Frequently Asked Questions - Corporation Franchise Tax
- I am not a franchise. Why do I have to file a franchise tax return?
- How do I know if I have more than $1 million worth of assets in the state of Missouri?
- Do I have to file a return if I have less than $1 million worth of assets in or apportioned to Missouri?
- My business activity in Missouri is protected under Public Law 86-272. Why do I have to file a franchise tax return and/or pay franchise tax?
- Why do destination sales or involvement in interstate commerce make my corporation liable for franchise tax, even though my corporation may be exempt with the Secretary of State's Office?
- Do Internet sales make my corporation liable for franchise tax?
- What return must be filed for franchise tax?
- How do I compute the franchise tax due?
- When is my franchise tax return due?
- What is the date of the balance sheet I should use to compute my franchise tax return?
- How can my return be due if the year is not over?
- May I file a consolidated franchise tax return?
- How do I compute interest and penalty on my return?
- When do I file a short period franchise tax return?
- Do I file a short period franchise tax return if I sold my corporation?
- How are Qualified Subchapter S Subsidiaries (QSSS) treated for Missouri income and franchise taxes?
- Does my federal extension also extend my time to file my Missouri franchise tax return?
I am not a franchise. Why do I have to file a franchise tax return?
Franchise tax is not based upon whether or not a corporation is a franchise. It is a business tax based upon a corporation's assets.
How do I know if I have more than $1 million worth of assets in the state of Missouri?
Franchise tax is based upon the assets in or apportioned to Missouri. If 100 percent of the corporation's assets are located in Missouri, then the balance sheet total equals the taxable base. If a corporation has assets both within and without Missouri, then the taxpayer must use the formula (Missouri percentage of apportionment multiplied by par value of issued and outstanding stock or adjusted total assets, whichever is greater) to determine the taxable base.
Do I have to file a return if I have less than $1 million worth of assets in or apportioned to Missouri?
Yes. Beginning with franchise taxable years on or after January 1, 2000, all corporations are required to file a franchise tax return and indicate if no tax is due. This indication can be made by marking the available box on the Missouri corporate income/franchise tax returns, Form MO-1120 or MO-1120S, that indicate your assets do not exceed $1 million.
Only corporations that have more than $1 million worth of assets in or apportioned to Missouri must pay a tax.
My business activity in Missouri is protected under Public Law 86-272. Why do I have to file a franchise tax return and/or pay franchise tax?
Public Law 86-272 provides protection for a corporation for income tax and restricts a state from imposing an income tax. Public Law 86-272 does not apply to franchise tax.
Missouri franchise tax is based on assets and is not covered under Public Law 86-272. Section 147.010(1)RSMo, outlines the franchise tax obligations. Missouri CSR 10-9.200, sets out the policy regarding the franchise tax report. If a business is incorporated, qualified, or otherwise engaged in business, it must file a return and pay any tax due.
Why do destination sales or involvement in interstate commerce make my corporation liable for franchise tax, even though my corporation may be exempt with the Secretary of State's Office?
All domestic corporations and all foreign corporations engaged in business (such as having destination sales) or likewise qualified to do business (registered with the Secretary of State’s Office) must file and/or pay franchise tax.
For corporations having assets employed both within and without Missouri, Missouri destination sales are reported as accounts receivable on Schedule MO-FT.
If exact figures for Missouri receivables are not kept in the books and records of the taxpayer, the taxpayer may multiply its Missouri destination sales percentage by its total accounts receivable.
Do Internet sales make my corporation liable for franchise tax?
Yes, because the destination of the good(s) is in Missouri.
What return must be filed for franchise tax?
For tax years beginning on or after January 1, 2000 for corporate income tax and on or after January 1, 2001 for franchise tax, the franchise tax must be reported with Form MO-1120 or MO-1120S. Schedule MO-FT must be included with either Form MO-1120 or Form MO-1120S. If you are not required to file Form MO-1120 or MO-1120S, you must complete the upper portion of either of these two forms, mark the box "franchise tax only" and then complete Schedule MO-FT.
How do I compute the franchise tax due?
Franchise tax is computed based upon the current rate of tax multiplied by the taxable base. For all taxable periods prior to January 1, 2000, the tax rate was 1/20 of 1 percent (.0005). The tax rate for periods beginning January 1, 2000, is 1/30 of 1 percent (.000333).
