PURPOSE: This rule clarifies, for individual
income taxpayers and corporate income taxpayers, the subtraction reduction
related to the production of exempt income pursuant to sections 143.431.2 and
143.121.3(1), RSMo.
(1) For purposes of this rule, "exempt
income" means interest received on deposits held at a Federal Reserve bank or
interest or dividends on obligations of the United States and its territories
and possessions or of any authority, commission, or instrumentality of the
United States to the extent exempt from Missouri income taxes under the laws of
the United States. "Related expenses" are defined as any expenses allocable to
the production of exempt income.
(2) Any expenses incurred in the production
of exempt income shall reduce the exempt income that would otherwise be
subtracted pursuant to section 143.121.3(1), RSMo. This reduction shall only
apply to the extent that such expenses, including amortizable bond premiums,
are included in a taxpayer's Missouri itemized deduction or are deducted in
determining an individual's federal adjusted gross income or a corporation's
federal taxable income. Section 143.121.3(1), RSMo, should be read in light of
26 U.S.C. section
265 (
Internal Revenue Code),
which generally disallows the deduction for federal income tax purposes of
expenses incurred to purchase or carry tax-exempt obligations.
(3) In arriving at the amount of related
expenses, the taxpayer may use actual expenses or, if actual related expenses
are not reasonably determinable, a reasonable estimate. When arriving at a
reasonable estimate, in general, the taxpayer should use the same or similar
method to that which the taxpayer used to compute related expenses for federal
income tax purposes, provided that the method reasonably approximates related
expenses.
(4) If a taxpayer fails
to compute reasonable related expenses, the director will make an adjustment
based on the best information made available. If sufficient information is not
made available and if the taxpayer's records do not provide sufficient
information, the director will use the following formula to compute related
expenses:
|
Exempt
income
|
|
|
|
|
|
____________
|
X
|
Expense items
|
=
|
Reduction to exempt income
|
|
Total
income
|
|
|
|
|
The principal expense item in this formula is interest
expense, however, the director may include other expense items because of their
direct relationship to the production of exempt income. "Total income" in this
formula refers to the figure reported on the "total income" line on the
individual's federal Form 1040 or the corporation's federal Form 1120. The
taxpayer may propose, or the director may use, an alternative method provided
that it better reflects the amount of related expenses.
(5) The reduction to exempt income shall be
made only if related expenses total at least five hundred dollars
($500).
(6) Notwithstanding any
provision of this rule to the contrary, nothing in this rule shall be
interpreted or construed as incorporating by reference any rule, regulation,
standard, or guideline of a federal agency.
Notes
12 CSR
10-2.730
AUTHORITY:
sections 136.120 and
143.961, RSMo 2016.* Original
rule filed July 19, 1996, effective March 30, 1997. Amended: Filed Feb. 6,
2024, effective Sept. 30, 2024.
AUTHORITY: sections
143.121 and
143.431, RSMo 1994.* Original
rule filed July 19, 1996, effective March 30, 1997.
Amended by
Missouri
Register August 1, 2024/volume 49, Number 15, effective
9/30/2024.
