and

(D) The sale, licensing or other use ofintangible personal property.

(57) The mere holding of intangible personalproperty is not, of itself, an income-produc-ing activity.

(58) Costs of Performance. The term costs ofperformance means direct costs determinedin a manner consistent with generally accept-ed accounting principles and in accordancewith accepted conditions or practices in thetrade or business of the taxpayer.

(59) Receipts (other than from sales of tangi-ble personal property), in respect to a partic-ular income-producing activity, are in thisstate if the income-producing activity is per-formed�

(A) Wholly within this state; or(B) Both inside and outside this state and a

greater proportion of the income-producingactivity is performed in this state than in anyother state, based on costs of performance.

(60) Special Rules. The following are specialrules for determining when receipts from theincome-producing activities described in thefollowing are in this state:

(A) Gross receipts from the sale, lease,rental or licensing of real property are in this

state if the real property is located in thisstate;

(B) Gross receipts from the rental, lease orlicensing of tangible personal property are inthis state if the property is located in thisstate. The rental, lease, licensing or other useof tangible personal property in this state is aseparate income-producing activity from therental, lease, licensing or other use of thesame property while located in another state;consequently, if property is within and with-out this state during the rental, lease orlicensing period, gross receipts attributable tothis state shall be measured by the ratio whichthe time the property was physically presentor was used in this state bears to the totaltime or use of the property everywhere dur-ing that period. Example: Taxpayer is theowner of ten (10) railroad cars. During theyear, the total of the days each railroad carwas present in this state was fifty (50) days.The receipts attributable to the use of each ofthe railroad cars in this state are a separateitem of income and shall be determined asfollows:

(10 × 50)=500 × Total Receipts3650

= Receipts Attributable to this State; and

(C) Gross receipts for the performance ofpersonal services are attributable to this stateto the extent those services are performed inthis state. If services relating to a single itemof income are performed partly within andpartly without this state, the gross receipts forthe performance of those services shall beattributable to this state only if a greater pro-portion of the services was performed in thestate, based on costs of performance. Usually,where services are performed partly withinand partly without this state, the services per-formed in each state will constitute a separateincome-producing activity; in that case, thegross receipts for the performance of servicesattributable to this state shall be measured bythe ratio which the time spent in performingthe services in this state bears to the totaltime spent in performing the services every-where. Time spent in performing servicesincludes the amount of time expended in theperformance of a contract or other obligationwhich gives rise to the gross receipts.Personal service not directly connected withthe performance of the contract, or otherobligation, as for example, time expended innegotiating the contract, is excluded from thecomputations.

1. Example: Taxpayer, a road show, gavetheatrical performances at various locationsin State X and in this state during the tax

period. All gross receipts from performancesgiven in this state are attributed to this state.

2. Example: Taxpayer, a public opinionsurvey corporation, conducted a poll by itsemployees in State X and in this state for thesum of nine thousand dollars ($9,000). Theproject required six hundred (600) man-hoursto obtain the basic data and prepare the sur-vey report. Two hundred (200) of the six hun-dred (600) man-hours were expended in thisstate. The receipt attributable to this state is:

$3,000 ( 200 × $9,000 = $3,000)600

(61) Section 32.200 (Article IV.18.), RSMoprovides that, if the allocation and apportion-ment provisions of section 32.200 (ArticleIV), RSMo do not fairly represent the extentof the taxpayer�s business activity in thisstate, the taxpayer may petition for or thedirector of revenue may require, in respect toany part of the taxpayer�s business activity, ifreasonable�

(A) Separate accounting;(B) The exclusion of any one (1) or more

of the additional factors;(C) The inclusion of one (1) or more addi-

tional factors which will fairly represent thetaxpayer�s business activity in this state; or

(D) The employment of any other methodto effectuate an equitable allocation andapportionment of the taxpayer�s income.

(62) Section 32.200 (Article IV.18.), RSMopermits a department from the allocation andapportionment provisions of section 32.200(Article IV), RSMo only in limited and spe-cific cases. Section 32.200 (Article IV.18.),RSMo may be invoked only in specific caseswhere unusual fact situations (which ordinar-ily will be unique and nonrecurring) produceincongruous results under the apportionmentand allocation provisions contained in section32.200 (Article IV), RSMo. In the case ofcertain industries such as air transportation,rail transportation, ship transportation, truck-ing, television, radio, motion pictures, vari-ous types of professional athletics etc., thesections of this rule in respect to the appor-tionment formula do not set forth appropriateprocedures for determining the apportion-ment factors. Nothing in section 32.200(Article IV.18.), RSMo or in sections(61)�(64) of this rule shall preclude the direc-tor of revenue from establishing appropriateprocedures under section 32.200 (ArticleIV.10.�17.), RSMo for determining theapportionment factors for these industries,





but those procedures shall be applied uni-formly.

(63) Special Rules�Property Factor. The fol-lowing special rules are established in respectto the property factor of the apportionmentformula:

(A) If the subrents taken into account indetermining the net annual rental rate undersections (25)�(30) of this rule produce a neg-ative or clearly inaccurate value for any itemof property, another method which will prop-erly reflect the value of rented property maybe required by the director of revenue orrequested by the taxpayer. In no case, howev-er, shall that value be less than an amountwhich bears the same ratio to the annualrental rate paid by the taxpayer for the prop-erty as the fair market value of that portion ofthe property used by the taxpayer bears to thetotal fair market value of the rented property.Example: The taxpayer rents a ten (10)-storybuilding at an annual rental rate of one (1)million dollars. Taxpayer occupies two (2)stories and sublets eight (8) stories for one(1) million dollars a year. The net annualrental rate of the taxpayer must not be lessthan two-tenths (2/10) of the taxpayer�s annu-al rental rate for the entire year or two hun-dred thousand ($200,000); and

(B) If property owned by others is used bythe taxpayer at no charge or rented by the tax-payer for a nominal rate, the net annual rentalrate for that property shall be determined onthe basis of a reasonable market rental ratefor the property.

(64) Special Rules�Sales Factor. The follow-ing special rules are established in respect tothe sales factor of the apportionment formu-la:

(A) Where substantial amounts of grossreceipts arise from an incidental or occasion-al sale of a fixed asset used in the regularcourse of the taxpayer�s trade or business,those gross receipts shall be excluded fromthe sales factor. For example, gross receiptsfrom the sale of a factory or plant will beexcluded;

(B) Insubstantial amounts of gross receiptsarising from incidental or occasional transac-tions or activities may be excluded from thesales factor unless the exclusion would mate-rially affect the amount of income appor-tioned to this state. For example, the taxpay-er ordinarily may include or exclude from thesales factor gross receipts from transactionssuch as the sale of office furniture, businessautomobiles, and the like; and

(C) Where the income-producing activityin respect to business income from intangiblepersonal property can be readily identified,that income included in the denominator ofthe sales factor and, if the income-producingactivity occurs in this state, in the numeratorof the sales factor as well. For example, usu-ally the income-producing activity can bereadily identified in respect to interest incomereceived on deterred payments on sales oftangible property (subsection (42)(A) of thisrule) and income from the sale, licensing orother use of intangible personal property(subsection (56)(D) of this rule). Where busi-ness income from intangible property cannotreadily be attributed to any particularincome-producing activity of the taxpayer,that income cannot be assigned to the numer-ator of the sales factor for any state and shallbe excluded from the denominator of thesales factor. For example, where businessincome in the form of dividends received onstock, royalties received on patents or copy-rights, or interest received on bonds, deben-tures or government securities results fromthe mere holding of the intangible personalproperty by the taxpayer, the dividends andinterest shall be excluded from the denomina-tor of the sales factor.

(65) Single Trade or Business. The determi-nation of whether the activities of the taxpay-er constitute a single trade or business ormore than one (1) trade or business will beestablished by the facts in each case. In gen-eral, the activities of the taxpayer will beconsidered a single business if there is evi-dence to indicate that the segments underconsideration are integrated with, dependentupon or contribute to each other and theoperations of the taxpayer as a whole. Thefollowing factors are considered to be goodindicia of a single trade or business and thepresence of any of these factors creates astrong presumption that the activities of thetaxpayer constitute a single trade or business:

(A) Same Type of Business. A taxpayer isgenerally engaged in a single trade or busi-ness when all of its activities are in the samegeneral line. For example, a taxpayer whichoperates a chain of retail grocery stores willalmost always be engaged in a single trade orbusiness;

(B) Steps in a Vertical Process. A taxpayeris almost always engaged in a single trade orbusiness when its various divisions or seg-ments are engaged in different steps in alarge, vertically structured enterprise. Forexample, a taxpayer which explores for andmines copper ores; concentrates, smelts and

refines the copper ores; and fabricates therefined copper into consumer products inengaged in a single trade or business, regard-less of the fact that the various steps in theprocess are operated substantially indepen-dently of each other with only general super-vision from the taxpayer�s executive offices;and

(C) Strong Centralized Management. Ataxpayer which might otherwise be consid-ered as engaged in more than one (1) trade orbusiness is properly considered as engaged inone (1) trade or business when there is astrong central management, coupled with theexistence of centralized departments for func-tions, such as financing, advertising, researchor purchasing. Thus, some conglomeratesmay properly be considered as engaged inonly one (1) trade or business when the cen-tral executive officers are normally involvedin the operations of the various divisions andthere are centralized offices which performfor the divisions the normal matters which atruly independent business would perform foritself, such as accounting, personnel, insur-ance, legal, purchasing, advertising orfinancing.

(66) Combined Reports Prohibited. Returnswhich combine and apportion the taxableincome of more than one (1) corporation areprohibited, except to the extent that they sat-isfy the requirements of section 143.431.3.,RSMo.

AUTHORITY: section 143.961, RSMo 1986.*Regulation 1.32.200-IV was first filed Dec.30, 1975, effective Jan. 9, 1976. Amended:Filed Feb. 24, 1984, effective June 11, 1984.Amended: Filed July 2, 1985, effective Oct.11, 1985. Amended: Filed Oct. 8, 1986,effective Jan. 30, 1987.


In re Kansas City Star Co., 142 SW2d 1029(1940). Trial court did not err by rejectionoffered finding that state auditor had promul-gated a rule during the years 1934, 1935 and1936 declaring the total net income of manu-facturing and business companies subject toincome tax unless they had a branch house orcapital investment outside the state. This rulehad been promulgated under former MissouriSt. Ann, section 10115, but subsequentlyoverturned by Supreme Court.

12 CSR 10-2.080 Domestic InternationalSales Corporations

PURPOSE: The director of revenue has theresponsibility of administering the Missouriincome tax laws and, in that capacity, isrequired to interpret the taxing statute. Thisrule sets forth the interpretation of Chapter143, RSMo by the Missouri Department ofRevenue regarding income taxation of domes-tic international sales corporations.


(1) Any corporation which satisfies therequirements of Section 992 of the InternalRevenue Code of 1954 for a taxable year andis excepted from the imposition of federalincome taxes as a domestic international salescorporation (DISC) shall not be subject to theMissouri income tax on corporations for thatsame taxable year.

AUTHORITY: section 143.961, RSMo 1986.*Original rule filed July 13, 1976, effectiveOct. 11, 1976.


12 CSR 10-2.085 Credit for New orExpanded Business Facility

PURPOSE: This rule clarifies and carriesout the provisions of the credit for a new orexpanded business facility as provided in sec-tions 135.100�135.160, RSMo.

PUBLISHER�S NOTE: The secretary of statehas determined that the publication of theentire text of the material which is incorpo-rated by reference as a portion of this rulewould be unduly cumbersome or expensive.Therefore, the material which is so incorpo-rated is on file with the agency who filed thisrule, and with the Office of the Secretary of

State. Any interested person may view thismaterial at either agency�s headquarters orthe same will be made available at the Officeof the Secretary of State at a cost not toexceed actual cost of copy reproduction. Theentire text of the rule is printed here. Thisnote refers only to the incorporated by refer-ence material.

(1) Employee shall be defined as provided inInternal Revenue Code (IRC) Section3121(d). To qualify as a new business facili-ty employee under section 135.100(5),RSMo, an employee�s work must be in directconnection with the operation of the newbusiness facility. A new business facilityemployee shall not include a person whoworks on the average less than twenty (20)hours per week throughout the taxable yearor a person employed on a seasonal basis whoworks less than eighty percent (80%) of thedays of the season customary for the positionin which the person is employed.

(2) The number of new business facilityemployees shall be determined, for each yearthe credit is claimed, as provided in section135.100(4), RSMo. The number of newbusiness facility employees shall be deter-mined by dividing the sum of the number ofnew business facility employees on the lastbusiness day of each month of the taxableyear during which the new business facilitywas in operation by the number of full calen-dar months during the taxable period thefacility was in operation. The number of newbusiness facility employees for each yearmust be at least two (2) more than the num-ber of persons employed during the year pre-ceding the taxable year in which commence-ment of commercial operations occurs at thenew business facility. In determining thenumber of new business facility employeespursuant to subdivision 135.100(4), RSMo,any major fractional portion (which shall bedeemed to be fifty-one percent (51%) ormore) shall be considered one (1) employeefor purposes of calculating the credit. For anytaxable year, if the number of new businessfacility employees falls below two (2), thetaxpayer shall not be allowed any credit. Thenumber of these years when the credit is notallowed shall be subtracted from the availableten (10)-year period of the credit. If the num-ber of new business facility employees in anyyear again equals or exceeds two (2) and theten (10)-year period has not ended, the tax-payer may again claim the credit in each ofthe remaining years in which there are at leasttwo (2) new business facility employees.

(3) Upon the change of ownership or lessee,the use of a facility must be changed substan-tially from its previous usage to be eligiblefor the credit, unless the facility had previ-ously qualified for the credit (see section(11)). This section shall not apply to the pur-chaser of a new business facility who was thefacility�s lessee immediately prior to pur-chase. However, in this case, the credit shallbe based upon the investment in the new busi-ness facility.

(4) �Depreciable tangible personal property,��as used in section 135.100(7), RSMo, shallmean the tangible personal property asdefined in IRC Section 167 and both acquiredand used within the year the credit isclaimed. All real and tangible personal prop-erty shall be deemed to be acquired and usedin the first year of eligibility for the federaldepreciation deduction. The property shallhave the same original total cost used by thetaxpayer for the depreciation deduction forfederal income tax purposes.

(5) New business facility investment shall bedetermined for each year in which the creditis claimed. All property shall be valued at itsoriginal cost basis, if owned, or eight (8)times the net annual rental rate if leased. Ifproperty is not regularly or periodically usedby the taxpayer in the operation of the facili-ty, the investment shall decrease by the orig-inal cost basis of the property. If the qualify-ing investment in the new business facility orexpansion is increased, the increase may beused in the computation of the existing newbusiness facility�s credit pursuant to therequirements of subdivision 135.100(4), (9)or (6), RSMo. For an expansion or improve-ment to constitute a separate facility eligiblefor the credits, the investment must exceedeither one hundred thousand dollars($100,000) or, if less, one hundred percent(100%) of the total investment (original costplus improvements and additions less retire-ments) in the original facility immediatelyprior to expansion. In the case of a facilityqualifying under the exception in subdivision135.100(9), RSMo, the investment in thenew facility must exceed either one (1) mil-lion dollars or, if less, one hundred percent(100%) of the total investment (original costplus improvements and additions less retire-ments) in the old facility at the time commer-cial operations were discontinued.

(6) The credit may be used only in the yearfor which it is calculated. Unused credits are





forfeited and may not be carried forward orback to other years.

(7) A partner�s distributive share of the cred-it shall be determined by the relevant provi-sions of the partnership agreement. If no suchprovisions exist, or if the purpose of the rel-evant provisions of the partnership agreementis tax avoidance, the share shall be deter-mined by the provisions for the division of thegeneral profits or losses as described in IRCSection 702(a)(9). If a partner retires, dies orsells his/her interest in the partnership,his/her distributive share of the credit for thetaxable year shall be determined in accor-dance with the regulations promulgated underIRC Section 706. A shareholder of a corpo-ration described in section 143.471, RSMoshall be allowed an amount of credit equal tothe shareholder�s pro rata share of the creditas determined in accordance with IRCSection 1377. The corporation or partnershipshall provide to each shareholder or partnerthe information relating to his/her share orinterest. A corporation described in section143.471, RSMo or a partnership shall attachthe following to its income tax return:

(A) A list of shareholders or partners;(B) Each shareholder�s or partner�s pro-

portionate share of ownership in the corpora-tion or partnership;

(C) Each shareholder�s or partner�s SocialSecurity number;

(D) Each shareholder�s or partner�s pro-portionate share of the taxpayer�s new busi-ness facility income; and

(E) Each shareholder�s or partner�s pro-portionate share of the credit allowed underChapter 135, RSMo.

(8) The credit available to a new businessfacility, expanded facility or additional facili-ty may be applied to up to one hundred per-cent (100%) of the income tax liability on thetaxpayer� new business facility income. Thecredit may not be applied against a tax liabil-ity incurred on income which is not attributedto a new business facility or the expandedportion of a facility which qualifies as a newbusiness facility.

(9) The election by the taxpayer to defer com-mencement of the ten (10)-year period duringwhich the credit is allowable is irrevocable. Inthe case of a corporation or partnership, theelection shall be made by the entity and shallbe binding upon all shareholders or partners.

(10) To perfect the election to defer com-mencement of the ten (10)-year period duringwhich the credit is allowable, the taxpayer

shall attach to its income tax return, for thetaxable year in which commercial operationscommenced at the qualifying facility, a writ-ten statement providing the following infor-mation: the location of the facility, the type ofrevenue-producing enterprise conducted atthe facility, the number of new business facil-ity employees employed at the facility, thenumber of employees employed at the facili-ty, the number of employees employed inMissouri, the amount of new business facili-ty investment in the facility, the amount oftotal investment employed in Missouri, thedate of taxpayer�s acquisition of the facility, adescription of the method of acquisition ofthe facility, a description of any past businessactivity at the facility, a description of previ-ous ownership of the facility and a statementthat the taxpayer elects to deter the com-mencement of the credit to a specific taxableyear. The taxable year specified may not belater than the third taxable year following thetaxable year in which commencement ofcommercial operations at the new businessfacility occurs.

(11) In order to continue to qualify as a newbusiness facility in the hands of a transferee,the transferee must operate the facility, whichqualified for the credit prior to transfer, in arevenue-producing enterprise and otherwisecontinue to qualify for the credit.

(12) A transferor shall include with itsincome tax return a written statement to thedirector of revenue as required by subsection135.130.3., RSMo, containing the followinginformation: name, address and federalemployer identification number of the trans-feror; name, address and federal employeridentification number of the transferee; thedate of commencement of operations at thenew business facility, copies of each MissouriNew Business Facility Credit Form filed bythe transferor for each year in which the cred-it provided in section 135.110, RSMo wasclaimed; a description of the revenue-produc-ing enterprise to be conducted by the trans-feree, if known; a full accounting of theinvestment of that portion of the facility to beretained by the transferor; a statement as towhether the transferor is related to the trans-feree as defined in section 135.100(8),RSMo; and a description of the method oftransfer (that is, lease, sale, gift, and thelike).

