As a rolling conformity state, Missouri uses federal corporate taxable income after net operating losses (Federal Form 1120, Line 30) as the starting point to determine Missouri corporate taxable income. This results in the automatic inclusion in the Missouri return, of the new Internal Revenue Code (IRC) section 951A, which taxes a U.S. shareholder on its controlled foreign corporation’s GILTI income. On a federal level, new IRC section 250 allows a special deduction of one-half of the U.S. shareholder’s GILTI amount, in addition to the related IRC section 78 gross-up. This adjustment is also included in Missouri’s starting point of Line 30.
Missouri recently released guidance on the correct treatment of these new IRC sections for purposes of corporate income tax. The net amount of the section 951A income and the section 250 deduction is referred to as the “Net GILTI Amount.” This amount is treated as a dividend and included in the starting point of the Missouri income tax calculation. Missouri allows a deduction for dividends received. However, the treatment depends on the apportionment method selected.
Missouri statutes provide eight apportionment methods for determining corporate taxable income. For taxpayers apportioning income under Method One, which is an equally weighted three-factor method, an apportioned share of the Net GILTI Amount may be subtracted as a Missouri Dividends Deduction. The Net GILTI Amount should be included in the sales factor for three-factor apportionment purposes if it qualifies as a sale under the appropriate statutes.
For taxpayers apportioning income under Method Two or Two A, the single factor and optional single sales factor method, an apportioned share of Net GILTI Amount, should be included in the Missouri Dividends Deduction to the extent it is attributable to Missouri sources. To the extent that this income relates to non-Missouri payors, the Net GILTI Amount should be subtracted from taxable income after apportionment. The Net GILTI Amount does not constitute sales or business transacted for purposes of calculating the numerator or the denominator of the Method Two or Two A apportionment factors.
Taxpayers may also treat the Net GILTI income as nonbusiness income and allocate that income under the standard nonbusiness allocation rules. Taxpayers who choose to treat the income as nonbusiness income should include a detailed explanation as to why the income is nonbusiness income. The Department has indicated that failure to include an explanation will result in a disallowance of the nonbusiness treatment.
For taxpayers filing a federal consolidated return and a separate Missouri return, the above rules should be followed. The calculation of the Net GILTI Amount, however, should be done as if each member of the affiliated group filed a separate federal return. Only the entity owning the controlled foreign corporation would report the income and related deduction.
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