Lawmakers vote to repeal tax on businesses' assets, property

JEFFERSON CITY, Mo. -- One of the state's oldest taxes -- a levy on corporations' assets, inventory and property -- is headed toward the chopping block, at least in the House.

For almost 90 years, corporations with locations in Missouri have been required to pay both an income tax on yearly earnings and a franchise tax on any possessions within the state. Critics call the franchise tax -- enacted less than a month before the corporate income tax and two years before an individual income tax -- a prime example of Missouri's confusing and excessive tax code.

With state revenue up and lawmakers debating where to add money rather than where to cut it for the first time in several years, the business lobby has set its sights on finishing off a tax last lowered in 1999.

The House already has given first-round approval to a bill that over the next several years would lower the franchise tax rate, raise the minimum worth subject to the tax and ultimately repeal it in 2011.

"The franchise tax is probably one of the stupidest taxes that we've ever come up with. It's nothing more than a tax in order to do business in Missouri," said Brad Jones, the state director for the National Federation of Independent Business. "It runs counter to every economic development initiative that's been used to try to attract businesses to Missouri."

Since the state franchise tax was enacted in 1917, the Legislature has been softening it by exempting smaller businesses and lowering the tax rate.

Originally, any domestic or foreign registered corporation engaged in any level of business in Missouri had to pay a 0.75 percent tax -- the minimum payment was $25. Two years later the tax rate was reduced, and it was reduced again two years after that.

Last year the Department of Revenue collected $120 million from the franchise tax -- just a fraction of the $12.3 billion that was collected in total revenues. Almost three-quarters of the total tax receipts came from individual income or state sales taxes, with corporate income taxes making up just over 2 percent of total receipts.

Since 1998, there have been proposals to just do away with the tax, and Gov. Matt Blunt included a repeal on his platform while campaigning in 2004.

Ray McCarty, executive director of a tax research group funded by Associated Industries of Missouri, said inflation has made the franchise tax a bigger pill to swallow and that it is especially onerous for businesses because filing the forms is difficult.

"You have to total up all your assets and then pay the actual tax, so it's a double problem for businesses. It's complex, and then, being a tax, they have to pay," he said.

But Democratic critics say a complete repeal would be expensive and is unlikely to do much to expand businesses into Missouri.

Rep. J.C. Kuessner said companies looking to expand evaluate new locations based on education systems, transportation networks and a host of other factors before considering taxes -- especially one that has such a small impact on individual businesses.

"If they can't afford the corporate franchise tax, then they can't afford to be in business anyway," Kuessner, D-Eminence, said.

Rep. Mike Sutherland, chairman of a House committee responsible for taxes and a panel investigating state tax policy, said a phased-in repeal of the tax is the first step in a bigger effort to simplify the tax code while making taxes more efficient by doing a better job to spread out where the tax receipts come from.

Sutherland, R-Warrenton, said that because local governments have not linked onto the franchise tax, it made the most sense to begin the larger process of overhauling state tax policy there.

"By reducing the burden on businesses as far as the complexity of the tax code as well as the tax burden, we will attract new businesses to Missouri while our existing ones will be able to invest their resources and provide more jobs," he said.