(13) Upon termination of the operation of arevenue-producing enterprise, the taxpayershall notify the director of revenue of the ter-

mination in a written statement attached tothe income tax return for the year in whichthe termination occurs. The notice shallinclude the following information: name,address and federal employer identificationnumber of the taxpayer; the date of com-mencement of operations at the facility; thedate of termination of operations at the facil-ity; a copy of each Missouri New BusinessFacility Credit Form filed by the taxpayer forthe facility for each year in which the creditprovided in section 135.110, RSMo wasclaimed; a copy of the written statementelecting to defer commencement of the ten(10)-year period if applicable; a descriptionof the revenue-producing enterprise conduct-ed by the taxpayer at the facility prior to ter-mination; the number of employees retainedby the taxpayer but transferred to anotheroperation of the taxpayer; information as tothe disposition of investment in the facility;the reason for termination; the probabilityand possible date of resumption of operationsand an accounting of any previous transferunder section 135.130, RSMo. Failure by thetaxpayer to notify the director of revenue oftermination as provided in this section shallbe prima facie evidence that the terminationwas not due to reasonable cause.

(14) The director of revenue will consider thefollowing items as major factors in determin-ing whether �resumption of operations of arevenue-producing enterprise at such newbusiness facility will provide increasedopportunities for employment and result in asubstantial contribution to the economy of thestate� and whether �the termination of oper-ations was due to reasonable cause� pursuantto section 135.140, RSMo: the length of timethat the facility was dormant, the number ofnew business facility employees retained bythe taxpayer at other operations at the time oftermination, and the number of new employ-ees to be hired upon resumption of opera-tions. A dormant period exceeding five (5)years shall constitute prima facie evidence ofa lack of reasonable cause for termination aswell as lack of increased opportunities andsubstantial contribution to the economy uponresumption of operations.

(15) In the case of a member of an affiliatedgroup of corporations who qualifies andelects to file a Missouri consolidated incometax return pursuant to subdivision143.431.3(1), RSMo, the computation anduse of the credit allowed under sections135.100�135.160, RSMo shall be limited tothat member�s separate income tax liability as



though a separate income tax return wasfiled.

(16) If the business is entitled to the creditsestablished by sections 135.100�135.160,RSMo prior to designation of an enterprisezone, the designation of an enterprise zonedoes not change the character or amount ofthe prior credits. Any additional investmentsor employees by that business after designa-tion of an enterprise zone and before thecompletion of the ten (10)-year period will belimited to the amount of credits availableunder sections 135.100�135.160, RSMounless the additional investment and employ-ees qualify by themselves under sections135.200�135.255, RSMo, in which case theadditional investment and employees shallqualify for the credits under sections135.200�135.255, RSMo. In no case shallthe same investment and employees be eligi-ble for the credits available under both sec-tions 135.100�135.160 and 135.200�135.255, RSMo.

(17) All procedural matters related to filing aclaim under sections 135.100�135.160,RSMo including refunds, deficiencies, inter-est, contents of returns, limitations and penal-ties shall be determined pursuant to sections143.481�143.996, RSMo.

AUTHORITY: section 135.150, RSMo 1986.*Original rule filed Jan. 15, 1985, effectiveJune 13, 1985.

*Original authority: 135.150, RSMo 1980, amended1980, 1986, 1991.

12 CSR 10-2.090 Computation of FederalIncome Tax Deduction for ConsolidatedGroups

PURPOSE: This rule sets out the formulathat will be used to determine the federalincome tax deduction of a member of the affil-iated group for each taxable year an affiliat-ed group of corporations filed a federal con-solidated income tax return and did not file aMissouri consolidated income tax return.

PUBLISHER�S NOTE: The secretary of statehas determined that the publication of theentire text of the material which is incorpo-rated by reference as a portion of this rulewould be unduly cumbersome or expensive.Therefore, the material which is so incorpo-rated is on file with the agency who filed thisrule, and with the Office of the Secretary ofState. Any interested person may view this

material at either agency�s headquarters orthe same will be made available at the Officeof the Secretary of State at a cost not toexceed actual cost of copy reproduction. Theentire text of the rule is printed here. Thisnote refers only to the incorporated by refer-ence material.

(1) For each taxable year an affiliated groupof corporations filing a federal consolidatedincome tax return does not file a Missouriconsolidated income tax return, the federalincome tax deduction of a member of theaffiliated group shall be determined by apply-ing the formula set forth as follows:

(A) The group�s consolidated federalincome tax liability under Chapter 1 of theInternal Revenue Code (IRC) for the sametaxable year for which the Missouri return isbeing filed after reduction for all credits onthe return, except for the credit for the over-payment of any federal tax and the creditsallowed by the IRC of 1954 by Section 31 (taxwithheld on wages), Section 33 (tax on a for-eign country and United States possessions)and Section 39 (tax on certain uses of gaso-line, special fuels and lubricating oils) shallbe multiplied by a fraction, the numerator ofwhich shall be the federal taxable income ofthe member in question and the denominatorof which shall be the sum of the federal tax-able income of each member of the consoli-dated group; and

(B) The product computed in subsection(1)(A) shall be multiplied by a fraction, thenumerator of which shall be the taxpayer�sMissouri taxable income (excluding any fed-eral income tax deduction) from Missourisources and the denominator of which shallbe the Missouri taxable income (excludingany federal income tax deduction) as thoughthe taxpayer had derived all of its incomefrom sources within Missouri.

(2) This rule applies to taxable years begin-ning on or after June 11, 1984.

AUTHORITY: section 143.961, RSMo 1986.*Original rule filed Feb. 24, 1984, effectiveJune 11, 1984. Amended: Filed Aug. 17,1984, effective Dec. 13, 1984.


12 CSR 10-2.105 Report of Changes inFederal Income Tax Return

PURPOSE: Under the State Income Tax Law(section 143.011, RSMo), this rule establish-es the proper procedures for reporting any

change(s) in the taxpayer�s federal taxableincome or federal income tax liability for thepurpose of the determination of the correctstate income tax liability.


(1) In General. If the taxpayer�s federal tax-able income or federal tax reported onhis/her federal income tax return is changed,the taxpayer shall file an amended return withthe Department of Revenue reflecting thefinal determination.

(2) Time of Notice. The taxpayer must reportthe change(s) within ninety (90) days after thefinal determination of the change(s) and payany tax due. Interest is due pursuant to sec-tion 143.731, RSMo. Failure to pay the taxdue within ninety (90) days will result inadditions to tax of five percent (5%).

(3) Final Determination. For the purposes ofthis rule, the following shall be deemed afinal determination:

(A) Payment of any additional federalincome tax, not the subject of any other finaldetermination described in subsections(3)(B)�(F) of this rule;

(B) The signing of a Federal Form 870 orother IRS form consenting to the deficien-cies, accepting any over assessment shown onthe form, or both. However, where the signa-ture of an authorized representative of theIRS is also required, the final determinationshall occur when the taxpayer receives noticeof the signing by the IRS;

(C) The expiration of the ninety (90)-daytime period (one hundred fifty (150)-dayperiod in the case of notice addressed to aperson outside the United States and theDistrict of Columbia) within which a petitionfor redetermination may be filed with theUnited States Tax Court with respect to astatutory notice of deficiency issued by the



IRS, if a petition is not filed with that courtwithin that time;

(D) A closing agreement entered into withthe IRS under Section 7121 of the InternalRevenue Code (IRC). The final determinationshall occur when the taxpayer receives noticeof the signing by the commissioner of inter-nal revenue;

(E) A decision by the United States TaxCourt, United States District Court, UnitedStates Court of Appeals, United States Courtof Claims or the United States SupremeCourt which has become final, or the date thecourt approves a voluntary agreement stipu-lating disposition of the case; and

(F) The allowance of a tentative carrybackadjustment in accordance with Section 6411of the IRC based on a net operating loss car-ryback.

(4) Requirements for Reporting FederalChange. An amended return shall be filed asspecified in section (5) reflecting and explain-ing all changes affecting the original returnfiled. In addition, a copy of the Summary ofthe Federal Revenue Agent�s Report (com-monly referred to as an RAR), a copy of aclosing agreement entered into with the IRSunder Section 7121 of the IRC or a copy of afinal court decision, as appropriate, shall besubmitted in support of the Report of Change.

(5) Amended Returns. If a taxpayer files anamended federal income tax return, anamended state income tax return reflectingthe same changes shall be filed with theDepartment of Revenue. The amended taxreturn and any additional tax due shall befiled and paid within ninety (90) days afterthe amended return is filed with the IRS orwithin ninety (90) days of the final determi-nation.

(6) Assessment. If a taxpayer fails to complywith the requirements of reporting a federalchange as outlined in this rule, a notice ofdeficiency may be issued at any time withinone (1) year after the director of revenuebecomes aware of the change(s). The amountof any proposed assessment, set forth in thenotice of deficiency, shall be limited to thechanges outlined in the federal determinationand how they affect Missouri taxable income.However, the limitations contained in thissection shall not be construed to reduce thestatute of limitations that would otherwise beapplicable.

(7) Claim for Refund Period. A taxpayer mayfile a claim for refund not later than one (1)

year and ninety (90) days after the date offinal determination as specified in section (3)except as provided in subsections 143.801.5.and 6., RSMo. The claim shall be limited tothe changes set forth in the federal determi-nation. The limitations contained in this sec-tion shall not be construed to reduce thestatute of limitations that would otherwise beapplicable. Interest on a claim for refundfiled after the ninety (90)-day period speci-fied in section (2), will cease to accrue afterthe ninetieth day.

AUTHORITY: section 143.961, RSMo 1994.*Original rule filed July 31, 1984, effectiveJan. 12, 1985. Amended: Filed Sept. 1,1993, effective Jan. 31, 1994. Amended:Filed Oct. 24, 1997, effective April 30, 1998.


12 CSR 10-2.110 Penalty for Filing Incom-plete or Misleading Income Tax Returns(Rescinded December 26, 1985)

AUTHORITY: section 143.961, RSMo 1978.Original rule filed Aug. 13, 1984, effectiveDec. 13, 1984. Rescinded: Filed July 23,1985, effective Dec. 26, 1985.

12 CSR 10-2.115 Enterprise Zone Creditand Exemption(Rescinded July 30, 1994)

AUTHORITY: section 135.250, RSMo 1986.Original rule filed Jan. 15, 1985, effectiveJune 13, 1985. Rescinded: Filed Feb. 4,1994, effective July 30, 1994.

12 CSR 10-2.120 Information at SourceReporting Requirements

PURPOSE: This rule specifies methods ofreporting miscellaneous income from Mis-souri sources.

(1) Filing Requirements.(A) Statement Required. All individuals,

businesses and corporations who are requiredto make a federal at source information reportand who make payments to a nonresident ofrents, royalties, commissions, prizes, awards,other forms of compensation or other formsof fixed or determinable gains, profits orincome having an annual combined worth ofone thousand two hundred dollars ($1,200) ormore, which are not subject to withholdingand not a part of an information report of S

corporations or partnerships, must file anannual statement of those payments regard-less of the manner or form in which paymentis made. However, annual statements will notbe required of any individual, business orcorporation making those payments toMissouri residents.

(B) Form of Statement: Missouri Form 99MISC which is comparable to federal Form1099 MISC must be used. Copy 1 must befiled with the Department of Revenue withForm 96, Annual Summary and Transmittalof Information Returns. Copy 2 must be pro-vided to the recipient. Copy 3 is the payer�scopy and is optional. A copy of federal Form1099 MISC may be used as a substitute forMissouri Form 99 MISC, if copies are clear-ly marked: Copy 1 Missouri copy and Copy2 information supplied to the MissouriDepartment of Revenue.

(C) Due Dates. Information statementsshall be filed with the Department of Revenueon or before February 28 of each year for theprevious calendar year, except where exten-sion of time to file has been approved by thedirector or by the Internal Revenue Service,and a copy provided to recipients by January31.

(2) Optional Magnetic Tape Reporting.Individuals, businesses and corporations withcomputer capabilities may use magnetic tapeto file information at source payments. Therequirements for magnetic tape reporting isdesired by those who do not file under thecombined federal state program. A writtenrequest must be furnished to the Departmentof Revenue for approval outlining the pro-posed requirements.

(3) Penalty. In each case of failure to file acopy of the statement required by this sec-tion, (determined with regard to any exten-sion of time to file) unless it is shown that thefailure is due to reasonable cause and notwillful neglect, there shall be paid uponnotice and demand by the director of revenue,and in the same manner as tax, by the personso failing to file, a penalty of two dollars ($2)for each statement not so filed but the totalamount imposed on the delinquent person forall failures during any calendar year shall notexceed one thousand dollars ($1,000).



12 CSR 10-2.125 Cultural Contributions

PURPOSES: This rule establishes therequirements and procedures for claiming thededuction provided in section 143.141, RSMofor contributions of literary, musical, schol-arly and artistic compositions.


(1) The itemized deduction authorized by sec-tion 143.141(3), RSMo for cultural contribu-tions will be allowed if the following require-ments are met:

(A) The taxpayer must itemize deductionson both the federal and Missouri returns forthe tax year in which the cultural contributionis made;

(B) The not-for-profit agency or institutionto which the contribution is made must beexempt from taxation as specified in section501 of the Internal Revenue Code (IRC);

(C) The taxpayer must be the original cre-ator of the literary, musical, scholarly orartistic composition which constitutes thecultural contribution;

(D) The cultural contribution must beappraised within one (1) year of donation bya qualified appraiser who is not a relative ofthe donor or donee as defined in Title 26,IRC section 168(e)(4)(D). The appraisal mustcontain a detailed description of the composi-tion, the appraiser�s name, address, phonenumber and be signed and dated by theappraiser under penalties of perjury;

(E) The appraisal must be attached to theincome tax return and be accompanied by asworn statement from the donor and doneewhich indicates acceptance, by both, of thefair market value fixed by the appraiser. Thestatement shall also show the actual date ofthe donation of the cultural contribution, thedonor�s address and telephone number andthe address where the composition may beviewed, if applicable; and

(F) The cultural contribution and theappraisal are subject to review and approvalby the Department of Revenue. The amountof the deduction for the cultural contributionshall not exceed the appraised value estab-lished in subsection (1)(E) reduced by anyamount deducted from federal adjusted grossincome attributable to the contribution.Those parts of the federal income tax returnpertaining to that deduction shall be attachedto the Missouri return.



12 CSR 10-2.130 Allocation of TaxableSocial Security Benefits Between Spouses

PURPOSE: This rule explains the propermethod of determining and reporting the tax-able portion of Social Security benefits incases where both spouses have income.

(1) Social Security benefits which are includ-ed in federal adjusted gross income (AGI)must be allocated between spouses on theMissouri Individual Income Tax Return,Form 40. They must be allocated betweenspouses based on the proportionate share ofgross Social Security benefits received byeach spouse, multiplied by the portion of thebenefits included in federal taxable income.Example: A husband receives eight thousanddollars ($8,000) in Social Security benefitsand the wife receives two thousand dollars($2,000), for total gross benefit of ten thou-sand dollars ($10,000). The husband�s pro-portionate share is eighty percent (80%) andthe wife�s is twenty percent (20%). If fourthousand dollars ($4,000) in benefits wereincluded in federal taxable income, then thehusband�s allocated portion on the Missourireturn would be three thousand two hundreddollars ($3,200) and the wife�s portion wouldbe eight hundred dollars ($800). This isarrived at by multiplying four thousand dol-lars by eighty percent ($4,000 × 80%) forthe husband and four thousand dollars bytwenty percent ($4,000 × 20%) for the wife.These amounts must be used in calculatingthe Missouri AGI of the husband and wife.

AUTHORITY sections 143.031, 143.111 and143.181, RSMo 1994.* Original rule filedJan. 15, 1985, effective June 13, 1985.

*Original authority: 143.031, RSMo 1972; 143.181,RSMo 1972, amended 1983 and 143.611, RSMo 1972.

12 CSR 10-2.135 Frivolous Returns

PURPOSE: This rule provides examples ofmisleading or incomplete returns and whenthe penalty for filing that return will beimposed.

(1) A penalty of up to five hundred dollars($500) will be imposed for filing an incom-plete or misleading income tax return. Anytaxpayer(s) who files a misleading or incom-plete return will be mailed a notice statingthat fact. The notice will be sent, by regularmail, to the address on the return or the bestaddress available. The taxpayer(s) will haveninety (90) days (one hundred fifty (150) daysif the taxpayer(s) is outside the United States)from the date the notice is mailed to file aproper tax return. The date the notice ismailed will be the date of the letter unlessshown to be otherwise by the taxpayer(s).

(2) The filing of a legitimate return will notabate the assessment after the expiration ofthe time period for filing a legitimate return.Some examples of misleading or incompletereturns which will incur the penalty are list-ed in this rule, but are not limited to theseexamples only:

(A) A return is filed on which the formathas been changed without consent of theMissouri Department of Revenue;

(B) A return is filed which the taxpayerclaims s/he cannot legally pay because theUnited States Constitution requires gold orsilver standard and not federal reserve notesas legal tender;

(C) A return is filed on which the taxpay-er claims to be a wage earner and refuses topay or file a return because wages are notincome;

(D) Any instance where the taxpayer failsto file or complete a return citing violation ofhis/her constitutional rights;

(E) A return is filed where the taxpayerlowers his/her income by discounting his/herincome because of inflation or other factors;and

(F) Any return filed which does not meetthe previous criteria but is determined by theDepartment of Revenue to be misleading orincomplete for any other reason.

AUTHORITY: section 143.773, RSMo 1994.*Original rule filed Jan. 15, 1985, effectiveJune 13, 1985. Amended: Filed Aug. 14,1986, effective Nov. 28, 1986.






12 CSR 10-2.140 Partnership FilingRequirements

PURPOSE: This rule explains the circum-stances under which a partnership returnshall be filed and the general contents of thatreturn.


(1) All partnerships, as defined in theInternal Revenue Code (IRC) section 761,which have a resident partner, or any incomederived from sources in this state shall file aproperly completed return. This return shallbe filed regardless of whether the partnershiphas elected not to file for federal purposespursuant to section 761 of the IRC.

(2) The return shall be made using MissouriDepartment of Revenue Form 65. Eachreturn shall have attached to it a copy of fed-eral Form 1065 and all its schedules, includ-ing K-1.

(3) An entity electing to be completelyexcluded from the partnership provisions ofthe IRC which has nonresident partners shallbe required to file Form 65 containing onlyits name, address and required signature andattach a copy of federal Form 1065 and thestatement required with that return for thefirst taxable year to which the exclusionapplied.

(4) An entity electing to be completelyexcluded from the partnership provision ofthe IRC shall not file if it has no nonresidentpartners.

(5) The return shall be filed on or before thefifteenth day of the fourth month followingthe close of each taxable year. Taxable year

means a year or period which would be a tax-able year if the partnership were subject totax under sections 143.011�143.996, RSMo.

AUTHORITY: sections 143.091, 143.401 and143.581, RSMo 1994.* Original rule filedJuly 11, 1985, effective Dec. 26, 1985.

