Missouri’s Tax Reforms Impact Banks for 2020
As we have written about previously, Missouri passed significant tax legislation in 2018 that will impact both businesses and individuals in coming years. Community banks will want to carefully consider how these new provisions will impact their institutions.
Rate Reductions
For years beginning on or after January 1, 2020, the corporate income tax rate is reduced from 6.25% to 4.00%. The bank franchise tax rate is also reduced from 7.00% to 4.48%. In future years if there are further reductions in corporate income tax rates, there will also be a corresponding reductions in the bank franchise tax rate.
However due to the interplay between the bank franchise tax and corporate income tax, if your bank earns a large amount of tax-exempt income, you could find your Missouri bank franchise tax liability increasing even though Missouri corporate income tax rates are decreasing.
Other Key Changes
Though tax rates are decreasing, a credit (equal to 0.01677% of total assets less total deposits), which can currently be used to reduce the Missouri bank franchise tax or corporate income tax, has been repealed for tax years beginning on or after January 1, 2020. More favorably, effective August 28, 2019, interest income earned on deposits held at a Federal Reserve Bank may be deducted in calculating Missouri taxable income.
On the personal tax front, for 2018 Missouri enacted a 5% business income deduction for individuals reporting “pass-through” business income on their personal income tax returns from S corporations and partnerships. For 2019 this deduction increases to 10%, and may increase further in future years to a maximum of 20% if Missouri meets certain general revenue budget thresholds.
Next Steps
Tax planning around state tax issues is complex. CLA is here to help. Please contact us.
Amanda Garnett is a principal in the financial institutions practice of CliftonLarsonAllen (CLA) from Peoria, Illinois. She currently leads the firm’s Midwest financial institution tax team and serves institutions ranging in size from $15 million to $3.5 billion in total assets. In addition to tax compliance, Amanda assists clients in the areas of tax consulting, mergers and acquisitions, and regulatory reporting. She also routinely teaches courses for banking associations across the country.
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