Missouri legislators may repeal franchise tax

Editor's note: This is the third in an occasional series exploring a legislative agenda of the Missouri Chamber of Commerce and Industry and other business groups known as the Fix the Six campaign. The effort was launched in January and addresses six areas where the groups think Missouri can improve in order to attract and assist businesses.

Missouri legislators hope phasing out the state's corporate franchise tax will help businesses expand and employ more workers.

Despite its name, the tax doesn't apply just to franchised businesses. It applies to all Missouri-based businesses, including banks, with more than $10 million in assets.

Dennis Vinson, owner of Signature Packaging and Paper, said his growing Jackson business isn't at the $10 million mark yet, but he's hoping to get there. Figuring additional tax liabilities are critical to any business expansion plan, he said.

His company, which produces corrugated boxes primarily for Procter & Gamble, received the Missouri Chamber of Commerce and Industry's Fast Track Award in November. The award recognizes companies that have experienced the greatest growth rate during the past four years.

"It's something to be concerned with," Vinson said of Missouri's franchise tax. "As we go forward and grow, tax considerations are always at the forefront."

Eliminating the franchise tax is one of six changes the Missouri Chamber of Commerce and Industry is advocating for in this legislative session to make Missouri a better place to do business.

"We have pushed for complete elimination for more than 15 years," said Tracy King, vice president of governmental affairs with the Missouri Chamber. "The franchise tax is an onerous tax because it represents double taxation. Businesses pay the franchise tax in addition to property tax and income tax."

Franchise tax also puts Missouri at odds with surrounding states when trying to recruit new businesses, King said.

Most states in the Midwest do not have both a corporate franchise tax and a corporate income tax.

Both the Missouri Senate and House of Representatives have passed bills to eliminate the state's franchise tax. Senate Bill 19, sponsored by Sen. Eric Schmitt, R-Glendale, passed out of the Senate and has been referred to the House Committee on International Trade and Job Creation.

House Bill 76, sponsored by Rep. Jerry Nolte, R-Gladstone, has passed out of the House and had its first reading in the Senate.

Missouri's current franchise tax rate is 1/30 of 1 percent of a business' outstanding shares and surplus. Proposed legislation would reduce the tax rate each year until the tax is eliminated in 2016.

Eliminating the franchise tax will result in a loss of $87.5 million in general revenue by the time it is phased out, according to the fiscal note attached to the bill.

"Do you score the elimination of tax as expenditure? I don't score it that way," said Sen. Jason Crowell, R-Cape Girardeau. "My hope is it will make us more competitive as we work to locate new capital expansions in state of Missouri."

Although he supports SB19, Crowell said he has concerns about how the state will make up the lost revenue.

No analysis of the economic effect has been done to demonstrate how much business growth could occur as a result of the elimination of the franchise tax, Crowell said.

Supporters argue eliminating the franchise tax would free up resources for companies to use to fund expansions and add employees, in turn growing the state's tax base and state revenue.

"Anytime companies are able to reinvest their revenue by putting that money back into their facility, that's an extremely positive thing," said Mitch Robinson, executive director of Cape Girardeau Area Magnet. "If they don't reinvest, they're probably getting ready to close or move out of the state."

Phasing out the franchise tax will make Missouri more attractive to companies considering locating here, he said, but how much this factors in differs depending on the individual business development.

"Companies look at labor costs, utility costs and transportation, too, but taxes are almost always in the top five factors," Robinson said.

Taxes cut into a company's profitability, whether they're looking at Missouri as one of many plant sites, or if Missouri is their only site, taxes are still a factor, he said.

Missouri's franchise tax dates back to 1914, before there was a corporate income tax in the state. In 1999, lawmakers eliminated the tax for businesses with $1 million or less in value and reduced it by one-third for all other employers. In 2009, the tax was eliminated for businesses with less than $10 million in assets.

mmiller@semissourian.com

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