*Original authority: 143.091, RSMo 1972, amended1989; 143.401, RSMo 1972; and 143.581, RSMo 1972.

12 CSR 10-2.145 Regulation for Computa-tion of Interest on Investment Tax CreditCarryback(Rescinded October 30, 2002)

AUTHORITY: sections 143.601, 143.711 and143.731, RSMo 1994. Original rule filedOct. 1, 1985, effective Dec. 26, 1985.Rescinded: Filed April 4, 2002, effective Oct.30, 2002.

12 CSR 10-2.150 Tax Exempt Status ofUnited States Government-Related Obliga-tions

PURPOSE: This rule notifies the public ofthe exempt or nonexempt status of UnitedStates government obligations pursuant tosection 143.121, RSMo.

(1) Any obligations issued pursuant to theprovisions of an Act of Congress of theUnited States known as the Farm Credit Actof 1971 are tax exempt. Obligations issued bythe following United States government agen-cies and other exempt entities are tax exempt:Banks for Cooperatives, Federal IntermediateCredit Banks, Federal Land Banks, FederalHome Loan Banks, United States PostalService, Federal Housing AdministrationDebentures, Public Housing Notes andBonds, General Services Administration,Small Business Administration, TennesseeValley Authority, Student Loan MarketingAssociation, Treasury Bills and Bonds,United States Individual Retirement Bonds,United States Series E. Bonds, United StatesSeries H. Bonds, Commodity Credit Cor-poration, Federal Deposit Insurance Corpora-tion, Federal Farm Loan Corporation,Federal Financing Bank Obligations, GeneralInsurance Fund, National Credit Union Cen-tral Liquidity Facility, National Farm LoanAssociation, Public Debt, United States Cer-tificates of Indebtedness, United StatesFreedom Shares, Zero Coupon Bonds,Certificate of Accrual on Treasury Securities(Cats), Zero Coupon Based Rate Adjustment

Securities (Zebras), Treasury InvestmentGrowth Receipts (Tigrs), Financial Corpora-tion Bonds, Resolution Funding CorporationBonds, Educational Institution Bonds, Fin-ancing Corporation Obligations, PuertoRican Bonds, American Samoa, Guam,Northern Mallana Covenant, NorthernMariana, Virgin Islands, Federal Farm CreditBanks and Junior College BuildingCorporation Bonds, Series B, 1988.

(2) Obligations issued by the followingUnited States government-related agenciesare not tax exempt: Federal Home LoanMortgage Corporation, Federal NationalMortgage Association, Government NationalMortgage Association, New CommunitiesDebentures, Export-Import Bank of UnitedStates, Farmers Home Administration,Washington Metropolitan Area TransitAuthority and Repurchase Agreements.

(3) See 12 CSR 10-2.155 with respect to theMissouri income taxation of interest receivedfrom a mutual fund or regulated investmentcompany.

(4) The list of obligations provided in thisregulation is not all inclusive.

AUTHORITY: section 143.961, RSMo 1994.*Original rule filed Dec. 23, 1985, effectiveMay 29, 1986. Emergency amendment filedDec. 2, 1992, effective Jan. 1, 1993, expiredApril 30, 1993. Emergency amendment filedApril 14, 1993, effective May 1, 1993,expired Aug. 28, 1993. Amended: Filed Dec.2, 1992, effective July 7, 1993.


31 U.S.C. 3124, Farmers & Traders StateBank v. Johnson, 458 NE2d 1365 (1984).

12 CSR 10-2.155 Regulated InvestmentCompanies

PURPOSE: This rule explains when a tax-payer may deduct or must add back incomefrom a regulated investment company on itsMissouri return.

PUBLISHER�S NOTE: The secretary of statehas determined that the publication of theentire text of the material which is incorpo-rated by reference as a portion of this rulewould be unduly cumbersome or expensive.Therefore, the material which is so incorpo-rated is on file with the agency who filed thisrule, and with the Office of the Secretary of



State. Any interested person may view thismaterial at either agency�s headquarters orthe same will be made available at the Officeof the Secretary of State at a cost not toexceed actual cost of copy reproduction. Theentire text of the rule is printed here. Thisnote refers only to the incorporated by refer-ence material.

(1) The term regulated investment company,(RIC or mutual fund) as used in this rule,shall mean an organization which meets thequalifications and has made the proper elec-tion required by Internal Revenue Code (IRC)section 851.

(2) Pass through of Exempt-Interest onUnited States Obligations. As used in thissection, the term United States Obligationsmeans those obligations described in section143.121.3(a), RSMo, including those obliga-tions described in 12 CSR 10-2.150. An RIChaving income from United StatesObligations may pass the exempt character ofthat income through to its shareholders asstate income tax exempt-interest dividends.To the extent provided in this section, thisexempt-interest is allowable as a modificationon the shareholder�s income tax return. Themodification allowed will be the amountreceived by the shareholder as a state incometax exempt-interest dividend, less theamounts described in subsections (2)(A) and(B). A state income tax exempt-interest divi-dend means any dividend or part of a divi-dend paid by an RIC, attributable to UnitedStates Obligations (other than exempt-interestdividends as defined in Internal RevenueCode (Section 852(b)(5)) as determined bythe RIC, and designated by the RIC as a stateincome tax exempt-interest dividend in awritten notice mailed to its shareholders notlater than sixty (60) days after the close of itstaxable year. The notice also must state theamount of interest paid or expense incurredby an RIC in the production of the stateincome tax exempt-interest dividends. Thetaxpayer�s state income tax exempt-interestdividends shall be reduced by the amountof�

(A) The federal corporate dividendreceived deduction attributable to the statetax exempt-interest dividends; and

(B) Interest paid or expense incurred toproduce the state tax exempt-interest divi-dends, to the extent that the interest paid orexpense incurred exceeds five hundred dol-lars ($500) pursuant to section 143.121.3(a),RSMo.

(3) A copy of the year-end statement receivedfrom the RIC identifying all United StatesObligations by issuer or a summary docu-ment indicating the percentage of dividendsattributable to interest on United StatesObligations must be attached to the Missouriincome tax return when filed. The percentagereferred to in the preceding sentence shall beidentical for every person who was a share-holder at any time during a calendar year,irrespective of whether that shareholderacquired or disposed of his/her interest dur-ing that year.

(4) Amounts excluded from federal taxableincome on the taxpayer�s federal return asexempt-interest dividends, as defined in IRCsection 852(b)(5), must be included inMissouri taxable income pursuant to section143.121.2(b), RSMo, to the extent that theinterest from which they are derived wouldnot be exempt from Missouri income tax ifheld directly by a resident.

(A) Example: An RIC declares and pays afederal exempt-interest dividend pursuant toIRC section 852(b)(5) of 100x dollars to all ofits shareholders. The dividend is thereforeexempt from federal income taxation. 20xdollars of the federal exempt-interest paid isattributable to the net interest earned by theRIC on obligations issued by Missouri and itspolitical subdivisions. 10x dollars of the fed-eral exempt-interest dividend is attributableto the net interest earned on obligations of theterritory of Puerto Rico, the interest onwhich, pursuant to federal law and section143.121.3(a), RSMo is exempt fromMissouri income taxation. The remaining 70xdollars of the federal exempt-interest divi-dend is attributable to the net interest earnedon obligations from other states, the intereston which is not excludable from Missouritaxable income. An RIC may designate 30xdollars of the federal exempt-interest divi-dend as a dividend which need not be includ-ed in Missouri taxable income. Each share-holder of the RIC may exclude thirty percent(30%) of his/her federal exempt-interest div-idend (20x dollars plus 10x dollars divided by100x dollars) from Missouri taxable income.The remaining seventy percent (70%) of thefederal exempt-interest dividend is includablein Missouri taxable income by the sharehold-ers of the RIC pursuant to section143.121.2(b), RSMo.

AUTHORITY: section 143.961, RSMo 1994.*Original rule filed Jan. 7, 1986, effectiveMay 11, 1986. Emergency amendment filedDec. 2, 1992, effective Jan. 1, 1993, expired

April 30, 1993. Emergency amendment filedApril 14, 1993, effective May 1, 1993,expired Aug. 28, 1993. Amended: Filed Dec.2, 1992, effective July 8, 1993.


12 CSR 10-2.160 State Income TaxDeduction Add-Back

PURPOSE: This rule lends guidance to tax-payers in determining the proportion of theirstate income taxes which must be added toMissouri adjusted gross income pursuant tosection 143.141(1) and (2), RSMo.


(1) Background. Included in the RevenueReconciliation Act of 1990 was a provisionwhich required individuals with federaladjusted gross income over certain incomethresholds to reduce the amount allowable forfederal itemized deductions by three percent(3%) of the excess over that threshold (26U.S.C. 68). Certain deductions such as med-ical expenses, investment interest and casual-ty, theft or wagering losses are not subject tothis reduction. The threshold amounts areadjusted annually for inflation.

(2) Section 143.141, RSMo defines Missouriitemized deductions. This section allows ataxpayer who itemized at the federal level toelect to itemize at the state level. The stateitemized deductions are those allowable bythe federal government subject to certainmodifications. One modification is that stateincome taxes included in federal itemizeddeductions must be subtracted to arrive atMissouri itemized deductions. Missouri doesnot allow state income taxes as an itemizeddeduction, where the IRS does allow stateincome taxes as an itemized deduction.Therefore, any state income tax included in



federal itemized deductions must be eliminat-ed to arrive at Missouri itemized deductions.For the remainder of this rule, this subtrac-tion from federal itemized deductions will bereferred to as an add-back. This term is usedbecause when itemized deductions aredecreased Missouri taxable income isincreased. Hence, taxpayer is actually addingstate income taxes to federal adjusted grossincome to arrive at Missouri taxable income.

(3) House Bill 1155, passed during the 86thGeneral Assembly, changed the language insection 143.141(1) and (2), RSMo.Previously, taxpayers were required to add-back all state income taxes regardless of anyreductions at the federal level. This lawchanged the language regarding the stateincome tax add-back to read that Missouriitemized deductions, which begin with feder-al itemized deductions, must be reduced bythe proportional amount of those deductionsrepresenting any income taxes imposed bythis state, another state of the United Statesor a political subdivision of the United Statesor the District of Columbia. This law is effec-tive for all tax years beginning on or afterJanuary 1, 1993. Under this new law, theamount of state income taxes added toMissouri adjusted gross income will be theratio of state income taxes (numerator) overtotal reducible itemized deductions (denomi-nator) multiplied by the total reduction in fed-eral itemized deductions; this product is thensubtracted from the pre-reduction total ofstate income taxes shown on the federalreturn.

(A) Example 1: Assume the federal thresh-old amounts are $100,000 for married filingjoint and $50,000 for married filing separate.Taxpayer�s filing status is married filing joint.

Federal adjusted gross income(AGI) $250,000

Federal AGI in excess of $100,000 limit$250,000 � $100,000 = $150,000

Three percent (3%) of amount in excessof $100,000 $150,000 × 3% = $4,500

Total itemized deductions $20,000$10,000 of state income taxes (reducible) $10,000 in charitable contributions(reducible)

Allowable federal itemized deductions $20,000 � $4,500 = $15,500

Ratio of state income taxes to

total reducible federal itemizeddeductions $10,000 ÷ $20,000 = 50%

Portion of reduction of federal itemized deductions attributable to state income taxes

$4,500 × 50% = $2,250

State income tax added back (amount of allowable federal itemizeddeductions attributable to stateincome taxes)

$10,000 � $2,250 = $7,750

Missouri itemized deductions$15,500 � $7,750 = $7,750

(B) Example 2: Assume the federal thresh-old amounts are $100,000 for married filingjoint and $50,000 for married filing separate.Taxpayer�s filing status is married filing joint.Taxpayer�s federal adjusted gross income(AGI) is $80,000. Taxpayer has $30,000 initemized deductions ($10,000 from each;state income taxes, charitable contributionsand medical expenses). Because taxpayer�sfederal AGI is below $100,000, his/her fed-eral itemized deductions will not be reduced.Therefore, in calculating Missouri itemizeddeductions, the full amount of state incometaxes ($10,000) which were included in fed-eral itemized deductions, must be added-backto arrive at Missouri itemized deductions($30,000 � $10,000 = $20,000).

(C) Example 3. Assume the federal thresh-old amounts are $100,000 for married filingjoint and $50,000 for married filing separate.Taxpayer�s filing status is married filing joint.

Federal AGI $250,000

Federal AGI in excess of $100,000 limit$250,000 � $100,000 = $150,000

Three percent (3%) of amount in excess of $100,000 $150,000 × 3% = $4,500

Total itemized deductions $30,000 $10,000 of state income taxes (reducible) $10,000 in charitable contributions(reducible) $10,000 in medical expenses (not subject to reduction per 26 U.S.C. 68)

Allowable federal itemized deductions $30,000 � $4,500 = $25,500

Ratio of state income taxes to total reducible federal itemized deductions (medical expenses cannot be reduced)

$10,000 ÷ $20,000 = 50%

Portion of reduction of federal itemized deductions attributable to state income taxes

$4,500 × 50% = $2,250

State income tax added back (amount of allowable federal itemizeddeductions attributable to stateincome taxes)

$10,000 � $2,250 = $7,750

Missouri itemized deductions$25,500 � $7,750 = $17,750

(4) The proportional language in section143.141, RSMo only applies while theInternal Revenue Code provides for a reduc-tion in itemized deductions. Otherwise, allstate income taxes must be added back.

AUTHORITY: section 143.961, RSMo 1986.*Original rule filed March 14, 1986, effectiveJune 28, 1986. Rescinded and readopted:Filed June 2, 1993, effective Nov. 8, 1993.


12 CSR 10-2.165 Net Operating Losses

PURPOSE: This rule explains the properMissouri income tax treatment of net operat-ing losses by corporations.

(1) Federal Taxable Income Not Less ThanZero (0). Federal taxable income is the start-ing point for computing Missouri taxableincome. Federal taxable income, as it is usedto compute Missouri taxable income, may notbe less than zero (0) or a negative figure.

(A) Example: In the current year taxpayerhad a federal net operating loss of one (1)million dollars, of which one hundred twen-ty-five thousand dollars ($125,000) wasattributable to Missouri income taxes. In aprior year, taxpayer had federal taxableincome of $2,500,000. For this example,assume the taxpayer had no Missouri modifi-cations to federal taxable income. Alsoassume the prior year return reflected adeduction of seven hundred fifty thousand($750,000) for federal tax liability and afterapplying the net operating loss (NOL) thefederal tax liability was reduced to four hun-dred fifty thousand dollars ($450,000). Thetaxpayer should determine his/her currentand prior year Missouri income tax as fol-lows:



Current year Federal subtotal <$ 875,000>Mo. state income tax <$ 125,000>Federal NOL <$1,000,000>Mo. return line -1 $ 0Mo. state income tax $ 125,000Mo. taxable income $ 125,000Mo. tax rate × 5%Mo. tax due $ 6,250

Prior year Federal taxable income $2,500,000Minus NOL carry back <$1,000,000>Federal taxable incomeas amended $1,500,000

Minus federal taxliability $ 450,000

Mo. taxable income $1,050,000 Mo. tax rate × 5%Mo. tax due $ 52,500 Mo. tax paid on original return <$ 87,500>

Mo. tax refund due <$ 35,000>*

*The thirty-five thousand dollar ($35,000)refund includes $6,250 attributable to the$125,000 deduction for state taxes.

(2) NOL.(A) Taxpayers who file a consolidated

Missouri return must treat NOLs identicallyon the federal and Missouri returns.

(B) Taxpayers who file separate federal andMissouri returns must treat NOLs identicallyon the federal and Missouri returns.

(C) Consolidated Federal and SeparateMissouri Return. Taxpayers who file consoli-dated federal and separate Missouri returnsshall compute separate federal taxableincome as if each member filed a separatefederal return with the limitation that the tax-payer shall be bound by the election to carrylosses forward or backward which is made onthe consolidated return. If there is a consoli-dated gain, then the Missouri taxpayer mayelect to carry loss backward or forward pur-suant to Internal Revenue Code section 172.

1. Example: Company D files federalconsolidated and Missouri separate returns.In 1986, Company D has a federal consoli-dated loss of one hundred thousand dollars($100,000), which it carries back for federalincome tax purposes to its return for 1983,reducing federal taxable income and federalincome tax liability. Assuming taxpayer hasseparate company loss to carry back from1986, that loss may be deducted on its sepa-rate Missouri return for 1983. That loss maynot be used to reduce federal taxable incomeon the Missouri return to a negative number.

(3) Recomputation of the Federal Income TaxDeduction for Separate Missouri ReturnFilers to Reflect Consolidated Return NOL.Taxpayer�s federal income tax deduction shallbe determined as follow: 1) a fraction shall becreated, the numerator of which is the tax-payer�s original taxable income reduced by itspro rata share of the consolidated loss andthe denominator of which is the original con-solidated taxable income reduced by total

consolidated loss; and 2) total federal incometax of the consolidated group after deductionof the net operating loss is multiplied by thefraction to arrive at the adjusted federalincome tax deduction.

(A) Example: First, allocate the loss to theloss companies.

AllocatedCom- Line 30 To Total Consolidatedpany Loss Percent LossA ($ 50,000) 45.455% $34,091BC ($ 50,000) 45.455% $34,091DE ($ 10,000) 9.090% $ 6,818

($110,000) 100% ($75,000)

Second, reduce original taxable income bythe allocated loss.

1980 1983 New To 1139Com- Original Allocated Taxable Total Taxpany Line 30 Loss Income Percent LiabilityA $100,000 ($34,091) $ 65,909 26.460% $19,845B $ 50,000 $ 50,000 20.073% $15,055C $ 25,000 ($34,091)D $100,000 $100,000 40.146% $30,110E $ 40,000 ($ 6,818) $ 33,182 13.321% $ 9,990

$315,000 ($75,000) $249,091 100% $75,000

(B) Actual separate return loss will be usedto compute separate return federal taxableincome.

(4) Leaving a Consolidated Group. A formermember of a consolidated group who filed aseparate Missouri return must recompute itsfederal income tax deduction to reflect anydecrease in consolidated federal income taxliability attributable to an NOL carry back bythe group and to reflect any change in its rel-ative share of federal income tax liabilityattributable to the net operating loss carryback by the group.

(5) Taxpayers who elect a proper method ofcomputing the federal income tax deductionfor a particular year shall continue to use thatmethod to compute the effect of NOL on thefederal income tax deduction for that year,regardless of the method used in the year ofthe loss.

(6) When a member of an affiliated group ofcorporations that files a federal consolidatedreturn files a separate Missouri return orwhen a member included in a federal consol-idated return is properly excluded from theMissouri consolidated return and its items ofincome and deduction are not included in thegroup�s Missouri consolidated return, thenthe carryover attributes for the Missourireturn may be different from the carryoverattributes for the federal consolidated return.When the filing status or combination for theMissouri return for any taxable year is differ-ent from the federal filing status or combina-tion for that taxable year, the taxpayer must

follow the federal Internal Revenue Code(IRC) and regulations as they would apply tothe facts and circumstances for the Missourireturn. Under no circumstances may thesame loss or deduction be used more thanonce for Missouri purposes. No loss ordeduction will be allowed unless the taxpayerprovides a schedule identifying the source ofeach loss or deduction.

