Missouri Senators discuss elimination of corporate franchise tax

By Matthew Patane

JEFFERSON CITY – Missouri business owners and representatives showed their support in front of the Senate Jobs Committee Wednesday for two bills that would effectively rid the state of the corporate franchise tax.

Legislative staff cite estimates that Missouri collects more than $70 million per year from the franchise tax.

Capping the franchise tax was one of six proposals that a consortium of the state’s major business organizations endorsed at the start of the legislative session earlier this month.

Ray McCarty, president of Associated Industries of Missouri, a business trade association, said his group wants the corporate franchise tax completely eliminated, but that the organization would accept what they could get from the bills.

“If there is anyway we can control, torture or kill this franchise tax, then we should do it,” McCarty said to the committee.

Tracy King, a vice president with the Missouri Chamber of Commerce, called the franchise tax “antiquated” and a deterrent for business growth.

“Not only is it double taxation, it’s an antiquated tax,” King said. “It was only supposed to be temporary but it is a disincentive for those employers to grow and if they are going over the $10 million threshold there is a huge tax burden.”

Committee Chairman Sen. Eric Schmitt, R-St. Louis County, sponsored the two bills and spoke to his fellow committee members about the franchise tax and its impact on corporate investment in Missouri.

“The tax was instituted about 100 years ago and is an outdated tax, created before there was a corporate income tax and it’s really a double tax on assets for businesses who already pay an income tax and sales tax,” Schmitt said to the committee. “[Businesses] actually have an incentive to move their assets outside of the state, so this is really a disincentive for investment.”

Schmitt has sponsored two different bills on the issue — one to cap the tax at its current maximum collection rate and the other to completely phase out the tax:

One bill will freeze the franchise tax at the 2010 level. Originally the bill established a cap of $2 million for the tax, but this did not provide relief for small companies that go below this level, Schmitt said. The new bill now provides that corporations will be taxed based on what they paid in 2010 or, if they are new companies, what they are taxed in their first fiscal year.

The second bill proposes to phase out the franchise tax over the next five years. Starting in 2012, the bill proposes to slowly reduce the franchise tax until it is completely phased out by 2016.

If enacted, the dissolution of the franchise tax would encourage corporate investment and expansion in Missouri, Schmitt said.

“[With the tax] what you’re telling companies is ‘don’t invest, don’t make your capital improvements here’ and that’s not a message we want to give,” Schmitt said. “What we want to do is, as Illinois has raised their corporate income tax and personal income tax by two-thirds, we think this is a good way to set us apart and tell businesses that they can come here without being double taxed.”

A measure to reduce the franchise tax cleared the House in 2009, but was killed by the Senate committee that reviews measures that would have a negative impact on the state’s budget. Legislative staff estimated the proposal would have cost the state more than $7 million per year.

No one has testified against either bill.