Beginning with the 2023 tax year, Missouri taxpayers can claim a research and development (R&D) tax credit on its state tax returns for R&D activities performed within the state. Not since 2005 have Missourians had the ability to reduce its state tax bill with this credit. If you are a taxpayer or have taxpayer clients in the manufacturing, software development or architects & engineering industries (among others), you’ll want to make this credit part of your tax planning discussions. Please contact KBKG with any questions or for a free benefit estimate.

The Director of the Department of Economic Development (DED) authorized 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. Below are the details of the credit, which KBKG outlined in a previous Tax Insights in 2022:

  • 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.

KBKG Insight:

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.

This article was originally published on 6/22/2022 and updated on 2/9/2024.

About the Author

Michael Maroney | KBKG Senior ManagerMichael 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