AUTHORITY: section 143.961, RSMo 2000.*Original rule filed Oct. 22, 1986, effectiveMarch 26, 1987. Amended: Filed Feb. 23,1989, effective Aug. 11, 1989. Amended:Filed Jan. 10, 2002, effective July 30, 2002.


12 CSR 10-2.170 Wood Energy Credit(Rescinded September 6, 1992)

AUTHORITY: section 135.311 and 136.120,RSMo 1986. Original rule filed Nov. 12,1986, effective March 12, 1987. Rescinded:Filed April 1, 1992, effective Sept. 6, 1992.

12 CSR 10-2.175 Agricultural UnemployedPerson(Rescinded October 30, 2002)

AUTHORITY: section 135.285, RSMo 1994.Emergency rule filed Nov. 18, 1986, effectiveNov. 28, 1986, expired March 28, 1987.Original rule filed Nov. 18, 1986, effectiveMarch 12, 1987. Rescinded: Filed April 4,2002, effective Oct. 30, 2002.

12 CSR 10-2.180 Public Law 86-272Immunity

PURPOSE: This rule explains the depart-ment�s position with respect to the type andamount of activity which is immune or notimmune from taxation by reason of P.L. 86-272. This constitutes the changes made by theMultistate Tax Commission at the 1993 annu-al meeting.

(1) Nature of Property Being Sold. Only thesale of tangible personal property is affordedimmunity under P.L. 86-272; therefore, theleasing, renting, licensing or other disposi-tion of tangible personal property, intangiblesor any other type of property is not immunefrom taxation by reason of P.L. 86-272. Thedefinition of tangible personal property forthis purpose is that to be found under eachstate�s respective laws.



(2) Solicitation of Orders.(A) For the instate activity to be immune,

it must be limited solely to solicitation(except for de minimis activities conducted byindependent contractors described in section(3)). Solicitation means�1) speech or con-duct that explicitly or implicitly invites anorder; and 2) activities that neither explicitlyor implicitly invite an order, but are entirelyancillary to requests for an order.

(B) Ancillary activities are those activitiesthat serve no independent business functionfor the seller apart from their connection tothe solicitation of orders. Activities that aseller would engage in apart from solicitingorders shall not be considered as ancillary tothe solicitation of orders. The mere assign-ment of activities to sales personnel does not,merely by this assignment, make the activi-ties ancillary to solicitation of orders.Additionally, activities that seek to promotesales are not ancillary, because P.L. 86-272does not protect activity that facilitates sales,it only protects ancillary activities that facili-tate the request for an order. The conduct ofactivities not falling within the foregoing def-inition of solicitation will cause the companyto lose the exemption from a net income taxafforded by P.L. 86-272, unless the disquali-fying activities, taken together, are de min-imis.

(C) De minimis activities are those that,when taken together, establish only a trivialadditional connection with the taxing state.An activity regularly conducted within a tax-ing state pursuant to a company policy or ona continuous basis shall normally not be con-sidered trivial. Whether or not an activityconsists of a trivial or non-trivial additionalconnection with the state is to be measuredon both a qualitative and quantitative basis. Ifthis activity either qualitatively or quantita-tively creates a non-trivial connection withthe taxing state, then the activity exceeds theprotection of P.L. 86-272. Establishing thatthe disqualifying activities only account for arelatively small part of the business conduct-ed within the taxing state is not determinativeof whether a de minimis level of activityexits. The relative economic importance ofthe disqualifying instate activities, as com-pared to the protected activities, does notdetermine whether the conduct of the dis-qualifying activities within the taxing state isinconsistent with the limited protectionafforded by P.L. 86-272.

(D) Examples of activities presently treat-ed by the signatory states (unless otherwisestated as an exception or addition) as eithernon-immune or immune are as follows:

(E) Non-Immune Activities. The followinginstate activities conducted (assuming theyare not of a de minimis level) will cause oth-erwise immune sales to lose their immunity:

1. Making repairs or providing mainte-nance;

2. Collecting current or delinquentaccounts;

3. Investigating credit worthiness; 4. Installing or supervising installation;5. Conducting training courses, semi-

nars or lectures for personnel other than per-sonnel involved only in solicitation;

6. Providing any kind of technical assis-tance or services, including, but not limitedto, engineering assistance or services, whenone of the purposes thereof is other than thefacilitation of the solicitation of orders;

7. Investigating, handling, or otherwiseassisting in resolving customer complaints,other than mediating direct customer com-plaints when the sole purpose of the media-tion is to ingratiate the sales personnel withthe customer;

8. Approving or accepting orders; 9. Repossessing property; 10. Securing deposits on sales; 11. Picking up or replacing damaged or

returned property; 12. Hiring, training or supervising per-

sonnel, other than personnel involved only insolicitation;

13. Providing shipping information andcoordinating deliveries;

14. Maintaining a sample or displayroom in excess of two (2) weeks (fourteen(14) days) at any one (1) location during thetax year;

15. Carrying samples for sale, exchangeor distribution in any manner for considera-tion or other value;

16. Owning, leasing, or maintaining anyof the following facilities or property instate:

A. Repair shop; B. Parts department; C. Purchasing office; D. Employment or recruiting office; E. Warehouse; F. Meeting place for directors, offi-

cers or employees; G. Stock of goods other than samples

for sales personnel or that are used entirelyancillary to solicitation;

H. Telephone answering service thatis formally attributed to the company or tothe agent(s) of the company in their agencystatus;

I. Mobile stores, that is, vehicleswith drivers who are sales personnel makingsales from the vehicles; and

J. Real property or fixtures to realproperty of any kind;

17. Consigning tangible personal prop-erty to any person, including an independentcontractor;

18. Maintaining, by any employee, anoffice or place of business (in-home or other-wise) that is paid for directly or indirectly bythe company and that is formally attributed tothe company or to the agent(s) of the compa-ny in their agency status, even if the office isfor the exclusive use of soliciting orders. (Forexample, a telephone listing for the companyor for the agents of the company in theircapacity as agents or other indicationsthrough advertising or business literature thatthe company or its agents can be contacted ata specific place shall normally be determinedas the company maintaining within the statean office or place of business attributable tothe company or to its agents in their agencystatus.);

19. Using agency stock checks or anyother instrument or process by which salesare made within this state by sales personnel;and

20. Conducting any activity not listed insubsection (2)(F) of this rule which is notentirely ancillary to requests for orders, evenif the activity helps to increase purchases;and

(F) Immune Activities. The followinginstate activities will not cause the loss ofimmunity for otherwise immune sales:

1. Soliciting orders for sales by any typeof advertising;

2. Carrying samples only for display orfor distribution without charge or other con-sideration;

3. Owning or furnishing autos to salespersonnel;

4. Passing inquiries and complaints onto the home office;

5. Missionary sales activities; 6. Checking of customers� inventories

without a charge therefor (for reorder, but notfor other purposes such as quality control);

7. Maintaining sample or display roomfor two (2) weeks (fourteen (14) days) or lessat any one (1) location during the tax year;

8. Soliciting of orders for sales by aninstate resident employee of the company;provided the employee maintains no instatesales office or place of business (in-home orotherwise) that is attributable to the compa-ny�s agent(s) in their agency capacity;

9. Recruiting, training or evaluatingsales personnel, including occasional use ofhomes, hotels or similar places for meetingswith sales personnel;



10. Maintaining, by any sales employee,an in-home office that is not paid for directlyor indirectly by the company and which is notattributable to the company or to the compa-ny�s agent(s) in their agency capacity; and

11. Mediating direct customer com-plaints when the purpose of this is solely foringratiating the sales personnel with the cus-tomer and facilitating requests for orders.

(3) Independent Contractors. P.L. 86-272provides immunity to certain in-state activi-ties if conducted by an independent contrac-tor that would not be afforded if performedby the company or its agents or other repre-sentatives. Independent contractors mayengage in the following limited activities inthe state without the company�s loss of immu-nity:

(A) Soliciting sales; (B) Making sales; and (C) Maintaining an office.

(4) Sales representatives who represent a sin-gle principal are not considered to be inde-pendent contractors and are subject to thesame limitations as those provided under sec-tions (2) and (3) of this statement.

(5) Maintenance of a stock of goods in thestate by the independent contractor underconsignment or any other type of arrange-ment with the company, except for purposesof display and solicitation, shall remove theimmunity.

AUTHORITY: section 143.961, RSMo 1994.*Original rule filed April 6, 1987, effectiveJuly 23, 1987. Amended: Filed Jan. 4, 1994,effective July 30, 1994.


12 CSR 10-2.190 Partners and S Cor-poration Shareholders Composite Indi-vidual Income Tax Return Filing Re-quirements, Withholding of Income TaxRequirements and Partnership/S Cor-poration Withholding Exemption

PURPOSE: This rule clarifies the circum-stances under which a composite individualincome tax return for nonresident partners ornonresident S corporation shareholders maybe filed and the general contents of the returnas well as the withholding requirements fornonresident partners and shareholders andthe related withholding exemption. Limitedliability companies which are treated as part-nership for income tax purposes, and limited

liability partnerships, will be consideredpartnerships for purposes of this rule.

(1) Who May File a Composite Return.(A) Any partnership, S corporation, limit-

ed liability partnership or limited liabilitycompany (treated as a partnership for tax pur-poses), with nonresident partners or S corpo-ration shareholders not otherwise required tofile a Missouri individual income tax returnmay file a composite return on behalf of itsnonresident partners or shareholders. If thenonresident partner�s or S corporation share-holder�s filing requirements result solelyfrom one (1) or more interests in any otherpartnerships or S corporations, that nonresi-dent partner or S corporation shareholdermay be included in the composite return.

(B) A composite return may be filed by allnonresident partners or S corporation share-holders except�

1. Nonresidents of Missouri who haveincome in Missouri from sources other thanthe partnership or S corporation; or

2. Nonresidents of Missouri filing anindividual income tax return.

(C) Nonresident partners or S corporationshareholders who do not qualify to file acomposite return must file an individualincome tax return in Missouri reflectingincome from all sources including his/herdistributive share of the partnership or S cor-poration income, as required under Chapter143, RSMo. Nonresident partners or S cor-poration shareholders who do not file a com-posite return may be subject to withholdingby the partnership or S corporation on theirdistributive share of the partnership�s or Scorporation�s income for the taxable year ofthe partnership or S corporation as outlinedin section (4).

(2) Time and Place for Filing Partnership orS Corporation Returns and Payment ofEstimated Taxes.

(A) A partnership return or an S corpora-tion return shall be filed based upon the pro-visions of the law effective for each taxableyear.

(B) The partnership return or S corpora-tion return shall reflect the total income of thepartnership or S corporation from all sourcesand allocate to Missouri that portion of thetotal income which is derived from or con-nected with sources in Missouri by using theapportionment formula in section 32.200 or143.451, RSMo. The ratio with a numeratorof that portion of the total income which isderived from or connected with sources inMissouri and a denominator of the total

income of the partnership or S corporationshall be the basis of allocation of each non-resident partner�s or nonresident sharehold-er�s income to Missouri by applying that per-centage to the total distributable income ofeach nonresident partner or shareholderbased upon his/her percentage of interest inthe partnership or S corporation.

(C) The estimated tax shall be paid in four(4) equal installments. The first installmentshall be paid when the declaration is filed;the second and third installments on June 15and September 15, respectively, of the tax-able year; and the fourth installment onJanuary 15 of the succeeding taxable year.

(3) Filing Requirements for the CompositeIndividual Income Tax Return of NonresidentPartners or Nonresident S CorporationShareholders.

(A) In lieu of each nonresident partner orS corporation shareholder filing a separateindividual income tax return (provided theyare not otherwise required to file a return),the partnership or S corporation may file anindividual income tax return under the nameof the partnership or S corporation on orbefore April 15 of each year. This return shallshow on an appended schedule the name,address, Social Security number, the amountof each nonresident partner�s or nonresidentS corporation shareholder�s income fromMissouri sources as determined in subsection(2)(B) and the partner�s or shareholder�s fed-eral distributive share of partnership or S cor-poration income.

(B) The tax rate to be applied to theMissouri income of each nonresident partneror S corporation shareholder determined insubsection (2)(B) in lieu of demonstrating theexact amount of this income, deductions andexemptions is six percent (6%).

(C) The sum of the amount determined insubsection (3)(B) will be paid by the partner-ship or S corporation in respect to the liabil-ity of all its nonresident partners or nonresi-dent S corporation shareholders not other-wise required to file a return.

(D) Timely filing of the composite returnby the partnership or S corporation and time-ly payment of the tax will discharge eachnonresident partner�s or S corporation share-holder�s responsibility to Missouri for filing aMissouri individual income tax return andpaying the tax on the individual income taxreturn.

(4) Withholding Requirements for a Partner-ship or S Corporation.



(A) In addition to the withholding require-ments outlined in Chapter 143, RSMo, part-nerships and S corporations are required towithhold Missouri income tax from any non-resident individual partner(s) or S corpora-tion shareholder(s) to which the partnershipor S corporation pays or credits amounts onaccount of their distributive share of the part-nership or S corporation income for the tax-able year.

(B) The partnership or S corporation is notrequired to withhold if�

1. The nonresident partner or S corpo-ration shareholder not otherwise required tofile a return agrees to have the Missouriincome tax due paid as part of a compositereturn;

2. The nonresident partner or S corpo-ration shareholder, not otherwise required tofile a return has Missouri assignable federaladjusted gross income from the partnershipor S corporation of less than twelve hundreddollars ($1,200);

3. The partnership or S corporation isliquidated or terminated; and income wasgenerated by a transaction related to termina-tion or liquidation; or no cash or other prop-erty was distributed in the current and priortaxable year. Note: Exceptions to the with-holding requirement are not exceptions fromMissouri income tax. The income generatedby the termination or liquidation, althoughnot subject to withholding, is subject toMissouri income tax;

4. The partnership/S corporation files asigned Form MO-3NR (Partnership/SCorporation Withholding Exemption/Re-vocation Agreement) that was provided to itby the nonresident partner or S corporationshareholder who has agreed to:

A. File a return in accordance withthe provisions of section 143.181, RSMo andto make timely payment of all taxes imposedon the partner/S corporation shareholder bythis state with respect to income of the part-nership/S corporation; and

B. Be subject to personal jurisdictionin this state for purposes of the collection ofincome taxes, together with related interestand penalties, imposed on the partner/S cor-poration shareholder by this state with respectto the income of the partnership/S corpora-tion; or

5. Form MO-3NR will be consideredtimely filed for a taxable year, and for all sub-sequent taxable years, if it is filed before orin conjunction with the annual return for suchtaxable year pursuant to section 143.511,RSMo. A partnership/S corporation that doesnot timely file such an agreement for a tax-

able year shall not be precluded from timelyfiling such an agreement for subsequent tax-able years.

(C) The partnership or S corporation maydetermine the tax to be withheld in one (1) oftwo (2) ways.

1. If the partner or shareholder submitsa Form MO W-4, Missouri WithholdingAllowance Certificate, Form MO W-4, thetax withheld may be determined based on thewithholding tables provided by the director ofrevenue.

2. If no Form MO W-4 is submitted thehighest rate used to determine a Missouriincome tax liability for an individual, six per-cent (6%), will be applied to the Missouriincome of each nonresident partner or S cor-poration shareholder determined in subsec-tion (2)(B).

(D) If withholding is remitted to theDepartment of Revenue on behalf of a non-resident partner or S corporation shareholderwho subsequently has no tax liability, thepartnership or S corporation may file a claimfor refund with the Department of Revenue torecover the amount remitted.

(5) Remitting Withholding on NonresidentPartners or S Corporation Shareholders to theDepartment of Revenue.

(A) Withholding should be remitted onForm MO-1NR, Income Tax Withheld forNonresident Individual Partners or SCorporation Shareholders. The Form MO-1NR, all applicable Forms MO-2NR andpayment must be filed by the due date orextended due date for filing the partnership orS corporation income tax return. An exten-sion of time for filing the partnership or Scorporation return automatically extends thetime for filing the Form MO-1NR. FormMO-1NR and Copy C of the Form MO-2NRmust be filed with the Department ofRevenue either before or at the same time thepartnership or S corporation provides Copy Aof the Form MO-2NR to the nonresidentpartner or S corporation shareholder. Failureto do so may result in the department disal-lowing the withholding claimed by the non-resident partner of S corporation shareholder.

(B) A Form MO-2NR, Statement ofIncome Tax Payments for nonresident indi-vidual partners or S corporation sharehold-ers, must be completed for each nonresidentpartner or shareholder to whom payments orcredits were made and were subject to with-holding.

1. Copy C must be attached to the FormMO-1NR when filed with the Department ofRevenue.

2. Copy A of the Form MO-2NR mustbe provided to each nonresident partner or Scorporation shareholder to whom paymentsor credits were made and were subject towithholding.

AUTHORITY: section 143.411, RSMo Supp.1997.* Original rule filed March 15, 1989,effective Sept. 11, 1989. Emergency amend-ment filed Sept. 14, 1994, effective Sept. 24,1994, expired Jan. 21, 1995. Emergencyamendment filed Dec. 20, 1994, effectiveJan. 22, 1995, expired May 21, 1995.Amended: Filed Sept. 14, 1994, effectiveApril 30, 1995. Amended: Filed March 1,1996, effective Aug. 30, 1996. Amended:Filed Dec. 31, 1997, effective June 30, 1998.

*Original authority: 143.411, RSMo 1972, amended1993, 1997.

12 CSR 10-2.195 Special Needs AdoptionTax Credit

PURPOSE: This rule establishes the require-ments and procedures for claiming the taxcredit for a special needs adoption as provid-ed in sections 135.325�135.339, RSMo.

(1) Special Needs Adoption Tax Credit. Anyperson residing in this state who, on or afterJanuary 1, 1988, legally adopts a specialneeds child as defined in section 135.326(3),RSMo or corresponding rules shall be eligi-ble to receive a tax credit for nonrecurring,nonreimbursed adoption expenses. The taxcredit may be applied to taxes due on theadoptive parent(s) individual income taxreturn for the year in which the adoption wasfinalized subject to the following limitations:

(A) The tax credit amount shall not exceedfive thousand dollars ($5,000);

(B) The tax credit amount used may notexceed the tax liability for the tax year;

(C) Any amount of tax credit whichexceeds the tax liability shall not be refundedbut may be carried forward and appliedagainst the taxpayer�s income tax liability inany of the subsequent five (5) years from theinitial year of adoption;

(D) No credit shall be allowable for nonre-curring adoption expenses for which a deduc-tion or credit is allowable under any otherprovision of federal, state or local law;

(E) No credit shall be allowable for thatportion of the nonrecurring adoption expens-es paid from any funds received under anyfederal, state or local program;

(F) No credit shall be allowable for theexpenses of adoption of any child who has



attained the age of eighteen (18) unless thechild has a medical condition or handicap,which is verifiable by medical findings, thatwould limit the child�s ability to live inde-pendently of the adoptive parent(s); and

(G) The credit amount shall be reduced byan amount equal to the state�s cost of provid-ing care, treatment, maintenance and serviceswhen�

1. The special needs child is placed withno intent to return to the adoptive home infoster care or residential treatment licensedor operated by the Division of FamilyServices, the Division of Youth Services orthe Department of Mental Health; or

2. A juvenile court temporarily or indef-initely relieves the adoptive parent(s) of cus-tody of the special needs child.

(2) Claiming the Credit. Any taxpayer claim-ing the Special Needs Adoption Credit mustattach the following to the individual incometax return filed for the year of the adoption:

(A) Completed Missouri Department ofRevenue Form ATC, which indicates nonre-curring expenses subject to limitations asidentified in subsections (1)(A)�(G); and

(B) Statement from one (1) of the entitiesidentified in paragraph (1)(G)1. or 2. whichstates that the child qualifies as a specialneeds child.