When is my franchise tax return due?
The due date is determined by the beginning date of the corporation's taxable period. The return is due the fifteenth day of the fourth month from the beginning of the taxable period. For example, if a corporation's year-end is December 31, 2007, then its 2008 franchise tax return is due April 15, 2008. For fiscal year-end corporations, such as March 31, 2008, their 2008 franchise tax return due date is July 15, 2008.
What is the date of the balance sheet I should use to compute my franchise tax return?
The corporation must use the assets as of the first day of the taxable period. For example, a calendar 2008 franchise tax return is based upon assets as of December 31, 2007 or January 1, 2008 and it covers the taxable period from January 1, 2008 to December 31, 2008. A fiscal year end taxpayer (for example) uses the March 31, 2008 or April 1, 2008 balance sheet for the taxable period from April 1, 2008 to March 31, 2009.
How can my return be due if the year is not over?
Franchise tax is filed for the year in advance, based upon the assets as of the first day of the taxable period. For example, if a new entity incorporates or qualifies in Missouri April 18, 2008, and its accounting period ends December 31, 2008, it is required to file its initial franchise tax return the fifteenth day of the fourth month from the beginning of the taxable period. Thus, the due date for the initial franchise tax return is August 15, 2008, based upon assets as of its incorporation or qualification date, for the taxable period from April 18, 2008 to December 31, 2008. Since the initial corporation income tax return is filed after the end of the first accounting year, file a franchise tax only return for the initial short period franchise tax.
May I file a consolidated franchise tax return?
No. Each entity engaged in business and/or incorporated/qualified in Missouri is required to file its own individual franchise tax return based upon its assets in or apportioned to Missouri. Each entity must file using its own Missouri tax identification number issued by the department.
How do I compute interest and penalty on my return?
After the correct due date of the return is determined, the method of calculating late fees is as follows:
- Interest is calculated on a daily rate from the date due to the date paid. See the franchise tax form for applicable interest rate.
- Penalty is calculated at 5 percent per month from the original due date, not to exceed 25 percent.
- If the extension estimate paid is not at least 90 percent of the franchise tax due for the current year, then penalty is calculated from the original due date to the date paid. Interest is always calculated on any unpaid balance of tax from the original due date to the date paid, regardless of whether or not an extension has been filed.
For assistance in calculating additions to tax and interest, click here.
When do I file a short period franchise tax return?
Short periods may be filed for the following situations:
- A new corporation
- A change in accounting periods
- A merger
- A termination
- A withdrawal
If you are filing a short period for a reason other than those previously stated you must attach a detailed explanation when filing your MO-1120. You will be notified if the short period is disallowed or adjustments were made to a previously filed return.
Do I file a short period franchise tax return if I sold my corporation?
A short period franchise tax return may not be required when there is a change in ownership unless there has been a subsequent change in accounting periods. Normally, the prior and present owners pro-rate the taxes during the course of the sale of the business.
How are Qualified Subchapter S Subsidiaries (QSSS) treated for Missouri income and franchise taxes?
QSSS's are treated the same way for Missouri income tax purposes as they are treated with the Internal Revenue Service. One Form MO-1120S is filed under the parent's name and includes all of the activity of the parent and subsidiaries. However, for Missouri franchise tax purposes, each company (parent and subsidiaries) must file a separate Schedule MO-FT. For example, Company P and QSSS companies S1 and S2 file a Federal Form 1120S as parent and qualified Subchapter S subsidiaries. Company P would file Form MO-1120S as Company P and subsidiaries. Company P would complete Schedule MO-FT on just its balance sheet items. Subsidiaries S1 and S2 will file separate Form MO-1120S, mark the box indicating the filing is for "Franchise Tax Only" and complete Schedule MO-FT on each company's balance sheet. Each company would be responsible for paying their franchise tax on the separate Form MO-1120S.
Does my federal extension also extend my time to file my Missouri franchise tax return?
Your federal extension also extends your time to file a franchise tax return to Missouri. This does not extend the time to pay. The corporation should pay at least 90 percent of the estimated current year's tax with the extension request.
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