It has been nearly 18 years since Missouri taxpayers have seen a state credit related to its qualified research expenditures (QREs). This may change beginning in 2023! In an effort to further stimulate Missouri’s economy, State Senator Brian Williams offered an amendment to HB 2400 sponsored by State Representative Dan Houx. This amendment attempts to revive Missouri’s state R&D tax credit, which expired in 2005. This legislation was sent to the Governor’s desk for signature on May 18, 2022. Missouri could join 38 states currently offering a state tax incentive for QREs incurred within the state.
Beginning January 1, 2023, the Director of the Department of Economic Development (DED) may authorize a tax credit of 15% of a taxpayer’s qualified research expenses OR 20% if the additional research expenses relate to research that is conducted in conjunction with a public or private college or university located in Missouri.
- Any unutilized credits may be carried forward for 12 years.
- The annual cap for the credit is set at $10 million.
- The credit is capped at $300,000 for a single taxpayer.
- $5 million is reserved for minority businesses, women’s businesses, and small businesses.
- The purchase of Missouri-qualified research and development equipment is specifically exempt from state and local sales and use tax.
- The credit provisions will expire on December 31, 2028.
The qualified expenses eligible for this credit must relate to the activities meeting the requirements of IRC §41 (To be eligible for R&D Tax Credits, research activities must meet the criteria in the IRS Four-Part Test). The tax credits are available for expenditures including:
- Wages paid to an employee performing research activities conducted at a facility in Missouri.
- Wages paid to any employees directly supporting or directly supervising an employee performing research activities conducted at a facility in Missouri.
- Supplies used or consumed while performing research activities at a facility in Missouri.
- A portion of 3rd party research conducted in Missouri.
Missouri’s proposed R&D credit will be a boost to taxpayers, particularly small and minority-owned businesses. The immediate cash savings from the credit allows taxpayers to invest in their businesses, hire employees and launch new products. The sales and use tax exemption will likely encourage capital expenditures to build out a lab or expand a production facility. These tax savings are in addition to any federal R&D credit for which Missouri taxpayers are already eligible.
What Opportunity Does the Missouri R&D Tax Credit Create?
The federal R&D credit already offers Missouri taxpayers roughly 10% of its QREs in the form of a tax credit. Should the Governor sign this legislation, Missouri taxpayers could potentially receive a combined federal and state credit equal to 25% of its total QREs. This could make Missouri a more attractive state in which to start a business. For those businesses already operating in the state, this credit could provide a huge tax savings for activities they are already conducting.
Questions about Missouri’s reviving R&D Tax Credit and how this news applies to your business? We can help. Contact us today.
About the Author
Michael Maroney – Director
Michael Maroney is a Director with KBKG at our Chicago, IL office. He advises clients on tax matters related to federal and state R&D tax credits. He has advised numerous Fortune 1000 clients across a variety of industries. He has successfully defended his client’s R&D claims before the IRS and state taxing authorities. He has been an instructor on these topics for numerous CPA and industry associations and has authored articles related to federal and state R&D tax credits. » Full Bio