(3) In the event that paragraph (1)(G)1. or 2.occurs, the adoptive parents shall obtain astatement from the Division of FamilyServices, Division of Youth Services,Department of Mental Health or JuvenileCourt having jurisdiction, as appropriate pro-viding the information as required and shallsupply the statement to the Department ofRevenue. Any credit amount will be reducedappropriately.

AUTHORITY: section 135.339, RSMo 1994.*Original rule filed Aug. 2, 1988, effectiveDec. 11, 1988.


12 CSR 10-2.200 Trucking Companies

PURPOSE: This rule sets forth the uniformprovisions concerning multistate allocationand apportionment of income from truckingcompanies which were enacted by theMultistate Tax Commission.

(1) General. As used in this rule, the termtrucking company means a motor commoncarrier, a motor contract carrier or an express

carrier which primarily transports tangiblepersonal property of others by motor vehiclefor compensation. Where a trucking compa-ny has income from sources both within andwithout Missouri, the amount of businessincome from sources within Missouri shall bedetermined pursuant to this rule, unless thetaxpayer elects to apportion pursuant to sec-tion 143.451.4, RSMo. In those cases, thefirst step is to determine what portion of thetrucking company�s income constitutes busi-ness income and what portion constitutesnonbusiness income under section 32.200(Article IV.1.), RSMo and the rules thatinterpret those provisions. Nonbusinessincome is directly allocable to specific statespursuant to the provisions of section 32.200(Article IV.4�8.), RSMo. Business income isapportioned among the states in which thebusiness is conducted and pursuant to theproperty, payroll and sales apportionmentfactors set forth in this rule. The sum of theitems of nonbusiness income directly allocat-ed to Missouri plus the amount of businessincome attributable to Missouri constitutesthe amount of the taxpayer�s entire netincome which is subject to tax in Missouri.

(2) Business and Nonbusiness Income. Fordefinitions, rules and examples for determin-ing business and nonbusiness income, see 12CSR 10-2.075.

(3) Apportionment of Business Income. Ingeneral, the property factor shall be deter-mined in accordance with section 32.200(Article IV.10�12), RSMo, the payroll factorin accordance with section 32.200 (ArticleIV.13 and 14.), RSMo and the sales factor inaccordance with section 32.200 (ArticleIV.15.�17.), RSMo, except as modified bythis rule.

(A) The Property Factor. Owned propertyshall be valued at its original cost and prop-erty rented from others, including purchasedtransportation, shall be valued at eight (8)times the net annual rental rate in accordancewith section 32.200 (Article IV.11.), RSMoand the rules that interpret those provisions.To the extent that the taxpayer�s recordsreflect a separate charge incurred for the useof purchased transportation attributable to theproperty used, this separate charge shall beused in calculating the value of rented prop-erty. If a charge is not separated from thatattributable to the compensation paid for theoperator of the purchased transportation, thetotal combined charge shall be reduced bytwenty percent (20%) to determine the por-tion of the charge attributable solely to thevalue of the rented property. Mobile proper-

ty, other than purchased transportation,which is owned by other trucking companiesand temporarily used by the taxpayer in itsbusiness and for which a per-diem or mileagecharge is made shall not be included in theproperty factor as rented property. Mobileproperty which is owned by the taxpayer andtemporarily used by other trucking compa-nies in their business and for which a per-diem or mileage charge is made by the tax-payer shall be included in the property factorof the taxpayer.

(B) General Definitions. The followingdefinitions are applicable to the numeratorand denominator of the property factor, aswell as other apportionment factor descrip-tions:

1. Average value of property means theamount determined by averaging the values atthe beginning and end of the income tax year,but the Department of Revenue may requirethe averaging of monthly values during theincome year or this averaging as is necessaryto reflect properly the average value of thetrucking company�s property (see section32.200 (Article IV.12.), RSMo and the rulesthat interpret those provisions);

2. Mobile property means all motorvehicles, including trailers, engaged directlyin the movement of tangible personal proper-ty, except for support vehicles used predomi-nantly in a local capacity. Mobile propertyshall include purchased transportation;

3. A mobile property mile is the move-ment of a unit of mobile property a distanceof one (1) mile whether loaded or unloaded;

4. Original cost is deemed to be thebasis of the property for federal income taxpurposes (prior to any federal income taxadjustments, except for subsequent capitaladditions and improvements or partial dispo-sitions) or, if the property has no basis, thevaluation of this property for InterstateCommerce Commission purposes. If theoriginal cost of property is unascertainableunder the foregoing valuation standard, theproperty is included in the property factor atits fair market value as of the date of acquisi-tion by the taxpayer (see section 32.200(Article IV.11.), RSMo);

5. Property used during the course ofthe income year includes property which isavailable for use in the taxpayer�s trade orbusiness during the income year;

6. Purchased transportation means thetaxpayer�s use of a motor vehicle owned andoperated by another for the purpose of trans-porting tangible personal property for whicha charge, whether based upon a per diem,mileage or other basis, is incurred;



7. Temporarily used means the use ofany mobile property owned by another for aperiod not to exceed thirty (30) days duringany income year;

8. The value of owned real and tangiblepersonal property means its original cost (seesection 32.200 (Article IV.11.), RSMo andthe rules that interpret those provisions); and

9. The value of rented real and tangiblepersonal property means the product of eight(8) times the net annual rental rate (see sec-tion 32.200 (Article IV.11.), RSMo and therules that interpret those provisions).

(C) The Denominator and Numerator ofthe Property Factor. The denominator of theproperty factor shall be the average value ofall the taxpayer�s real and tangible personalproperty owned or rented and used during theincome year. The numerator of the propertyfactor shall be the average value of the tax-payer�s real and tangible personal propertyowned or rented and used in Missouri duringthe income year. In the determination of thenumerator of the property factor, all proper-ty, except mobile property as defined in thisrule, shall be included in the numerator of theproperty factor in accordance with section32.200 (Article IV.10.�12.), RSMo and 12CSR 10-2.075. Mobile property, as definedin this regulation, which is located within andwithout Missouri during the income yearshall be included in the numerator of theproperty factor in the ratio which mobileproperty miles in Missouri bear to the totalmobile property miles.

(D) The Payroll Factor. The denominatorof the payroll factor is the compensation paideverywhere by the taxpayer during theincome year for the production of businessincome (see section 32.200 (Article IV.13.and 14.), RSMo and 12 CSR 10-2.075). Thenumerator of the payroll factor is the totalcompensation paid in Missouri during theincome year by the taxpayer. With respect toall personnel, except those performing ser-vices within and without Missouri, compen-sation paid to these employees shall beincluded in the numerator as provided in sec-tion 32.200 (Article IV.13. and 14.), RSMoand 12 CSR 10-2.075. Compensation paid toemployees performing services within andwithout Missouri shall be included in thenumerator of the payroll factor in the ratiowhich their services performed in Missouribear to their services performed everywherebased on mobile property miles.

(E) The Sales (Revenue) Factor. 1. General. All revenue derived from

transactions and activities in the regularcourse of the taxpayer�s trade or business

which produce business income shall beincluded in the denominator of the revenuefactor (see section 32.200 (Article IV.1.),RSMo and 12 CSR 10-2.075). The numera-tor of the revenue factor is the total revenueof the taxpayer. The total state revenue of thetaxpayer other than revenue from haulingfreight, mail and express shall be attributableto this state in accordance with section32.200 (Article IV.15.�17.), RSMo and 12CSR 10-2.075.

2. Numerator of the sales (revenue) fac-tor from freight, mail and express. The totalrevenue of the taxpayer attributable toMissouri during the income year from haul-ing freight, mail and express shall be�

A. Intrastate. All receipts from anyshipment which both originates and termi-nates within Missouri; and

B. Interstate. That portion of thereceipts from movements or shipments pass-ing through, into or out of Missouri as deter-mined by the ratio which the mobile proper-ty miles traveled in Missouri bear to the totalmobile property miles traveled from points oforigin to destination.

(4) Records. The taxpayer shall maintain therecords necessary to identify mobile propertyand to enumerate by state the mobile proper-ty miles traveled by mobile property as thoseterms are used in this rule. These records aresubject to review by the Department ofRevenue or its agents.

(5) De Minimus Nexus Standard. Notwith-standing any provision contained in this rule,12 CSR 10-2.011 shall not apply to requireapportionment of income to Missouri if dur-ing the course of the income tax year, thetrucking company neither�

(A) Owns nor rents any real or personalproperty in Missouri except mobile property;

(B) Makes any pickups or deliverieswithin Missouri;

(C) Travels more than twenty-five thou-sand (25,000) mobile property miles withinMissouri, provided that the total mobileproperty miles traveled within Missouri dur-ing the income tax year does not exceed threepercent (3%) of the total mobile propertymiles traveled in all states by the truckingcompany during that period; nor

(D) Makes more than twelve (12) tripsinto this state.

AUTHORITY: sections 32.200 (Article VII)and 143.961, RSMo 1994.* Original rulefiled Jan. 18, 1989, effective May 11, 1989.

*Original authority: 32.200, RSMo 1967 and 143.961,RSMo 1972.

12 CSR 10-2.205 Railroads

PURPOSE: This rule sets forth the uniformprovisions concerning multistate allocationand apportionment of income from railroadswhich were enacted by the Multistate TaxCommission.

(1) General. When a railroad has incomefrom sources both within and withoutMissouri, the amount of business incomefrom sources within Missouri shall be deter-mined pursuant to this rule, unless the tax-payer elects to apportion pursuant to143.451.4, RSMo. In those cases, the firststep is to determine what portion of the rail-road�s income constitutes business incomeand which portion constitutes nonbusinessincome under section 32.200 (Article IV.1.),RSMo and the rules that interpret those pro-visions. Nonbusiness income is directly allo-cable to specific states pursuant to the provi-sions of section 32.200 (Article IV.4.�8.),RSMo. Business income is apportionedamong the states in which the business is con-ducted pursuant to the property, payroll andsales apportionment factors set forth in thisrule. The sum of the items of nonbusinessincome directly allocated to this state, plusthe amount of business income attributable tothis state constitutes the amount of the tax-payer�s entire net income which is subject totax by this state.

(2) Business and Nonbusiness Income. Fordefinitions, rules and examples for determin-ing business and nonbusiness income, see 12CSR 10�2.075.

(3) Apportionment of Business Income. Ingeneral, the property factor shall be deter-mined in accordance with section 32.200(Article IV.10.�12.), RSMo, except as modi-fied in this rule.

(A) The Property Factor. Owned propertyshall be valued at its original cost and prop-erty rented from others shall be valued ateight (8) times the net annual rate in accor-dance with section 32.200 (Article IV.11.),RSMo and the rules that interpret those pro-visions. Railroad cars owned and operated byother railroads and temporarily used by thetaxpayer in its business and for which a per-diem or mileage charge is made are notincluded in the property factor as rentedproperty. Railroad cars owned and operatedby the taxpayer and temporarily used by other



railroads in their business and for which aper-diem charge is made by the taxpayer areincluded in the property factor of the taxpay-er.

(B) General Definitions. The followingdefinitions are applicable to the numeratorand denominator of the property factor:

1. Original cost is deemed to be thebasis of the property for federal income taxpurposes (prior to any federal income taxadjustments except for subsequent capitaladditions, improvements to capital additionsor partial dispositions); or, if the property hasno basis, the valuation of the property forInterstate Commerce Commission purposes.If the original cost of property is unascertain-able under the previously mentioned valua-tion standards, the property is included in theproperty factor at its fair market value as ofthe date of acquisition by the taxpayer (seesection 32.200 (Article IV.11.), RSMo);

2. Rent does not include the per-diemand mileage charges paid by the taxpayer forthe temporary use of railroad cars owned oroperated by another railroad;

3. The value of owned real and tangiblepersonal property shall mean its original cost(see section 32.200 (Article IV.11.), RSMoand the rules that interpret those provisions);

4. Average value of property means theamount determined by averaging the values atthe beginning and end of the income tax year,but the Department of Revenue may requirethe averaging of monthly values during theincome year or averaging as necessary toeffect properly the average value of the rail-road�s property (see section 32.200 (ArticleIV.12.), RSMo and the rules that interpretthose provisions);

5. The value of rented real and tangiblepersonal property means the product of eight(8) times the net annual rental rate (see sec-tion 32.200 (Article IV.11.), RSMo and therules that interpret those provisions);

6. Net annual rental rate means theannual rental rate paid by the taxpayer lessany annual rental rate received by the taxpay-er from subrentals;

7. Property used during the income yearincludes property which is available for use inthe taxpayer�s trade or business during theincome year;

8. A locomotive mile is the movement ofa locomotive (a self-propelled unit of equip-ment designed solely for moving other equip-ment) a distance of one (1) mile under its ownpower; and

9. A car mile is a movement of a unit ofcar equipment a distance of one (1) mile.

(C) The Denominator and Numerator ofthe Property Factor. The denominator of theproperty factor shall be the average value ofall of the taxpayer�s real and tangible person-al property owned or rented and used duringthe income year. The numerator of the prop-erty factor shall be the average value of thetaxpayer�s real and tangible personal proper-ty owned or rented and used in Missouri dur-ing the income year. In determining thenumerator of the property factor, all propertyexcept mobile or movable property (for exam-ple, passenger cars, freight cars, locomotivesand freight containers which are located with-in and without Missouri during the incomeyear) shall be included in the numerator ofthe property factor in accordance with section32.200 (Article IV.10.�12.), RSMo, and therules that interpret those provisions. Mobileor movable property (for example, passengercars, freight cars, locomotives and freightcontainers which are located within and with-out Missouri during the income year) shall beincluded in the numerator of the property fac-tor in the ratio which locomotive miles andcar miles in the state bear to the total every-where.

(D) The Payroll Factor. The denominatorof the payroll factor is the total compensationpaid everywhere by the taxpayer during theincome year for the production of businessincome (see section 32.200 (Article IV.13.and 14.), RSMo and the rules that interpretthose provisions). The numerator of the pay-roll factor is the total amount paid inMissouri during the income year by the tax-payer for compensation. With respect to allpersonnel except enginemen and trainmenperforming services on interstate trains, com-pensation paid to employees shall be includedin the numerator as provided in section32.200 (Article IV.13. and 14.), RSMo andthe rules that interpret those provisions.Compensation paid to enginemen and train-men performing services on interstate trainsshall be included in the numerator of the pay-roll factor in the ratio which their servicesperformed in Missouri bear to their servicesperformed everywhere. Compensation forservices performed in Missouri shall bedeemed to be the compensation reported orrequired to be reported by the employees fordetermining their income tax liability toMissouri.

(E) The Sales (Revenue) Factor. 1. General. All revenue derived from

transactions and activities in the regularcourse of the trade or business of the taxpay-er which produces business income, exceptper-diem and mileage charges which are col-

lected by the taxpayer, is included in thedenominator of the revenue factor (see sec-tion 32.200 (Article IV.1.), RSMo and therules that interpret those provisions). Thenumerator of the revenue factor is the totalrevenue of the taxpayer in Missouri duringthe income year. The total revenue of the tax-payer in Missouri during the income year,other than revenue from hauling freight, pas-sengers, mail and express, shall be attribut-able to Missouri in accordance with section32.200 (Article IV.15.�17.), RSMo and therules that interpret those provisions.

2. Numerator of sales (revenue) factorfrom freight, mail and express. The total rev-enue of the taxpayer in Missouri during theincome year for the numerator of the revenuefactor from hauling freight, mail and expressshall be attributable to Missouri as follows:

A. All receipts from shipments whichboth originate and terminate within Missouri;and

B. That portion of the receipts fromeach movement or shipment passing through,into or out of Missouri is determined by theratio which the miles traveled in Missouribear to the total miles traveled from origin todestination.

3. Numerator of sales (revenue) factorfrom passengers. The numerator of the sales(revenue) factor shall include:

A. All receipts from the transporta-tion of passengers (including mail andexpress handled in passenger service) whichboth originate and terminate within Missouri;and

B. That portion of the receipts fromthe transportation of interstate passengers(including mail and express handled in pas-senger service) determined by the ratio whichrevenue passenger miles in Missouri bear tothe total everywhere.



12 CSR 10-2.210 Airlines

PURPOSE: This rule sets forth the uniformprovisions concerning multistate allocationand apportionment of income from airlineswhich were enacted by the Multistate TaxCommission.

(1) General. When an airline has incomefrom sources both within and without



Missouri, the amount of business incomefrom sources within Missouri shall be deter-mined pursuant to section 32.200 (ArticleIV), RSMo of the Multistate Tax Commissionexcept as modified by this rule, or unless thetaxpayer elects to apportion pursuant to sec-tion 143.451.4, RSMo.

(2) Apportionment of Business Income. (A) General Definitions. The following

definitions apply to the terms used in theapportionment factor descriptions:

1. Value of owned real and tangible per-sonal property shall mean its original cost(see section 32.200 (Article IV.11.), RSMoand the rules that interpret those provisions);

2. Cost of aircraft by type means theaverage original cost or value of aircraft bytype which are ready for flight;

3. Original cost means the initial feder-al tax basis of the property plus the value ofcapital improvements to the property, exceptthat, for this purpose, it shall be assumed thatSafe Harbor Leases are not true leases and donot affect the original initial federal tax basisof the property (see 12 CSR 10-2.075);

4. Average value of property means theamount determined by averaging the values atthe beginning and ending of the income year,but the Department of Revenue may requirethe averaging of monthly values during theincome year if averaging is necessary toreflect properly the average value of the air-line�s property (see section 32.200 (ArticleIV.12.), RSMo and the rules that interpretthose provisions);

5. The value of rented real and tangiblepersonal property means the product of eight(8) times the net annual rental rate (see sec-tion 32.200 (Article IV.11.), RSMo and therules that interpret those provisions);

6. Net annual rental rate means theannual rental rate paid by the taxpayer;

7. Property used during the income yearincludes property which is available for use inthe taxpayer�s trade or business during theincome year;

8. Aircraft ready for flight means air-craft owned or acquired through rental orlease (but no interchange) which are in thepossession of the taxpayer and are availablefor service on the taxpayer�s routes;

9. Revenue service means the use of air-craft ready for flight for the production ofrevenue;

10. Transportation revenue means rev-enue earned by transporting passengers,freight and mail as well as revenue earnedfrom liquor sales, pet crate rentals, and thelike; and

11. Departures means all takeoffs, regu-larly scheduled or charter flights, that occurduring revenue service.

(B) Property Factor. Owned aircraft shallbe valued at original cost and rented aircraftshall be valued at eight (8) times the netannual rental rate in accordance with section32.200 (Article IV.11.), RSMo and the rulesthat interpret those provisions. The use of thetaxpayer�s owned or rented aircraft in aninterchange program with another air carrierwill not constitute a rental of the aircraft bythe airline to the other participating airline.These aircraft shall be accounted for in theproperty factor of the owner. Parts and otherexpendables, including parts for use in con-tract overhaul work, will be valued at cost.

