Missouri Banks to Undergo Positive Tax Law Changes for 2020

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Tax year 2020 will bring several positive changes for Missouri banks.  Senate Bills 884 and 769 (taking effect January 1, 2020), and Senate Bill 174 (took effect August 28, 2019), all could potentially affect your bank in big ways.  Tax law changes can be tedious to decipher, so we’ve highlighted the main points for you:

  1. The Missouri corporate income tax rate drops from 6.25% to 4%.
  2. An affiliated group of corporations no longer has to derive 50% or more of its income from sources within Missouri in order to file a consolidated return (more of an administrative change).
  3. Corporations subject to Missouri income tax are required to apportion and allocate income by using the single sales factor apportionment method.
    • The single sales factor method is based exclusively on the sales made in Missouri, not on the location of property or employees.
    • The three-factor apportionment option (historically, the most used option) is disallowed.
  4. Going forward, each year the corporate income tax rate drops there will be a corresponding and proportional reduction in the rate of taxes applicable to financial institutions.
  5. Interest paid by Federal Reserve Banks on reserve deposits is exempt from Missouri adjusted gross income.
    • This interest will continue to be taxed by Missouri’s financial institution’s tax.
  6. Missouri state individual income tax:
    • Tax rate is now 5.4%
    • Business income deduction (percentage of income reported on Schedule C or from S Corporation K-1) is 10% for 2019
  7. A deduction of 50% of federal income tax is allowed when computing Missouri income tax. Federal tax rates have dropped due to The Tax Cuts and Jobs Act, and this deduction has decreased as well, resulting in higher Missouri income tax.
  8. Missouri Bank Franchise Tax (BFT) changes:
    • Rate drops to 4.48%
    • BFT credit equal to a percentage of total assets less deposits has been repealed
    • Deduction of 100% of federal income tax is allowed when computing BFT
  9. Brokered or negotiable CDs that are fully insured by the FDIC are now added to the list of securities that the State Treasurer and the Treasurer of the City of St. Louis may require as collateral from financial institutions.
  10. Banks serving as a depositary for public funds can invest in the same manner as the State Treasurer.
  11. For deposit accounts that have been inactive for 12+ months, financial institutions must notify the customer through first class mail postage prepaid marked “Address Correction Requested” or through email (if consented).
  12. After an account has been in dormant status for five years, the account must be remitted to the Abandoned Fund Account administered by the State Treasurer.

For more information on Senate Bills 884, 769, and 174, simply reach out to a member of our Community Banking Group, or click here: https://www.senate.mo.gov/19info/BTS_Web/BillList.aspx?SessionType=R

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