02.25.11

Did you know that states are considering phasing out their current taxing schemes? Did you know that other states are updating their nexus standards with respect to subjecting “foreign” corporations to taxation? Did you know that state legislatures are attempting to revise their apportionment factors? As states continue to deal with shortfalls in their respective budgets, many are considering some of these options. The following is a list of some recent state and local tax developments that taxpayers should be aware of:

Missouri

2016 will be a year to remember for Missouri corporations as the state’s franchise tax will no longer be imposed for tax years beginning on or after January 1, 2016. The “Show-Me” state Senate recently approved a bill that caps corporate franchise tax liabilities for tax years beginning on or after January 1, 2011, but before December 31, 2015, at the amount of each corporation’s tax liability for the taxable year ending on or before December 31, 2010. The bill gradually reduces the tax rate over a five-year period beginning in 2012 until the tax is completely phased out in 2016. If the corporation had no annual franchise tax liability for the tax year ending on or before December 31, 2010 because the corporation was not in existence or doing business in Missouri, the annual franchise tax for the first taxable year in which the corporation exists is capped at the amount of annual franchise tax liability for the first full taxable year that the corporation was in existence or doing business in Missouri.

Michigan

Spring came early in Michigan this year and a new call to repeal the state’s current taxing structure is already in the air. Michigan Governor Rick Snyder’s proposed budget would repeal the Michigan Business Tax (“MBT”) and replace it with a 6 percent corporate income tax.

New Jersey

There is big news for foreign companies conducting business in New Jersey. In January, the New Jersey Division of Taxation released TAM-6 concerning its Corporation Business Tax (“CBT”) nexus policy for foreign corporations. Using the “economic presence” test, New Jersey may exercise its taxing authority over a foreign business that has no physical presence in the state. All corporations that are domiciled and perform services exclusively from outside the state will now be subject to the CBT in New Jersey if during any year they obtain or solicit business or derive receipts from sources within the state. This revised policy applies retroactively to privilege periods and taxable years beginning on or after January 1, 2002.

Another significant change has, however, failed to materialize in New Jersey as New Jersey Governor Chris Christie recently vetoed a bill passed by the state legislature that would have provided for a single sales factor for the CBT income allocation formula. The now defunct bill would have replaced the current three-factor formula that has a double-weighted sales factor with a single sales factor formula. In addition, the bill would have codified a modified sales factor formula for airlines.

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