(C) The Denominator and Numerator ofthe Property Factor. The denominator of theproperty factor shall be the average value ofall of the taxpayer�s real and tangible person-al property owned or rented and used duringthe income year. The numerator of the prop-erty factor shall be the average value of thetaxpayer�s real and tangible personal proper-ty owned or rented and used in Missouri dur-ing the income year.

1. In determining the numerator of theproperty factor, all property except aircraftready for flight shall be included in thenumerator of the property factor in accor-dance with section 32.200 (ArticleIV.10.�12.), RSMo. Aircraft ready for flightshall be included in the numerator of theproperty factor in the ratio calculated as fol-lows: departures of aircraft from locations inMissouri weighted as to the cost and value ofaircraft by type compared to total departuressimilarly weighted.

(D) The Payroll Factor. The denominatorof the payroll factor is the total compensationpaid everywhere by the taxpayer during theincome year (see section 32.200 (ArticleIV.13. and 14.), RSMo). The numerator ofthe payroll factor is the total amount paid inthis state during the income year by the tax-payer for compensation. With respect to non-flight personnel, compensation paid to theseemployees shall be included in the numeratoras provided in section 32.200 (Article IV.13.and 14.), RSMo. With respect to flight per-sonnel (the air crew aboard an aircraft assist-ing in the operations of the aircraft or thewelfare of passengers while in the air), com-pensation paid to these employees shall beincluded in the ratio of departures of aircraftfrom locations in this state, weighted as to thecost and value of aircraft by type compared tototal departures similarly weighted, multi-

plied by the total flight personnel compensa-tion.

(E) Sales (Transportation Revenue) Factor.The transportation revenue derived fromtransactions and activities in the regularcourse of the trade or business of the taxpay-er and miscellaneous sales of merchandise,and the like, are included in the denominatorof the revenue factor (see section 32.200(Article IV.1.), RSMo and the rules thatinterpret those provisions). Passive incomeitems such as interest, rental income, divi-dends, and the like, will not be included inthe denominator nor will the proceeds or netgains or losses from the sale of aircraft beincluded. The numerator of the revenue fac-tor is the total revenue of the taxpayer inMissouri during the income year. The totalrevenue of the taxpayer in Missouri duringthe income year is the result of the followingcalculation: the ratio of departure of aircraftin Missouri weighted as to the cost and valueof aircraft by type, as compared to totaldepartures similarly weighted multiplied bythe total transportation revenue. The productof this calculation is to be added to any non-flight revenues directly attributable toMissouri.

(3) Records. The taxpayer must maintain therecords necessary to arrive at departures bytype of aircraft as used in these rules. Theserecords are to be subject to review by therespective state taxing authorities or theiragents.





Examples of the Manner in Which the Multistate Tax CommissionAirline Regulation Would Apply to Specific Fact Situations

EXAMPLE #1: Assume the following facts for an airline for a tax year:

1. It has ten 747s ready for flight and in revenue service at an average cost per unit of $40,000,000 for nine of the aircraft. It rents the tenth747 from another airline for $9,000,000 per year. At eight times rents, the latter is valued at $72,000,000 for apportionment purposes. Thetotal 747 valuation is, therefore, $432,000,000 for property factor denominator purposes.

2. It has twenty 727s ready for flight in revenue service at an average cost per unit of $20,000,000. The total 727 valuation is, therefore,$400,000,000 for property factor denominator purposes.

3. It has nonflight tangible property (ntp) valued at original cost of $200,000,000.

4. It has the following annual payroll:Flight personnel $ 60,000,000Nonflight personnel (np) $ 40,000,000Total $100,000,000

5. From its operations, it has total receipts of $50,000,000, business net income of $1,000,000 and no nonbusiness income.

6. It has the following within State X: a. 10% of its 747 flight departures: $43,200,000b. 20% of its 727 flight departures: $80,000,000c. 5% of its ntp: $10,000,000d. 15% of its np payroll: $ 6,000,000

7. State X has a corporation tax rate of 10%.

The airline�s tax liability to State X would be determined as follows:

Property Factor:

$ 43,200,000 (747s) + $ 80,000,000 (727s) + $ 10,000,000 (ntp) $133,200,000 = .1291$432,000,000 + $400,000,000 + $200,000,000

=$1,032,000,000

Sales Factor:

$43,200,000 (747s) + $80,000,000 (727s) $123,200,000 = .1481$432,000,000 + $400,000,000

=$832,000,000

Payroll Factor:

$6,000,000 (nonflight) + $8,880,000 (.148 × $60,000,000) (flight) =

$ 14,880,000 = .1488$100,000,000 $100,000,000

Average Ratio:.1291 + .1481 + .1488

=.4260

= .14203 3

Taxable Income in State X: .1420 × $1,000,000 = $142,000Tax Liability to State X: .10 × $142,200 = $14,200



EXAMPLE #2: Same facts except that paragraphs 6. and 7. are changed to read:

6. It has the following within State Y:a. 6% of its 747 flight departures ($25,920,000)b. 31% of its 727 flight departures ($124,000,000)c. 3% of its ntp ($6,000,000)d. 7% of its NP payroll ($2,800,000)

7. State Y has a corporate tax rate of 6.5%.

The airline�s tax liability to State Y would be determined as follows:

$25,920,000 (747s) + $124,000,000 (727s) + $6,000,000 (ntp) $155,920,000 = .1511$432,000,000 + $400,000,000 + $200,000,000

=$1,032,000,000

Sales Factor:

$25,920,000 (747s) + $124,000,000 (727s) $149,920,000 = .1802$432,000,000 + $400,000,000

=$832,000,000

Payroll Factor:

$2,800,000 (nonflight) + $10,812,000 (flight) (that is, 1802 × $60,000,000) $13,612.000$40,000,000 + $60,000,000

=$100,000,000

= .1361

Average Ratio:

.1511 + .1802 + .1361 .46743

=3

= .1588

Taxable Income in State Y: .1558 × $1,000,000 = $155,800

Tax Liability to State Y: .065 × $155,800 = $10,127



12 CSR 10-2.220 Taxation of NonresidentMembers of Professional Athletic Teams

PURPOSE: This rule clarifies the taxation ofincome of nonresident members of profession-al athletic teams under existing Missouristatutes.

(1) Teams and Nonresident MembersDefined.

(A) The term professional athletic teamincludes, but is not limited to, any profes-sional baseball, basketball, football, soccerand hockey team.

(B) Nonresident members of professionalathletic teams shall include players on the dis-abled list (if they are in uniform on the day ofthe game at the site of the game) and any oth-ers travelling with and performing services onbehalf of a professional athletic team.

(2) Personal Service Income of NonresidentMembers of Professional Athletic TeamsDefined.

(A) All nonresident members of profes-sional athletic teams shall be taxed on thatportion of their personal service income allo-cable to Missouri.

(B) Personal service income shall includeexhibition and regular playing season salariesand wages, guaranteed payments, strike ben-efits, deferred payments, severance pay,bonuses paid for playing in championship,playoff or bowl-type games and any othertype of compensation paid to the nonresidentmember of a professional athletic team in thatcapacity.

(3) Method of Allocation of Personal ServiceIncome Earned by Nonresident Members ofProfessional Athletic Teams.

(A) The personal service income earned bynonresident members of professional athleticteams allocable to Missouri shall be deter-mined by a fraction, the denominator ofwhich shall be the total number of duty daysin the tax year of the athlete (including thesum of days spent at training camps, all post-season games and travel days) and the numer-ator of which shall be the number of dutydays in the tax year which the nonresidentmember of the professional athletic teamspent in Missouri.

(B) Duty days shall be defined to includethe days a nonresident member of a profes-sional athletic team serves in that capacityafter the commencement of team activitiesand begins with the first day s/he reports tothe professional athletic team.

(C) The allocation fraction in subsection(3)(A) shall be multiplied by the amount ofpersonal service income to arrive at theamount of personal service income allocableto Missouri.

(4) Other Income Defined. All other incomeearned in Missouri by nonresident membersof professional athletic teams in any othercapacity shall be included in Missouri adjust-ed gross income as provided in Chapter 143,RSMo.

(5) Reporting Requirements. (A) An income tax return shall be filed and

the tax paid to the director of revenue as pre-scribed in sections 143.481�143.511, RSMo.

(B) Nonresident members of professionalathletic teams may also be required to makedeclaration of estimated tax payments on aquarterly basis as set forth in sections143.521�143.541, RSMo.

AUTHORITY: section 143.961, RSMo 1994.*Original rule filed Oct. 30, 1989, effectiveJan. 26, 1990.


12 CSR 10-2.225 Withholding of Tax byNonresident Professional Athletic Teams

PURPOSE: This rule establishes guidelinesfor the employer withholding of income tax asspecified in sections 143.191�143.265 and285.230, RSMo.

(1) All nonresident professional athleticteams shall be considered transient employersas defined in section 285.230, RSMo andshall be required to file a financial assuranceinstrument pursuant to section 285.230,RSMo.

(2) Teams and Members Defined. (A) The term professional athletic team

includes, but is not limited to, any profes-sional baseball, basketball, football, soccerand hockey team.

(B) Members of professional athletic teamsshall include players, managers, coaches,trainers, travelling secretaries, players on thedisabled list (if they are in uniform on the dayof the game at the site of the game) and anyothers travelling with and performing ser-vices on behalf of a professional athleticteam.

(3) Personal Service Income of Members ofProfessional Athletic Teams Defined.

(A) All nonresident members of profes-sional athletic teams shall be taxed on thatportion of their personal service income allo-cable to Missouri.

(B) Personal service income shall includeexhibition and regular playing season salariesand wages, guaranteed payments, strike ben-efits, deferred payments, severance pay,bonuses paid for playing in championship,playoff or bowl-type games and any othertype of compensation paid to the nonresidentmember of a professional athletic team in thatcapacity.

(4) Method of Allocation of Personal ServiceIncome Earned by Members of ProfessionalAthletic Teams.

(A) The personal service income earned bymembers of professional athletic teams allo-cable to Missouri shall be determined by afraction, the denominator of which shall bethe total number of duty days in the tax yearof the athlete (including the sum of days spentat training camps, all postseason games andtravel days) and the numerator of which shallbe the number of duty days in the tax yearwhich the member of the professional athlet-ic team spent in Missouri.

(B) Duty days shall be defined to includethe days a member of a professional athleticteam serves in that capacity after the com-mencement of team activities and begins withthe first day s/he reports to the professionalathletic team.

(C) The allocation fraction in subsection(4)(A) shall be multiplied by the amount ofpersonal service income to arrive at theamount of personal service income allocableto Missouri.

(5) Withholding and Reporting Obligations. (A) Any out-of-state professional athletic

team which qualifies as a transient employeras specified in section 285.230, RSMo shallbe required to withhold Missouri incometaxes from wages and salaries paid to its teammembers as set forth in sections143.191�143.265, RSMo.

(B) Every out-of-state professional athleticteam required to deduct and withhold taxshall file an employer�s withholding taxreturn and pay the taxes withheld to the direc-tor of revenue as set forth in sections143.191�143.265, RSMo.

AUTHORITY: sections 143.961 and285.230, RSMo 1994.* Original rule filedOct. 30, 1989, effective Jan. 26, 1990.



Emergency amendment filed Aug. 18, 1994,effective Aug. 28, 1994, expired Dec. 25,1994. Emergency amendment filed Dec. 9,1994, effective Dec. 26, 1994, expired April24, 1995. Amended: Filed Aug. 18, 1994,effective Feb. 26, 1995.

*Original authority: 143.961, RSMo 1972 and 285.230,RSMo 1988, amended 1994.

12 CSR 10-2.226 Withholding of Tax byNonresident Professional Entertainers

PURPOSE: This rule establishes guidelinesfor withholding of income tax as specified insections 143.191�143.265 and 285.230,RSMo.

(1) Nonresident Professional EntertainersDefined.

(A) Nonresident professional entertainermeans a corporation registered outside thisstate, or a person who is not a resident ofMissouri as defined by section 143.101,RSMo, who, for compensation paid to anindividual or other entity, performs anyvocal, instrumental, musical, comedy, dra-matic, dance or other performance inMissouri before a live audience. Nonresidentprofessional entertainer also includes anyperson traveling with the entertainer and per-forming services on behalf of the nonresidententertainer. For purposes of this definition, a�performance� does not include a presenta-tion for educational purposes for which noadmission fee, cover charge, purchase mini-mum or other fee for admission is charged.

(2) Personal Service Income of NonresidentProfessional Entertainers Defined.

(A) All nonresident professional entertain-ers shall be subject to withholding on thatportion of their personal service income allo-cable to Missouri.

(B) Personal service income shall includethe total compensation received during thecalendar year for entertainment performed inMissouri.

(3) Any nonresident entertainer outside ofMissouri that does not comply with section143.183.2., RSMo, shall be considered tran-sient employers as defined in section285.230, RSMo and shall be required to filea financial assurance instrument pursuant tosection 285.230, RSMo and 12 CSR 10-2.017.

(4) Withholding and Reporting Obligations.

(A) Any individual or entity who payscompensation to a nonresident professionalentertainer(s) is required to withholdMissouri income taxes, as a prepayment oftax, an amount equal to two percent (2%) ofthe total compensation paid to the nonresi-dent entertainer for entertainment performedin Missouri, as set forth in sections 143.183and 285.230, RSMo.

(B) Every individual or entity required todeduct and withhold tax from a nonresidententertainer, shall, for each calendar quarter,on or before the last day of the month follow-ing the close of such calendar quarter, fileForm MO-1ENT, Income Tax Payments forNonresident Entertainers, with copies ofForm MO-2ENT, Statement of Income TaxPayments for Nonresident Entertainersattached and pay the taxes withheld to theDirector of Revenue as set forth in sections143.183 and 285.230, RSMo.

AUTHORITY: sections 143.183 and 285.230,RSMo Supp. 1998.* Emergency rule filedAug. 18, 1994, effective Aug. 28, 1994,expired Dec. 25, 1994. Emergency rule filedDec. 9, 1994, effective Dec. 26, 1994,expired April 24, 1995. Original rule filedAug. 18, 1994, effective Feb. 26, 1995.Amended: Filed Dec. 30, 1998, effective July30, 1999.

*Original authority: 143.183, RSMo 1994, amended 1998and 285.230, RSMo 1988, amended 1994, 1997, 1998.

12 CSR 10-2.230 Construction Contractors

PURPOSE: This rule sets forth the uniformprovisions concerning multistate allocationand apportionment of income from construc-tion contractors which were enacted by theMultistate Tax Commission.

(1) General. When a taxpayer elects to usethe percentage of completion method ofaccounting, or the completed contractmethod of accounting for long-term contracts(construction contracts covering a period inexcess of one (1) year from the date of exe-cution of the contract to the date on which thecontract is finally completed and accepted)and has income from sources both within andwithout Missouri from a trade or business,the amount of business income derived fromthese long-term contracts from sources with-in Missouri shall be determined pursuant tothis rule. In these cases, the first step is todetermine which portion of the taxpayer�sincome constitutes business income andwhich portion constitutes nonbusiness

income under section 32.200 (Article IV.1.),RSMo and the rules that interpret that provi-sion. Nonbusiness income is directly allocat-ed to specific states under section 32.200(Article IV.4.�8.), RSMo and the rules thatinterpret those provisions. Business income isapportioned among the states in which thebusiness is conducted pursuant to the proper-ty, payroll and sales apportionment factors setforth in this rule. The sum of the items ofnonbusiness income directly allocated toMissouri plus the amount of business incomeattributable to Missouri, constitutes theamount of the taxpayer�s entire net incomewhich is subject to tax by Missouri.

(2) Business and Nonbusiness Income. Fordefinitions, rules and examples for determin-ing business and nonbusiness income, see 12CSR 10-2.075.

(3) Methods of Accounting and Year ofInclusion. For general rules of accounting,definitions and methods of accounting, seesections 143.271�143.301, RSMo and therules that interpret those provisions.

(4) Apportionment of Business Income.Business income is apportioned to Missouriby a three (3)-factor formula consisting ofproperty, payroll and sales regardless of themethod of accounting for long-term contractselected by the taxpayer. The total of the prop-erty, payroll and sales percentages is dividedby three (3) to determine the apportionmentpercentage. The apportionment percentage isthen applied to business income to determinethe amount apportioned to Missouri.

(A) Percentage of Completion Method.Under this method of accounting for long-term contracts, the amount to be includedeach year as business income from each con-tract is the amount by which the gross con-tract price which corresponds to the percent-age of the entire contract which has beencompleted during the income year exceeds allexpenditures made during the income year inconnection with the contract. In so doing,account must be taken of the material andsupplies on hand at the beginning and end ofthe income year for use in each long-termcontract.

1. Example: A taxpayer using the per-centage of completion method of accountingfor long-term contracts entered into a long-term contract to build a structure for$9,000,000. The contract allowed three (3)years for completion and as of the end of thesecond income year the taxpayer�s books of



account, kept on the accrual method, dis-closed the following:

Receipts ExpendituresEnd of 1st income year $2,500,000 $2,400,000End of 2nd income year $4,500,000 $4,100,000Totals $7,000,000 $6,500,000

In computing these expenditures, considera-tion was given to material and supplies onhand at the beginning and end of each incomeyear. It was estimated that the contract wasthirty percent (30%) completed at the end ofthe first income year and eighty percent(80%) completed at the end of the secondincome year. The amount to be included asbusiness income for the first income year is$300,000 (30% of $9,000,000 or $2,700,000less expenditures of $2,400,000 equals$300,000). The amount to be included asbusiness income for the second income yearis $400,000 (50% of $9,000,000 or$4,500,000 less expenditures of $4,100,000equals $400,000).

(B) Completed Contract Method. Underthis method of accounting, business incomederived from long-term contracts is reportedfor the income year in which the contract isfinally completed and accepted. Therefore, aspecial computation is required to computethe amount of business income attributable toMissouri from each completed contract (seesection (5) of this rule). All receipts andexpenditures applicable to these contracts,whether complete or incomplete as of the endof the income year, are excluded from busi-ness income derived from other sources as,for example, short-term contracts, interest,rents, royalties, and the like, which are appor-tioned by the regular three (3)-factor formulaof property, payroll and sales.

