Section 6 Carrying Cost Deductibility of Exempt United States Government Securities

• Library: Tax Law 2009

Banks receive a credit against the bank franchise tax for the corporate income tax they pay. See § 148.030.3, RSMo 2000. The calculation of a bank or consolidated Missouri corporate income tax may ultimately have the result of increasing or decreasing the bank franchise tax. Carrying cost deductibility of exempt United States Government securities has been a banking tax question for several years.

In First Bank of Missouriv.Director of Revenue, No 97-001731 RI, 1999 WL 53076 (Mo. Admin Hearing Comm’n, Jan. 25, 1999), two corporate tax issues were addressed. First Bank and its subsidiaries filed a consolidated Missouri income tax return. The Director of the Missouri Department of Revenue (MoDOR) revoked the consolidated filing and challenged certain deductions for computing the expenses incurred in earning interest on United States government obligations. First, the Administrative Hearing Commission (AHC) concluded that First Bank was permitted to file a consolidated income tax return, despite the fact that one of First Bank’s subsidiaries was a savings and loan association not subject to the corporate income tax. Second, the AHC did not address the substantive law but ruled that, because the tax assessment was...