Elective Division of Income

PURPOSE: This rule sets forth the fundamental requirements for a petition by a corporate taxpayer for permission to use a special method of allocating income to Missouri. (1) Authority for Rule. This rule is being issued under the general regulatory powers granted to the director of revenue in section 143.961, RSMo which became effective on January 1, 1973. (2) Applicability and Scope of Rule. This rule is intended as an interpretive guideline in the application of section 143.461, RSMo and it sets forth the fundamental requirements for a petition for permission to use a special method of allocation under section 143.461.2., RSMo. This rule applies to all taxable years beginning on or after January 1, 1973, and it also applies with respect to all fiscal year taxable periods which contained parts of each of the years 1972 and 1973 for those corporate taxpayers which had properly elected to determine their tax and taxable income under the provisions of sections 143.011– 143.996, RSMo. Chapter 143, RSMo and the corresponding regulations shall continue in force and effect with respect to all other taxable years. (3) Definitions. As used in this rule— (A) The term director, except as specifically otherwise provided in this rule, shall mean the director of revenue or his/ her duly authorized agent or designee; and (B) The term Missouri taxable income from all sources shall mean so much of the federal taxable income of the corporation for the taxable year increased or decreased, as the case may be, by the modifications provided for in sections 143.121 and 143.141, RSMo. There shall be subtracted, to the extent included in federal taxable income, corporate dividends from sources within Missouri and there also shall be subtracted the federal income tax deduction provided for in section 143.171.1., RSMo. The amount of dividends deducted shall depend on the apportionment method selected. If single factor apportionment is selected, the corporation shall deduct dividends based on whether they are Missouri source dividends or non-Missouri source dividends. This also applies to special methods selected. 1. If the three (3)-factor apportionment method is selected, the dividend deduction shall be based on the apportionment percentage calculated before taking into account any allowable nonbusiness income. Business dividends, as defined by the Multistate Tax Compact, are to be multiplied by the apportionment factor in order to calculate the deduction. Also, a corporation with a commercial domicile in Missouri can deduct any nonbusiness dividends as defined by the compact. 2. The director of revenue may adopt procedures for verifying the actual amount of dividends deducted and may prescribe what documents are necessary for verification. (4) Required Use of Statutory Methods. A corporate taxpayer shall determine income applicable to this state for the taxable year by either—a) multiplying the total Missouri taxable income from all sources for the taxable year by the fraction determined under section 143.451, RSMo, or b) allocating and apportioning the total Missouri taxable income from all sources for the year in the manner determined under section 32.200 article IV. 1.–17., RSMo and by subtracting from the amount so determined, its deduction, if any, for a prior year’s federal income tax under section 143.171.2., RSMo. The preceding sentence shall not apply to those corporations which have received written permission from the director of revenue him/herself to—a) use another method of allocation pursuant to section 143.461, RSMo for the taxable year, or b) use another method of allocation and apportionment pursuant to section 32.200 article IV.18., RSMo if the other approved method is applicable to the taxpayer year and the corporate taxpayer actually uses the other approved method for the taxable year. A corporate taxpayer which uses an authorized method of determining income applicable to this state for the taxable year shall not be entitled to subsequently change to another method with respect to that same taxable year. (5) Request for Permission to Use Other Method. A corporation may make a written petition to the director for permission to determine income applicable to this state for the taxable year by use of its own allocation method if the books and records of the taxpayer are kept in a manner as to show such other method of allocation between this state and other states involved, of income from transactions partly within and partly without this state, including gross income and deductions applicable to gross income, and the method does show the income applicable to this state, including gross income and deductions applicable to gross income. (6) Petition for Use of Other Approved Method. A petition for permission to use a method of allocation disclosed in the taxpayer’s books and records shall be typewritten, delivered to the director of revenue in Jefferson City, Missouri at least sixty (60) days before the end of the taxable year with respect to which the permission is sought, shall be made on the best information, knowledge and belief of the petitioner and shall be subscribed under a declaration that it is made under penalties of perjury. The petition shall contain the name, federal identification number and address of the principal place of business of the petitioner; the address of each location at which the taxpayer conducts business and the nature of the business conducted at each location; the place(s) at which the books and records of the taxpayer are located; the beginning and ending dates of the first taxable year with respect to which permission to use another method is sought; a detailed