Most states tax at least some types of business income derived from the state. As a rule, the details of how income from a specific business is taxed depend in part on the business’s legal form. In most states corporations are subject to a corporate income tax, while income from pass-through entities such as S corporations, limited liability companies (LLCs), partnerships, and sole proprietorships is subject to a state’s tax on personal income. Tax rates for both corporate income and personal income vary widely among states. Corporate rates, which most often are flat regardless of the amount of income, generally range from roughly 4% to 10%. Personal rates, which generally vary depending on the amount of income, can range from 0% (for small amounts of taxable income) to around 9% or more in some states.
Currently, six states – Nevada, Ohio, South Dakota, Texas, Washington, and Wyoming – do not have a corporate income tax. However, four of those states – Nevada, Ohio, Texas, and Washington – do have some form of gross receipts tax on corporations. Moreover, five of those states – Nevada, South Dakota, Texas, Washington, and Wyoming – as well as Alaska and Florida currently have no personal income tax. Individuals in New Hampshire and Tennessee are only taxed on interest and dividend income.
Apart from taxing business income through a corporate income tax or a personal income tax, many states impose a separate tax on at least some businesses, sometimes called a franchise tax or privilege tax. This is frequently justified as a tax simply for the privilege of doing business in the state. As with state taxes on business income, the specifics of a state’s franchise tax often depend in part on the legal form of the business. Franchise taxes are generally either a flat fee or an amount based on a business’s net worth.
Missouri has both a corporation income tax but, as of 2016, no longer has a corporation franchise tax. Thus, for the most part, unless your business is a traditional corporation (a C corporation), your business itself will not be subject to a state tax on income or net worth. However, if income from your business passes through to you personally, that income will be subject to taxation on your personal state tax return.
Missouri taxes the income of traditional (C-type) corporations at a flat rate of 6.25%. Corporation income tax returns are due on the 15th day of the fourth month after the close of the tax year – for companies whose tax year corresponds with the calendar year, this means returns are due on April 15th. For purposes of comparison, note that as of 2017 Missouri taxes personal income at marginal rates ranging from 1.5% to 6.00%.
Here’s a brief look at additional details for five of the most common forms of Missouri business: corporations (C corporations), S corporations, LLCs, partnerships, and sole proprietorships.
Missouri corporations are subject to Missouri’s corporation income tax at a flat rate of 6.25% of taxable income.
Example: For the 2018 tax year, your Missouri corporation had taxable income of $400,000. Your corporation will owe Missouri corporation income tax in the amount of $25,000 (6.25% of $400,000).
An S corporation is created by first forming a traditional corporation, and then filing a special form with the IRS to elect S status. Unlike a traditional corporation, an S corporation is not subject to separate federal income tax. Rather, taxable income from an S corporation is passed through to the individual shareholders, and each individual shareholder is subject to federal tax on his or her share of the corporation’s income; in other words, S corporations are pass-through entities. (Note that a shareholder’s share of the S corporation’s income need not actually be distributed to the shareholder in order for the shareholder to owe tax on that amount.) Missouri does not require S corporations to pay income tax. However, each individual S corporation shareholder will owe state tax on his or her share of the company’s income.
Example: For the 2018 tax year, your Missouri S corporation had taxable income of $400,000. The corporation’s net income will be allocated to you and your fellow shareholders, and you will each pay tax on your own portions on your individual state tax returns, with rates varying depending on overall taxable income.
Standard LLCs are pass-through entities and are not required to pay income tax to either the federal government or the State of Missouri. Instead, income from the business is distributed to individual LLC members, who then pay federal and state taxes on the amounts allocated to them.
Note, however, that while by default LLCs are classified for tax purposes as partnerships (or, for single-member LLCs, disregarded entities), it is possible to elect to have your LLC classified as a corporation. In that case, the LLC would also be subject to Missouri’s corporation income tax.
Example: For the latest tax year, your multi-member LLC, which has the default tax classification of partnership, had taxable income of $400,000. The $400,000 in net income will be divvied up between you and your fellow LLC members, and you will each pay tax on your respective portions on your respective, individual Missouri tax returns, with rates varying depending on overall taxable income.
Missouri partnerships are not subject to Missouri’s corporation income tax. Instead, income from the business is distributed to the individual partners, who then pay tax on the amount distributed to them on both their federal and state tax returns.
Example: For the latest tax year, your partnership had net income of $400,000; this amount will be divvied up between you and your fellow partners, and you will each pay tax on your respective portions on your respective, individual Missouri tax returns, with rates varying depending on overall taxable income.
Missouri sole proprietorships are not subject to Missouri’s corporation income tax. Instead, income from your business will be distributed to you as the sole proprietor, and you will pay tax on that income on your individual federal and state tax returns.
Example: For the latest tax year, your sole proprietorship had net income of $100,000. The $100,000 in net income is distributed to you personally, and you pay tax on that income on your individual federal and state tax returns.
Our primary focus here is on businesses operating solely in Missouri. However, if you’re doing business in several states, you should be aware that your business may be considered to have nexus with those states, and therefore may be obligated to pay taxes in those states. Also, if your business was formed or is located in another state, but generates income in Missouri, it may be subject to Missouri taxes. The rules for taxation of multistate businesses, including what constitutes nexus with a state for the purpose of various taxes, are complicated; if you run such a business, you should consult with a tax professional.
For further guidance on Missouri’s corporation income tax, visit the Missouri Department of Revenue. For information on business-related taxes in other states, check Nolo’s 50-State Guide to Business Income Tax. And, if you’re looking for detailed guidance on federal income tax issues, check Tax Savvy for Small Business, by Federick Daily (Nolo).
Updated: June 18, 2018