(C) Property Factor. In general, thenumerator and denominator of the propertyfactor shall be determined as set forth in sec-tion 32.200 (Article IV.10.�12.), RSMo andthe rules that interpret those provisions.However, the following special rules are alsoapplicable:

1. The average value of the taxpayer�scost (including materials and labor) of con-struction in progress, to the extent the costsexceed progress billings (accrued or receiveddepending on whether the taxpayer is on theaccrual or cash basis for keeping its accounts)shall be included in the denominator of theproperty factor. The value of any constructioncosts attributable to construction projects inMissouri shall be included in the numeratorof the property factor.

A. Example 1: Taxpayer commenceda long-term construction project in Missouri

as of the beginning of a given year. By theend of its second income year, its equity inthe costs of production to be reflected in thenumerator and denominator of its propertyfactor for that year is computed as follows:



1st Year 2nd YearBeginning Ending Beginning Ending

Construction Costs 0 $1,000,000Progress billings $ 600,000Balance 12/31�1/1 $ 400,000 $400,000Construction Costs�

Total from beginning of project $5,000,000Progress billings�

Total from beginning of project $4,000,000Balance 12/31 $1,000,000Balance beginning of year $ 400,000

Total $1,400,000Average (1/2)�Value used in property factor $ 700,000

Note: It may be necessary to use monthly averages if yearly averages do not properly reflect the average value of the taxpayer�s equity; seesection 32.200 (Article IV.12.), RSMo and the rules that interpret that provision.



B. Example 2: Same facts as in sub-paragraph (4)(C)1.A. (Example 1) except thatprogress billings exceeded construction costs.No value for the taxpayer�s equity in the con-struction project is shown in the property fac-tor;

2. Rent paid for the use of equipmentdirectly attributable to a particular construc-tion project is included in the property factorat eight (8) times the net annual rental rateeven though this rental expense may be capi-talized into the cost of construction; and

3. The property factor is computed inthe same manner for all long-term contractmethods of accounting and is computed foreach income year even though under thecompleted contract method of accounting,business income is computed separately (seesection (5)).

(D) Payroll Factor. In general the numera-tor and denominator of the payroll factorshall be determined as set forth in section32.200 (Article IV.13. and 14.), RSMo andthe rules that interpret those provisions.However, the following special rules are alsoapplicable:

1. Compensation paid employees whichis attributable to a particular constructionproject is included in the payroll factor eventhough capitalized into the cost of construc-tion;

2. Compensation paid employees who inthe aggregate perform most of their servicesin a state to which their employer does notreport them for unemployment tax purposesshall be attributed to the state where the ser-vices are performed.

A. Example: A taxpayer engaged in along-term contract in state X sends severalkey employees to that state to supervise theproject. The taxpayer, for unemployment taxpurposes, reports these employees to state Ywhere the main office is maintained andwhere the employees reside. For payroll fac-tor purposes and in accordance with section32.200 (Article IV.14.), RSMo and the rulesthat interpret that provision, the compensa-tion is assigned to the numerator of state X;and

3. The payroll factor is computed in thesame manner for all long-term contract meth-ods of accounting and is computed for eachincome year even though, under the complet-ed contract method of accounting, businessincome is computed separately (see section(5)).

(E) Sales Factor. In general the numeratorand denominator of the sales factor shall bedetermined as set forth in section 32.200(Article IV.15.�17.), RSMo and the rules

that interpret those provisions. However, thefollowing special rules are also applicable:

1. Gross receipts derived from the per-formance of a contract are attributable toMissouri if the construction project is locatedin Missouri. If the construction project islocated partly within and partly withoutMissouri, the gross receipts attributable toMissouri are based upon the ratio which con-struction costs for the project in Missouriincurred during the income year bear to thetotal of construction costs for the entire pro-ject during the income year or any othermethod, such as engineering cost estimates,which will provide a reasonable apportion-ment.

A. Example 1: A construction projectwas undertaken in Missouri by a calendaryear taxpayer which had elected one (1) ofthe long-term contract methods of account-ing. The following gross receipts (progressbillings) were derived from the contract dur-ing the three (3) income years that contractwas in progress:

1st Year 2nd Year 3rd YearGross Receipts $1,000,000 $4,000,000 $3,000,000

The gross receipts to be reflected in both thenumerator and denominator of the sales fac-tor for each of the three (3) years are theamounts shown.

B. Example 2: A taxpayer contracts tobuild a dam on a river at a point which lieshalf within Missouri and half within state X.During the taxpayer�s first income year con-struction costs in this state were $2,000,000.Total construction costs for the project duringthe income year were $3,000,000. Grossreceipts (progress billings) for the year were$2,400,000. Accordingly, gross receipts of$1,600,000 ($2,000,000 ÷ $3,000,000 = 662/3% × $2,400,000) are included in thenumerator of the sales factor;

2. If the percentage of completionmethod is used, the sales factor includes onlythat portion of the gross contract price whichcorresponds to the percentage of the entirecontract which was completed during theincome year.

A. Example: A taxpayer which hadelected the percentage of completion methodof accounting entered into a long-term con-struction contract. At the end of its currentincome year (the second since starting theproject) it estimated that the project was thir-ty percent (30%) completed. The bid pricefor the project was $9,000,000 and it hadreceived $2,500,000 from progress billingsas of the end of its current income year. The

amount of gross receipts to be included in thesales factor for the current income year is$2,700,000 (30% of $9,000,000), regardlessof whether the taxpayer uses the accrualmethod or the cash method of accounting forreceipts and disbursements;

3. If the completed contract method ofaccounting is used, the sales factor includesthe portion of the gross receipts (progressbillings) received or accrued, whichever isapplicable, during the income year attribut-able to each contract.

A. Example 1: A taxpayer which hadelected the completed contract method ofaccounting entered into a long-term construc-tion contract. By the end of its currentincome year (the second since starting theproject), it had billed and accrued on itsbooks a total of $5,000,000 of which$2,000,000 had accrued in the first year thecontract was undertaken and $3,000,000 hadaccrued in the current (second) year. Theamount of gross receipts to be included in thesales factor for the current income year is$3,000,000.

B. Example 2: Same facts as in sub-paragraph (4)(E)3.A. (Example 1), except thetaxpayer keeps its books on the cash basis andas of the end of its current income year hadreceived only $2,500,000 of the $3,000,000billed during the current year. The amount ofgross receipts to be included in the sales fac-tor for the current income year is$2,500,000; and

4. The sales factor, except as noted inparagraphs (4)(E)2. and 3., is computed inthe same manner, regardless of which long-term method of accounting the taxpayer haselected and is computed for each income yeareven though under the completed contractmethod of accounting, business income iscomputed separately.

(F) Apportionment Percentage. The totalof the property, payroll and sales percentagesis divided by three (3) to determine theapportionment percentage. The apportion-ment percentage is then applied to businessincome to establish the amount apportionedto Missouri.

(5) Completed Contract Method�SpecialComputation. The completed contractmethod of accounting requires that the report-ing of income (or loss) be deferred until theyear the construction project is completed oraccepted. Accordingly, a separate computa-tion is made for each contract completed dur-ing the income year regardless of whether theproject is located within or without Missouriin order to determine the amount of income



which is attributable to sources withinMissouri. The amount of income from eachcontract completed during the income yearapportioned to Missouri plus other businessincome apportioned to Missouri by the regu-lar three (3)-factor formula such as interestincome, rents, royalties, income from short-term contracts, and the like, plus all nonbusi-ness income allocated to Missouri is the mea-sure of tax for the income year. The amountof income (or loss) from each contract whichis derived from sources within Missouriusing the completed contract method ofaccounting is computed as follows:

(A) In the income year the contract is com-pleted, the income (or loss) is determined;and

(B) The income (or loss) determined insubsection (5)(A) is apportioned to Missouriby the following method:

1. A fraction is determined for each yearthe contract was in progress. The numeratoris the amount of construction costs paid oraccrued each year the contract was inprogress, and the denominator is the total ofall construction costs for the project;

2. Each percentage is multiplied by theapportionment formula percentage for thatparticular year as determined in subsection(4)(F) of this rule; and

3. The percentages determined for eachyear the contract was in progress are totaled.The amount of total income (or loss) from thecontract determined in subsection (5)(A) ismultiplied by the total percentage. The result-ing income (or loss) is the amount of businessincome from the contract derived fromsources within Missouri.

A. Example 1: A taxpayer using thecompleted contract method of accounting forlong-term contracts is engaged in three (3)long-term contracts�Contract L in Missouri,Contract M in State X and Contract N inState Y. In addition, it has other businessincome (less expenses) during the incomeyear 1990 from interest, rents and short-termcontracts amounting to $500,000 and non-business income allocable to Missouri of$8000. During 1990 it completed Contract Min State X at a profit of $900,000. ContractsL and N in Missouri and State Y, respective-ly, were not completed during the incomeyear. The apportionment percentages of thetaxpayer as determined in subsection (4)(F)of this rule and the percentages of contractcosts as determined in subsection (5)(B) foreach year Contract M in State X was inprogress and are as follows:

1988 1989 1990Apportionmentpercentages 30% 20% 40%

Percentages ofconstructioncosts of ContractM each yearto total constructioncosts�(100%) 20% 50% 30%

The corporation�s net income subject to taxin this state for 1990 is computed as follows:Business Income $500,000Apportion 40% to this state $200,000Add: Income from Contract M* $252,000

Total business income derivedfrom sources within this state $452,000

Add: Nonbusiness income allocatedto this state $ 8,000

Net income subject to tax $460,000*Income from Contract M apportioned tothis state

1988 1989 1990 TotalApportionment

percentage 30% 20% 40%Percent of

construction costs 20% 50% 30% 100%Product 6 10% 12% 28%*28% of $900,000 = $252,000

B. Example 2: Same facts as in sub-paragraph (5)(B)3.A. (Example 1) except thatContract L was started in 1990 in Missouri,the first year the taxpayer was subject to taxin Missouri. Contract L in Missouri andContract N in state Y are incomplete in 1990.

The corporation�s net income subject to taxin this state for 1990 is computed as follows:Business income $500,000Apportion 40% to this state $200,000Add: Income from Contract M* $108,000Total business income derived

from sources within the state $308,000Add: Nonbusiness income allocatedto this state $ 8,000

Net income subject to tax $316,000

*Income from Contract M apportioned to thisstate

1988 1989 1990 TotalApportionment

percentage 0% 0% 40%Percent of

Construction Costs 20% 50% 30% 100%Product 0% 0% 12% 12%*

*12% of $900,000 = $108,000

Note: Only 12% is used to determine theincome derived from sources within thisstate since the corporation was not subjectto tax in this state prior to 1990.

C. Example 3: Same facts as in sub-paragraph (5)(B)3.A. (Example 1) except thatthe figures relate to Contract L in Missouriand 1990 is the first year the corporation wastaxable in another state (see section 32.200(Article IV.2. and 3.), RSMo and the rulesthat interpret those provisions). Contracts Mand N in states X and Y were started in 1990and are incomplete.

The corporation�s net income subject to taxin Missouri for 1990 is computed as follows:Business income $500,000Apportion 40% to this state $200,000Add: Income for Contract L* $738,000Total business income derived from

sources within this state $938,000

Add: Nonbusiness income allocatedto this state $ 8,000

Net income subject to tax $946,000

*Income from Contract L apportioned to thisstate

1988 1989 1990 TotalApportionmentPercentage 100% 100% 40%

Percentage ofConstruction Costs 20% 50% 30% 100%

Product 20% 50% 12% 82%*82% of $900,000 = $738,000

(6) Computation for Year of Withdrawal,Dissolution or Cessation of Business�Com-pleted Contract Method. Use of the complet-ed contract method of accounting for long-term contracts requires that income derivedfrom sources within Missouri from incom-plete contracts in progress outside Missourion the date of withdrawal, dissolution or ces-sation of business in Missouri be included inthe measure of tax for the taxable year duringwhich the corporation withdraws, dissolvesor ceases doing business in Missouri.

(A) The amount of income (or loss) fromeach contract to be apportioned to this stateby the apportionment method set forth in sub-section (5)(B) of this rule shall be deter-mined, as if the percentage of completionmethod of accounting were used, for all con-tracts on the date of withdrawal, dissolutionor cessation of business. The amount of busi-ness income (or loss) for each contract shallbe the amount by which the gross contractprice from each contract which correspondsto the percentage of the entire contract whichhas been completed from the commencementof the contract to the date of withdrawal, dis-solution or cessation of business exceeds allexpenditures made during this period in con-nection with each contract. In so doing,account must be taken of the material and



supplies on hand at the beginning and end ofthe income year for use in each contract.

1. Example: A construction contractorqualified to do business in Missouri hadelected the completed contract method ofaccounting for long-term contracts. It wasengaged in two (2) long-term contracts.Contract L in Missouri was started in 1988and completed at a profit of $900,000 onDecember 16, 1990. The taxpayer withdrewon December 31, 1990. Contract M in stateX was started in 1990 and was incomplete onDecember 31, 1990. The apportionment per-centages of the taxpayer as determined insubsection (4) of this rule and percentages ofconstruction costs are determined in subsec-tion (5)(B) of this rule for each year ContractM in state X was in progress and are as fol-lows:

1988 1989 1990 TotalApportionmentpercentage 30% 20% 40%

Percentages ofconstruction costs

Contract L, Missouri 20% 50% 30% 100%Contract M, State X 0% 10% 25% 35%

The corporation had other business income(net of expenses) of $500,000 during 1989and $300,000 during 1990. The gross con-tract price of Contract M (State X) was$1,000,000 and it was estimated to be 35%completed on December 31, 1990. Totalexpenditures to date for Contract M (State X)were $300,000 for the period endedDecember 31, 1990.

The measure of tax for the taxable yearended December 31, 1990 is computed asfollows:

1988 1989 1990 TotalApportionmentpercentage 30% 20% 40%

Percentages ofconstruction costs

Contract L, Missouri 20% 50% 30% 100%Contract M, State X 0% 10% 25% 35%

The corporation had other business income(net of expenses) of $500,000 during 1989and $300,000 during 1990. The gross con-tract price of Contract M (State X) was$1,000,000 and it was estimated to be 35%completed on December 31, 1990. Totalexpenditures to date for Contract M (State X)were $300,000 for the period endedDecember 31, 1990.

The measure of tax for the taxable yearended 12/31/90 is computed as follows:

Taxable Year 1990Income Year Income Year

1990 1990Business income $500,000 $300,000Apportionmentpercentage tothis state 20% 40%

Amount apportionedto this state $100,000 $120,000

Add: Income fromContracts*L (Missouri) $252,000

**M (State X) $ 6,000Total business incomederived from sourceswithin this state $100,000 $378,000

*Income from Contract L apportioned to thisstate

1988 1989 1990 To t a lApportionmentpercentages 30% 20% 40%

Percentage ofconstruction costs 20% 50% 30% 100%

Product 6% 10% 12% 28%

28% of $900,000 = $252,000

**Income from Contract M apportioned tothis state

1988 1989 1990 TotalApportionmentpercentages 0% 20% 40%

Percentage ofconstruction costs 0% 10% 25% 35%Product 0% 2% 10% 12%***

***12.0% of $50,000 = $6,000***Computation of apportionable incomefrom Contract M based on percentage ofcompletion method:

Total contract price $1,000,000Estimated to be 35%completed $ 350,000

Less: Total expenditures todate $ 300,000

Apportionable income $ 50,000

AUTHORITY: sections 32.200 (Article VII)and 143.961, RSMo 1994.* Original rulefiled Dec. 17, 1990, effective April 29, 1991.


12 CSR 10-2.235 Government PensionExemption

PURPOSE: This rule establishes the require-ments and procedures for claiming theexemption provided in section 143.124,RSMo for government pensions.

(1) Background. On March 28, 1989, theUnited States Supreme Court ruled in theDavis v. Michigan Department of Treasurythat a statute which exempts state and localretirement benefits from income tax withoutaccording similar treatment to federal retire-ment benefits unlawfully discriminatesagainst federal retirees. Prior to this decision,only Missouri state and local governmentalpension benefits were exempt from Missouriincome tax. The applicability of that decisionto Missouri was confirmed by the MissouriSupreme Court on May 25, 1989, inHackman v. Director of Revenue. Hackmanwas retroactively applied to include all feder-al pensions for tax years beginning with 1985through July 1, 1989. After July 1, 1989, sixthousand dollars ($6,000) per year (threethousand dollars ($3,000) for a six (6)-monthperiod) of government pension payments mayqualify for an exemption against Missouriadjusted gross income (MAGI).

(2) All pension income which is taxable forfederal purposes is also subject to tax byMissouri. However, recipients of governmentpension payments provided by the UnitedStates, this state, any other state or any polit-ical subdivision of this or any other state areeligible for an exemption against their MAGI,subject to certain income limitations as setforth in sections (3) and (4) of this rule. Thisexemption does not apply to private pensions.

(3) For the period beginning July 1, 1989 andending December 31, 1989, each taxpayerreceiving government retirement benefits isallowed an exemption of three thousand dol-lars ($3,000) against his/her MAGI for thatperiod, determined pursuant to section143.121, RSMo:

(A) If the filing status is single, head ofhousehold or qualifying widow(er) andMAGI is less than twelve thousand dollars($12,500);

(B) If the filing status is married filingcombined and combined MAGI is less thansixteen thousand dollars ($16,000); or

(C) If the filing status is married filing sep-arately and MAGI is less than eight thousanddollars ($8000).

(4) For tax years beginning on or afterJanuary 1, 1990, each taxpayer receivinggovernment retirement benefits will beallowed an exemption of six thousand dollars($6,000) against his/her MAGI for that peri-od, determined pursuant to section 143.121,RSMo�



(A) If the filing status is single, head ofhousehold or qualifying widow(er) andMAGI is less than twenty-five thousand dol-lars ($25,000);

(B) If the filing status is married filingcombined and combined MAGI is less thanthirty-two thousand dollars ($32,000); or

(C) If the filing status is married filing sep-arately and MAGI is less than sixteen thou-sand dollars ($16,000).

(5) In determining MAGI for purposes of sec-tions (3) and (4) of this rule, any SocialSecurity benefits which are included inMAGI must be subtracted. This modifiedMAGI is used only for determining whethera taxpayer�s income exceeds the maximumincome limitations as set forth in section143.124.2. and 3., RSMo.

(6) Social Security benefits are not consid-ered retirement benefits for purposes of sec-tion 143.124, RSMo.

(7) If the taxpayer�s modified MAGI isgreater than the taxpayer�s applicable wagelimitation for his/her filing status, the entirepension exemption is lost. No phase out ofthe exemption is allowed.

(8) The taxpayer and his/her spouse mayeach qualify for a government pensionexemption provided, both taxpayers receive aqualifying pension and either their combinedor separate (depending on filing status)MAGI is less than the applicable incomelimitation.

(9) Section 143.124.8., RSMo states, in per-tinent part, the provisions of this section shallapply to other pensions as �subsequentlydefined.� However, as of April 8, 1993, noapplicable legislation has passed. Sub-sequently, this exemption does not apply toprivate pensions.

