A major focus for companies and consultants during the site selection process is a state and community’s tax environment. This is because the different tax rates have a major impact on a company’s bottom line. Companies therefore almost always work to understand tax rates and related information. It is therefore incumbent on us to understand this tax environment and be able to communicate the information in general and the implications within the context of a specific project.
In May 2021, The Tax Foundation, in collaboration with KPMG LLP, released a new report called “Location Matters.” This comprehensive study ranks state corporate tax costs across multiple industries nationwide. Its calculation of real-world tax burdens is “designed as a resource for policymakers, corporate executives, trade organizations, site-selection experts, and media organizations. Location Matters provides the tools necessary to understand each state’s business tax system, going beyond headline rates to demonstrate how tax codes impact businesses, and offering policymakers a road map to improvement.”
A short excerpt of the full study, along with a link to download the full study may be accessed at taxfoundation.org. In addition, the data may be explored via an interactive webtool.
According to the “Location Matters” report, Missouri is ranked 10th in the nation for firms looking to establish a new presence within a state. Further, Missouri ranks 4th in the nation for new labor-intensive manufacturing facilities. The new firm benefits from extremely generous job tax credits and property tax abatements, in addition to structural provisions that favor all firms.
This makes clear that Missouri is a solid decision for growing companies looking for their next location. The previous report was released in 2015 and Missouri’s attractiveness for expanding companies improved across the board since then, partially due to its new 4% corporate tax rate which ranks Missouri second among states that levy such a tax.
In addition to high rankings in general and in manufacturing, Missouri also ranks 7th for mature data centers, 13th for new distribution centers, 14th for new technology centers and 15th for new shared services centers. Notably, “[m]any existing state competitiveness rankings only measure business tax collections as a share of total tax revenue,” said the Tax Foundation in their press release announcing the study’s publication. “Others look at what tax incentives are in place to try and lure in business. Our approach in this guide is novel because it looks at real costs: What is a business going to pay in yearly taxes in each state, what burdens will that business face when it’s new, and what tax costs are going to be in play as it matures?”
As the report highlights, corporate tax reforms implemented in 2020 cut Missouri’s corporate income tax rate from 6.25% to 4%, the nation’s second-lowest rate. Additionally, Missouri allows 50% of federal income tax payments to be deducted when calculating taxable income. While this deduction creates certain distortions and is less simple than a lower overall rate, the combined effect of a low rate and federal deductibility leads to low overall corporate tax burdens. As a result, the state ranks 10th best for new firms and 18th for mature firms.
Further, as part of this broader corporate tax reform package, Missouri now uses single sales factor apportionment, having previously given firms a choice of three-factor or single sales factor. The state’s apportionment formula works to the advantage of firms basing their operations in-state. The state’s throwback rule, which increased burdens for firms that primarily sell out of state, was also repealed, to the benefit of several model firms in our study.
In addition, the report emphasizes that Missouri sources services where the benefits are received, which is to the advantage of firms like shared services centers, and the state exempts manufacturing machinery from the sales tax, which lowers tax costs for both capital- and labor-intensive manufacturing companies.
| Firm Type | Mature Firm Rank | Mature Firm Rate | New Firm Rank | New Firm Rate |
|---|---|---|---|---|
| Corporate Headquarters | 34 | 18.1% | 22 | 15.2% |
| R&D Firm | 31 | 13.3% | 27 | 14.7% |
| Technology Center | 31 | 12.9% | 14 | 13.2% |
| Data Center | 7 | 4.2% | 14 | 9.3% |
| Shared Services Center | 19 | 21.1% | 15 | 21.3% |
| Distribution Center | 24 | 33.5% | 13 | 24.4% |
| Capital-Intensive Manufacturer | 22 | 11.4% | 27 | 12.3% |
| Labor-Intensive Manufacturer | 11 | 8.1% | 4 | 5.0% |