Section 14 State Income Tax Deduction Addback

• Library: Tax Law 2009

Under federal law, a corporation is allowed a deduction for income taxes paid to any state. See I.R.C. § 164. Missouri does not allow corporations to deduct income tax paid to Missouri or income taxes paid to any other state or political subdivision or the District of Columbia. Section 143.431.2, RSMo Supp. 2007, and § 143.141(1) and (2), RSMo 2000. Any deduction for state or local income taxes used in calculating federal taxable income is added back in the computation of a corporation’s Missouri taxable income.

This provision applies only to “income taxes.” In 1984, the Supreme Court of Missouri determined that the term “income taxes,” as used in § 143.141(2), does not include “taxes on subjects other than income, although measured by income.” King v. Procter & Gamble Distrib. Co., 671 S.W.2d 784, 785
(Mo. banc 1984). The Court noted that “franchise taxes and income taxes are separate and distinct types of taxes.” Id. at 786.

In Herschend v. Director of Revenue, 896 S.W.2d 458 (Mo. banc 1995), the Supreme Court of Missouri provided further guidance regarding the factors that are relevant in distinguishing a franchise tax from an “income tax” within the meaning of the Missouri tax statutes. Hersc...