(10) The following is a list of governmentpensions provided by the United States, thisstate, any other state or any political subdivi-sion of this or any other state: United StatesPostal Service, Department of Army, AirForce Accounting and Finance Center/Retirement Payment (AFAFC/RPT), MarineCorp, Department of Health and Human Services (DHHS)/United States PublicHealth Service, Department of Navy, NavyMutual Aid Association, AdministrativeOffice�United States Courts, United StatesCoast Guard Pay and Personnel Center,DHHS, Department of State, Government ofDistrict of Columbia, Federal Reserve Bank

Pensions and Tennessee Valley AuthorityRetirement System. Most federal pensionsare administered by Office of PersonnelManagement (OPM). Other qualifying pen-sions are Public Teachers Retirement andstate and local pensions (from any state).This list is not all inclusive.

(11) In order to claim this pension exemptionon the Missouri return, the taxpayer mustcomplete the government pension exemptionportion of the Missouri return. A copy of thetaxpayer�s federal return, pages 1 and 2, anda 1099R must also be attached to theMissouri return.

AUTHORITY: section 143.961, RSMo 1994.*Original rule filed Sept. 11, 1992, effectiveApril 8, 1993.


12 CSR 10-2.240 Determination of Time-liness

PURPOSE: This rule interprets the incometax law as it applies to the determination oftimeliness.

(1) It is the taxpayer�s responsibility to seethat a return, payment or other documentrequired to be filed with or mailed to theDepartment of Revenue is received by thedepartment.

(2) If the postmark on the envelope or wrap-per of any return, payment or documentrequired to be filed before a prescribed dateis made by the United States Postal Service,the date of the United States postmarkstamped on the envelope or wrapper is treat-ed as the date of delivery. If the envelope orwrapper has both a postal meter date and apostmark date applied by the United StatesPostal Service, the department will use thepostmark date to determine the date of deliv-ery.

(3) If any return, document or payment issent by United States registered mail, the dateof registration of the return, document orpayment is treated as the postmark date.

(4) If any return, document or payment issent by United States certified mail and thesender�s receipt is postmarked by the postalemployee to whom the return, document orpayment is presented, the date of the UnitedStates postmark on the receipt is treated asthe postmark date.

(5) Whenever notice is required to be sent byUnited States mail to be served on the direc-tor of revenue, it may be sent by an electron-ic transmission known as a fax. The fax isconsidered timely if the date printed on thedocument by the director�s receiving elec-tronic equipment is on or before the due date.A notice being served by fax on the directormust be transmitted to the director�s receiv-ing electronic equipment using telephonenumber (573) 751-7150. As used in this ruleand section 136.360, RSMo, the word noticedoes not include tax returns, requests for taxclearances, or any request under section143.241 or 144.150, RSMo.

(6) If any return, document or payment isdelivered by United States mail with a post-mark date falling after the due date, thereturn, document or payment is consideredlate unless the postmaster for the jurisdictionwhere the payment was mailed, verifies inwriting the payment was mailed on or beforethe due date, including any extension grant-ed, and was delayed because of an error ofthe United States Postal Service and notbecause of an error by the taxpayer.

(7) Any return, document or payment may bedelivered by a private delivery service (PDS)to meet the timely mailing as timelyfiling/paying rule. Such PDS must be a prop-erly designated PDS by the Internal RevenueService (IRS) at the time the return, docu-ment or payment is delivered. Refer to IRSrules to determine the designated PDS. TheIRS publishes a list in March and Septemberof each year. PDSs cannot deliver items toP.O. boxes. The United States Postal Servicesmust be used to mail any return, document orpayment to Missouri Department of RevenueP.O. box address.

(8) The PDS is required to either�1) recordelectronically to its database (kept in the reg-ular course of its business) the date on whichan item was given to the PDS for delivery; or2) mark on the cover of the item the date onwhich an item was given to the PDS fordelivery. The date recorded or the datemarked under this regulation is treated as thepostmark date for purposes of section143.851, RSMo.

(9) If any date, including any extension oftime for performing any act, falls on aSaturday, Sunday or a legal holiday in thisstate, the performance of the act shall be con-sidered timely if it is performed on the nextsucceeding day which is not a Saturday,Sunday or legal holiday.



(10) Example: Joe Jones, a Missouri taxpay-er has a document that must be filed with theDepartment of Revenue on or before August1, 1993. For that document to be consideredtimely, he must do one (1) of the following:

(A) Deposit the document with the UnitedStates Postal Service early enough that theUnited States postmark stamped on the enve-lope will be August 1, 1993 or earlier;

(B) Take the document to the United StatesPostal Office and have it registered by apostal employee on or before August 1, 1993;or

(C) Present the document in a certifiedenvelope with return receipt requested to aUnited States postal employee and ask thepostal employee to postmark the item on orbefore August 1, 1993.

AUTHORITY: sections 136.120 and 143.961,RSMo 1994.* Original rule filed March 1,1993, effective Oct. 10, 1993. Amended:Filed Sept. 29, 1999, effective March 30,2000.

*Original authority: 136.120, RSMo 1945; and 143.961,RSMo 1972.

12 CSR 10-2.705 Filing Corporation TaxReturns

PURPOSE: This rule sets certain instructionsrelating to the time and place for filing cor-porate tax returns and the requirement ofsubmitting copies of federal consolidatedincome tax returns are assigned a rule num-ber in order to comply with the uniform pro-cedures adopted by the secretary of stateunder section 536.023, RSMo. No changes inthe substantive effect of the instructions havebeen made.

(1) Time and Place for Filing Returns andPayment of Taxes. Corporation income taxreturns shall be filed on or before the fif-teenth day of the fourth month following theclose of the taxpayer�s taxable year exceptwhere the taxpayer is an exempt organization.Exempt organizations shall have the same duedate as set by the Internal Revenue Code of1986, as amended. A person required tomake and file a return, on the same day with-out assessment notice or demand, shall payany tax due to the Director of Revenue.Installment payments may not be made.Returns must be mailed to the Department ofRevenue, P.O. Box 700, Jefferson City, MO65105-0700.

(2) Consolidated Federal Income Tax ReturnsRequired�When. A corporation which par-ticipates in the filing of a consolidated feder-al income tax return (if no Missouri consoli-dated return is filed) shall determine its fed-eral taxable income as if it had filed a sepa-rate federal income tax return for the year.The corporation shall attach to its MissouriForm MO-1120 a copy of a federal Form1120, together with all pertinent schedules,where its separate federal taxable income iscomputed. One (1) complete copy of theactual consolidated federal income tax returnfor the year, together with all pertinent sched-ules, shall be submitted by the parent corpo-ration, and all subsidiary members filing aseparate Missouri return shall attach a state-ment to the return where the consolidatedreturn of the group is incorporated by refer-ence.

AUTHORITY: sections 143.511, 143.571 and143.961, RSMo 1994.* This rule was con-tained in the general instructions of the cor-poration income tax booklet filed Feb. 10,1975, effective Feb. 20, 1975. Emergencyamendment filed Jan. 20, 1995, effective Jan.30, 1995, expired May 29, 1995. Amended:Filed Jan. 20, 1995, effective July 30, 1995.

*Original authority: 143.511, RSMo 1972, amended 1994and 143.571 and 143.961, RSMo 1972.

12 CSR 10-2.710 Net Operating Losses onIndividual Income Tax Returns

PURPOSE: This rule explains the properMissouri income tax treatment of net operat-ing losses by individuals.

(1) A taxpayer whose deductions for the yearare more than his/her income for the year onhis/her federal return (negative federaladjusted gross income) may have a net oper-ating loss. The actual computation of the netoperating loss is not identical to the computa-tion of federal adjusted gross income or lossfor the year. Therefore, the amount shown asa loss on Federal Form 1040 must be adjust-ed to arrive at the net operating loss for theyear. Federal rules limit what can be deduct-ed when figuring a net operating loss. A tax-payer must complete Schedule A of FederalForm 1045 in order to determine his/heractual net operating loss.

(2) If it is determined that a net operating losshas been incurred, a deduction may be car-ried back three (3) tax years before the loss

year and/or carried forward fifteen (15) taxyears after the loss year until the net operat-ing loss is used up. The net operating lossdeduction is a business deduction in the yearto which it is carried, regardless of whetherthe taxpayer is engaged in a trade or businessin that tax year. If the taxpayer elected onhis/her federal return to forgo the carrybackperiod, s/he must also forgo the carrybackperiod on the Missouri return.

(3) In the year of the net operating loss, a tax-payer must perform the following to deter-mine the amount to enter as federal adjustedgross income on the Missouri return. Theseprocedures will prevent the potential doublebenefit from a net operating loss.

(A) Complete Schedule A of Federal Form1045 to determine the net operating loss.

(B) Calculate the difference between thefederal adjusted gross income and the netoperating loss (the difference between thefirst line and the last line of Schedule A ofFederal Form 1045).

1. If the net operating loss is greaterthan the federal adjusted gross income, enterthe difference as a positive number on thefederal adjusted gross income line on theMissouri return.

2. If the federal adjusted gross income isgreater than the net operating loss, enter thedifference as a negative number on the feder-al adjusted gross income line on the Missourireturn.

(C) Complete the remainder of theMissouri return as required.

(D) Attach a copy of Schedule A of FederalForm 1045 to the Missouri return.

(4) If a net operating loss carryback creates anegative federal adjusted gross income forthe year to which it is carried back to, thetaxpayer must perform the following to deter-mine the amount to enter as federal adjustedgross income on the Missouri return.

(A) Complete Schedule B of Federal Form1045 to determine how much net operatingloss will be used up in the current tax yearand the net operating loss carryover to be car-ried to the next tax year.

(B) Calculate the difference between thefederal adjusted gross income (after applyingthe net operating loss carryback) and the netoperating loss carryover.

1. If federal adjusted gross income (afterapplying the net operating loss carryback) isgreater than the net operating loss carryover,enter the difference as a positive number onthe federal adjusted gross income line on theMissouri return.



2. If federal adjusted gross income (afterapplying the net operating loss carryback) isless than the net operating loss carryover,enter the difference as a negative number onthe federal adjusted gross income line on theMissouri return.

(C) Complete the remainder of theMissouri return as required.

(D) Attach a copy of Schedule B of FederalForm 1045 to the Missouri return.

(5) Example: Taxpayer A owns a constructioncompany that incurs a loss in 1994. When thetaxpayer completes his/her federal return for1994, federal adjusted gross income com-putes to �$185,000. The taxpayer computeshis/her actual net operating loss on FederalForm 1045 as �$253,191. The taxpayer electsto carry the loss back three (3) years.

(A) Net operating loss is created in 1994:Federal adjusted gross income = �$185,000

(From 1994 Federal Form 1040, line 32)Net operating loss = �$253,191 (From 1994

Federal Form 1045, Schedule A)Modified federal adjusted gross income =

$68,191 for 1994 (Enter on 1994 FormMO-1040, Line 11)(B) Net operating loss carryback to 1991:

Federal adjusted gross income = $131,000(From 1991 Federal Form 1040, line 32)

Net operating loss carryback = �$253,191Federal adjusted gross income after apply-ing the net operating loss carryback =�$122,191

Net operating loss carryforward to 1992=�$172,250 (From 1994 Federal Form1045, Schedule B)

Modified federal adjusted gross income =$50,059 for 1991 (Enter on 1991 FormMO-1040, Line 11)(C) Net operating loss carryback to 1992:


Net operating loss carryback = �$172,250Federal adjusted gross income after applying

the net operating loss carryback = -$23,250

Net operating loss carryforward to 1993 =�$65,500 (From 1994 Federal Form 1045,Schedule B)

Modified federal adjusted gross income =$42,250 for 1992 (Enter on 1992 FormMO-1040, Line 11)(D) Net operating loss carryback to 1993:


Net operating loss carryback = �$65,500Federal adjusted gross income after applying

the net operating loss carryback =$113,500

Net operating loss carryforward = $0 (From1994 Federal Form 1045, Schedule B)

Modified federal adjusted gross income =$113,500 for 1993 (Enter on 1993 FormMO-1040, Line 11)

(6) Example: Taxpayer B owns a retail storethat incurs a loss in 1994. When the taxpay-er completes his/her federal return for 1994,federal adjusted gross income computes to�$185,000. The taxpayer computes his/heractual net operating loss on Federal Form1045 as �$180,000. The taxpayer elects tocarry the loss back three (3) years.

(A) A net operating loss is created in 1994:Federal adjusted gross income = �$185,000

(From 1994 Federal Form 1040, line 32)Net operating loss = �$180,000 (From 1994

Federal Form 1045, Schedule A)Modified federal adjusted gross income =

�$5,000 for 1994 (Enter on 1994 FormMO-1040, Line 11)(B) Net operating loss carryback to 1991:


Net operating loss carryback = �$180,000Federal adjusted gross income afterapplying the net operating loss carry-back = �$49,000

Net operating loss carryforward to 1992 =�$45,000 (From 1994 Federal Form1045, Schedule B)

Modified federal adjusted gross income =�$4,000 for 1991 (Enter on 1991 Form

MO-1040, Line 11)(C) Net operating loss carryback to 1992:


Net operating loss carryback = �$45,000Federal adjusted gross income afterapplying the net operating loss carry-back = $104,000

Net operating loss carryforward = $0(From 1994 Federal Form 1045,Schedule B)

Modified federal adjusted gross income =$104,000 for 1992 (Enter on 1992 FormMO-1040, Line 11)

(7) A nonresident taxpayer of Missouri mustalso follow the procedures outlined in sec-tions (3) and (4) for the amount to enter onthe federal adjusted gross income line on theMissouri return. When completing the FormMO-NRI to calculate the nonresident incomepercentage, if �Missouri Sources� line for�Missouri Nonresident Adjusted GrossIncome� is equal to or greater than �AllSources� line for �Total Adjusted Gross

Income,� enter one hundred percent (100%)in the �Missouri Income Percentage� line.

AUTHORITY: section 143.961, RSMo 1994.*Original rule filed Nov. 29, 1995, effectiveMay 30, 1996.


12 CSR 10-2.720 Reporting Requirementsfor Individual Medical Accounts

PURPOSE: This rule provides the reportingrequirements for individual medicalaccounts.

Editor�s Note: The following material isincorporated into this rule by reference:1) Office of the Law Revision Counsel of the

House of Representatives, InternalRevenue Code, Title 26 U.S. Code, sec-tions 105 and 106 (Washington:Government Printing Office, 1988).

In accordance with section 536.031(4),RSMo, the full text of material incorporatedby reference will be made available to anyinterested person at the Office of theSecretary of State and the headquarters of theadopting state agency.

(1) Employer contributions to an individualmedical account that are used to pay forhealth care expenses of the employee inaccordance with section 143.999, RSMo,shall be exempt from state income tax underChapter 143, RSMo, to the extent that suchcontributions are not excluded from grossincome under 26 U.S.C. sections 105 and106.

(A) Employers making contributions to anemployee individual medical account mustplace in the �Other� box of the year endWage and Tax Statement, the amount of thecontribution, and specify next to the contri-bution, the word �IMA�. The amount indicat-ed as �IMA� must be modified (subtracted)from the employee's federal adjusted grossincome to the extent that it is included in fed-eral adjusted gross income. This amountmust be entered on the Form MO-A as a sub-traction from federal adjusted gross income.The box �Other� must be checked and theword �IMA� must be indicated on thedescription line. A copy of the Wage and TaxStatement must be attached to the employee�sindividual income tax return that is filed.

(2) Any amount in the employee�s individualmedical account that is unspent at the end ofthe year must remain in the account. The



Department of Insurance has established byregulation (20 CSR 400-9.100) a balance forthe account which, if exceeded, allows theemployee to withdraw any moneys in excessof such balance. Any moneys withdrawn fromthe account for non-medical purposes, andinterest earned on such moneys, are consid-ered Missouri taxable income as provided insection 143.999, RSMo, and must be report-ed on the Form MO-1040 in the year the non-medical withdrawal is completed.

(A) The individual medical account admin-istrator must provide to the employee no laterthan January 31 following the previous calen-dar year, a statement indicating the beginningbalance of the individual medical account,the amount of contributions to the account,the amount of medical withdrawals from theaccount, the amount of non-medical with-drawals from the account, the amount ofinterest earned on the account, the amount ofinterest earned on the non-medical with-drawals from the account, and the endingbalance of the account. This statement mustbe attached to the employee�s individualincome tax return that is filed.

(B) The moneys withdrawn from theaccount for non-medical purposes and theinterest earned on such moneys must bereported by the individual/employee as tax-able income on the employee�s individualincome tax return. This amount must beentered on Form MO-A as an addition to fed-eral adjusted gross income. The box �Other�must be checked and the words �IMA non-medical withdrawals� must be indicated onthe description line.

(3) The amount in the employee�s individualmedical account is not subject to state incometax under Chapter 143, RSMo, while itremains in the account. Any amount spentfrom the employee�s individual medicalaccount on medical and health care expenses,and interest accrued on such amount, areexempt from state income tax under Chapter143, RSMo.

AUTHORITY: section 143.961, RSMo 1994.*Original rule filed Jan. 3, 1996, effective July30, 1996.


12 CSR 10-2.730 Expenses Related toProduction of Tax Exempt Interest Income

PURPOSE: This rule clarifies businessexpense reductions related to the production

of exempt interest income pursuant to sections143.431.2 and 143.121.3(a), RSMo.

(1) For purposes of this rule, exempt incomemeans interest or dividends on obligations ofthe United States and its territories and pos-sessions or of any authority, commission orinstrumentality of the United States to theextent exempt from Missouri income taxesunder the laws of the United States. Relatedexpenses are defined as any expenses alloca-ble to the earning of exempt income.

(2) Any expenses incurred in the productionof exempt income shall reduce the exemptincome pursuant to section 143.121.3(a),RSMo. This statute is modeled after 26U.S.C. section 265 (Internal Revenue Code)which disallows the deduction for federalincome tax purposes of expenses incurred topurchase or carry tax-exempt obligations.

(3) In arriving at the amount of relatedexpenses, the taxpayer may use actualexpenses or a reasonable estimate. In gener-al, the taxpayer should use the same or simi-lar method to that used to compute relatedexpenses for federal income tax purposes,provided that the method reasonably reflectsrelated expenses for Missouri-exemptincome.

(4) If a taxpayer fails to compute reasonablerelated expenses, the director will make anadjustment based on the best informationmade available. If sufficient information isnot made available or if the taxpayer�srecords do not provide sufficient information,the director will use the following formula tocompute related expenses:

Exempt income × Expense items=Reduction to exempt incomeTotal income

The principal expense item in this formula isinterest expense, however, the director mayinclude other expense items because of theirdirect relationship to the production ofexempt income. The taxpayer may propose analternative method provided that it properlyreflects the amount of related expenses.

(5) The reduction to exempt income shall bemade only if related expenses total more thanfive hundred dollars ($500).

AUTHORITY: sections 143.121 and 143.431,RSMo 1994.* Original rule filed July 19,1996, effective March 30, 1997.

*Original authority: 143.121, RSMo 1972, amended1977, 1986, 1989, 1990 and 143.431, RSMo 1972.

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