By: Chris Pieper
Beginning in 2017, new tax incentives are available for manufacturers or distributors of manufactured goods shipped through Missouri ports. Senate Bill 861 (2016) enacted three new tax deductions for companies transporting cargo through water ports and airports in Missouri. See Sections 143.2100-.2115, RSMo. The Missouri Department of Economic Development (DED) and the Missouri Department of Revenue (DOR) are charged with jointly administering the new tax deductions. Taxpayers and tax professionals should be aware of these deductions and take steps to determine their eligibility for the 2017 tax year.
- Tax Deduction for Increased Port Cargo – Section 143.2105, RSMo.
For tax years 2017 through 2022, manufacturers and distributors of manufactured goods that increase the volume of cargo they ship through Missouri water ports and airports by at least five percent are eligible for a deduction of up $50 per twenty-foot equivalent (TEU) or non-containerized cargo equivalent above their base year cargo volume. To be eligible, the taxpayer must have shipped at least 75 tons of non-containerized cargo or ten loaded TEUs during the applicable “base year,” which is defined as either calendar year 2015 or the first calendar year in which they shipped at least this volume of cargo. The base year cargo volume is then recalculated each subsequent calendar year.
A manufacturer or distributor of manufactured goods with a new facility to be located in Missouri that is projected to import or export more than 25,000 TEUs or noncontainerized equivalent in its first calendar year (defined as a “major facility” in the legislation) is also eligible for the $50 per TEU deduction. In addition, for a major facility, DED is give the discretion to waive the requirement that port cargo volume increase by at least five percent over the base year.
The legislation limits the deduction to $250,000 per taxpayer, with $3.5 million in deductions available annually to all taxpayers on a first-come-first-served basis. The deductions can be claimed only if the taxpayer owns the cargo at the time the Missouri port is used.
To claim the deduction, the taxpayer must submit an application to DED by no later than March 1st of the calendar year after the calendar year in which any increase in port cargo volume occurs—i.e. by March 1, 2018 for taxpayers seeking to take advantage of the deduction for tax year 2017. The legislation specifies some of the information that must be included in the application, including how the taxpayer determined the increase in port cargo volume, the amount of the base year port cargo volume, and if the taxpayer has ever previously utilized the deduction.
- Tax Deduction for Shipping Through an “International Trade Facility”—Section 143.2110, RSMo.
For tax years 2017 through 2022, a taxpayer qualifying as operating an “international trade facility” is eligible for a $25 deduction per TEU or equivalent non-containerized cargo moved by airplane, barge or rail. To qualify as an “international trade facility,” the company must: (1) be engaged in water port or airport related activities (e.g. warehousing, distribution, freight forwarding/handling, and goods processing); (2) have sole discretion and authority to move cargo originating and terminating in the state; and (3) use airplanes, barges, trucks, or rail systems to move cargo through water ports or airports located in the state.
A total of $2 million in deductions are available annually for all taxpayers, with no limit on the amount that may be claimed annually per taxpayer. The taxpayer must apply to DED for a certification regarding the amount of the deduction approved and attach the certification to its tax return.
- Tax Deduction for Job Creation and Capital Investment Related to an “International Trade Facility”—Section 143.2115, RSMo.
For tax years 2017 through 2022, a taxpayer establishing or expanding an “international trade facility” in Missouri is eligible for a deduction of $3,500 per qualified full-time employee resulting from increased “qualified trade activities” or two percent of capital investment to facilitate increased “qualified trade activities.” “Qualified trade activities” include the export or import of at least one International Organization for Standardization (IOS) ocean container or non-containerized equivalent through a cargo facility operated by a Missouri port authority or an airport in Missouri. To qualify for this deduction, the company must transport at least ten percent more cargo through port facilities than during the prior year.
Eligible “capital investment” includes improvements to depreciable real property placed in service during the tax year, and the cost of machinery, tools, and equipment used in an international trade facility “directly related to the movement of cargo” placed into service on or after January 1, 2017. Examples of eligible capital investment listed in the legislation include exterior, structural, mechanical, or electrical improvements, excavations, grading, paving, driveways, roads, sidewalks, landscaping, and other improvements. There are also a number of specific exclusions, including acquisition costs, furnishings, outbuildings, water or wastewater infrastructure, and a variety of professional fees and other soft costs.
To be eligible for the deduction, a new, permanent full-time position must be created after establishing or expanding an international trade facility and must require at least 35 hours per week for at least 48 weeks or at least 35 hours per week for the portion of the year for which the employee was hired or transferred to the facility. Temporary positions, jobs created through a shift in functions from an existing location in the state, and ancillary positions (e.g. maintenance, security, etc.) are ineligible. Similarly, employees previously in the same job function or whose job function was performed in a different location in Missouri (either for the company, a related company or a company under common control) are ineligible.
Unlike other job-related deductions or credits in Missouri, there is no requirement that the position be paid the county average wage or be provided benefits by the employer in order for it to be eligible. In addition, “affiliated companies” can aggregate jobs or capital investment in order to qualify. “Affiliated companies” are defined as two or more companies related to each other such that one owns at least 80 percent of the voting power of the other(s) or the same interest owns at least 80 percent of the voting power of two or more companies.
A total of $500,000 in deductions are available annually for all taxpayers, and the amount of the deduction cannot exceed 50 percent of the taxpayers Missouri adjusted gross income. A deduction can be recaptured in any of the five years after the deduction was earned if the average number of jobs at the facility falls below the average number of jobs at the facility prior to claiming the deduction.
The taxpayer must apply to DED for a certification regarding the amount of the deduction and attach the certification to its tax return filed with DOR. DED is required to issue guidelines for (1) the computation and recapture of deductions; (2) the computation, recapture, and redemption of deductions by affiliated companies; and (3) eligibility criteria for international trade facilities, qualified full-time employees at such facilities, and eligible capital investment.
Chris Pieper’s practice focuses on Regulatory & Government Solutions, Public Finance and Incentives, Real Estate, and Litigation. Chris recently returned to private practice following service in state government, including as Chief of Staff to the Governor, Director and General Counsel of the Missouri Department of Economic Development, Deputy General Counsel for the Missouri Department of Natural Resources, Legislative Director for the Missouri Department of Revenue, and Special Assistant Attorney General.