explanation of the allocation method disclosed in the corporation’s books and records; a clear demonstration of the application of the method by showing each item of income and expense for the taxable year immediately preceding the taxable year with respect to which permission is sought, the states to which income and expense are allocated, and the amounts of each item of income and expense allocated to each state; and other data and information which the corporate taxpayer would urge upon the director in his/her consideration of the petition. (7) Granting of Permission to Use Other Approved Method. If, upon the basis of the facts contained in the petition, other facts which may come to the attention of the director of revenue and all hearings, if any, held with respect to the petition, the director of revenue shall find that the allocation method disclosed in the books and records of the corporate taxpayer does show the income applicable to this state including gross income and deductions applicable to gross income, the director of revenue him/herself or his/her specifically designated representative shall send written notification over his/her personal signature to the corporation at least thirty (30) days prior to the last day on which the corporation’s return for that taxable year is required to be filed (determined with regard to extensions of time for filing) that it may use that method as long as the method shows the income applicable to this state, including gross income and deductions applicable to gross income. No permission shall be deemed to have been granted unless it is granted by the director of revenue him/herself or his/her specifically designated representative in writing over his/her personal signature. The mere use or continued use by the corporate taxpayer of a special method without specific disapproval by the director of revenue or his/her specifically designated representative shall not constitute the granting of permission. A corporate taxpayer which does not receive explicit written permission from the director of revenue him/ herself or his/her specifically designated representative as provided shall be required to determine income applicable to this state under section (4) of this rule. (8) Revocation of Prior Approved Method. A corporation having previously received explicit written permission from the director of revenue him/herself of his/her specifically designated representative to use a special method of allocation shall cease using that method whenever that method ceases to show income applicable to this state, including gross income and deductions applicable to gross income and shall further cease using that method whenever the director of revenue him/herself or his/her specifically designated representative finds and notifies the corporation in writing on or before ninety (90) days before the end of the taxable year that the method does not so show. The revocation of a prior approved method shall not preclude the taxpayer from petitioning to the director of revenue, as prescribed, for permission to use some other method of allocation determined under its books and records. (9) Failure to Timely Acquire Permission for Other Approved Method or to Continue Use of a Prior Approved Method. The failure, after a prior approved method has been revoked, to timely submit a petition for permission to use another method or the failure to make a return on a basis which has been approved by the director of revenue and which stands unrevoked shall constitute an election by the taxpayer to determine income applicable to this state by use of the method provided for in section (4) of this rule. A corporation may use a method which had been approved by the director of revenue for the taxable year only if the prior approved method was applicable to the immediately preceding taxable year and the corporate taxpayer used that other approved method in the immediately preceding taxable year. (10) Information Required to be Submitted With Missouri Income Tax Return. For each taxable year with respect to which a corporation files a Missouri income tax return determining income applicable to this state by use of a special method approved by the director of revenue, there shall be submitted with the return for that taxable year the following items: a copy of the written notice bearing the signature of the director of revenue him/herself where permission to use the other approved method was granted and a statement indicating whether or not there has been a material change in the business operations or accounting procedures from those in existence in the first taxable year with respect to which the permission was originally granted. The failure, refusal or inability of a corporation to submit the items mentioned in the preceding sentence shall constitute an election by the corporation to determine income applicable to this state by use of the methods described in section (4) of this rule. AUTHORITY: section 143.961, RSMo 1986.* Regulation 1.461 was originally filed on Dec. 22, 1975, effective Jan. 2, 1976. Amended: Filed April 4, 1984, effective July 12, 1984. Amended: Filed Aug. 14, 1990, effective Feb. 14, 1991. *Original authority: 143.961, RSMo 1972. In re Kansas City Star Co., 142 SW2d 1029 (1940). Trial court did not err by rejecting offered finding that state auditor had promulgated a rule during the years 1934, 1935 and 1936 declaring the total net income of manufacturing and business companies subject to income tax unless they had a branch house or capital investment outside the state. This rule had been promulgated under former Missouri St. Ann. section 10115, but subsequently overturned by Supreme Court.