Taking advantage of new tax laws requires careful review

By Linda Redeffer

Business Today

During the tax season, business owners and managers will be trying to learn everything they can about tax breaks at all levels to keep a bigger portion of their profits.

In 2007, there were several changes at the state and federal level for a variety of taxes from sales tax breaks for new equipment to income tax changes that must be incorporated in this year's return.

At the state level, what started out as a bill to expand a sales tax exemption for trucking companies was enlarged to include several tax breaks, with the biggest an exemption for utility costs and new equipment for manufacturers.

Ray McCarty of the Taxpayers Research Institute of Missouri said any size business can take advantage of this tax break which exempts them from paying state, but not local, sales tax. It became effective Aug. 28, 2007.

"We held a series of meetings all over he state trying to get the word out about the manufacturing exemption," McCarty said. "Most of the people who attended were small businesses, medium businesses. This is a big savings for them."

McCarty said TRIM estimates that businesses across the state will save an estimated $8 million in sales taxes.

"That's not a big hit for the state budget, but you talk about $8 million for manufacturers in the state, it's a pretty good savings for each company," McCarty said.

In May, Sen. Jason Crowell, R-Cape Girardeau, worked to change the proposed bill to leave in the sales taxes for cities and counties pointing out that Cape Girardeau County, which is financed largely by sales taxes, could lose an estimated $365,000 a year from just the utilities purchased by Procter & Gamble alone. The compromise amount saved P&G more than $1 million annually, and lessened the hit on the county budget. The effect on utilities' income, he said, is negligible.

McCarty said that it's difficult to track how many companies are taking advantage of this sales tax break. Judging from discussions that TRIM has had with utilities, he said it's estimated that a little less than half of Missouri's manufacturing businesses have taken advantage of it. He speculates that those who haven't yet probably don't know about it.

"We're trying to get the word out," he said.

To take advantage of the tax savings, a business needs to file an exemption certificate with all the vendors it buys from. Those items include electrical energy, gas -- whether natural, artificial, or propane -- water, coal, energy sources, chemicals, machinery equipment, materials that are used in the manufacturing, processing, compounding, mining, or producing of any product or the processing of recovered materials, or in research and development related to manufacturing, processing, compounding, mining, or producing any product.

Copies of the exemption certificate may be downloaded from the TRIM website: motaxpayers.com.

For business that are thinking of relocating or expanding their operations, the legislature last year expanded the Enhanced Enterprise Zone rules provide additional tax credits.

Enhanced Enterprise Zones are specified geographic areas designated by local governments and certified by the Missouri Department of Economic Development. Zone designation is based on certain demographic criteria, the potential to create sustainable jobs in a targeted industry and a demonstrated impact on local industry cluster development.

Once established, the zone will provide property tax abatements for industries that chooses to set up shop within the zone boundaries.

Nine municipalities in Scott County have applied to be an Enhanced Enterprise Zone: Scott City, Chaffee, Vanduser, Haywood City, Blodgett, Morley, Dielstadt, Miner and a small part of Cape Girardeau.

"We're very excited. It's a win-win," Chaffee mayor Loretta Mohorc said of inclusion in the enterprise zone.

The Enhanced Enterprise Zone Program is a discretionary program offering state tax credits, accompanied by local property tax abatement, to Enhanced Business Enterprises. Tax credits may be provided each year for up to five tax years after the project commences operations.

To receive tax credits for any of the years, the facility must create and maintain the minimum: New or expanded business facility and two new employees and $100,000 new investment; replacement business facility and two new employees and $1 million new investment.

Eligible investment expenditures include the original cost of machinery, equipment, furniture, fixtures, land and building, and/or eight times the annual rental rate paid for the same. Inventory is not eligible.

Information about the Enhanced Enterprise Zone designation is available from the Missouri Department of Economic Development.

Changes

Changes for businesses in 2007 from the Internal Revenue Service, according to the IRS Web site, include:

• New depreciation limits on electric vehicles.
• An increase in the domestic production activities deduction from 3 percent to 6 percent.
• An increase in the the maximum net earnings subject to the Social Security part of the self-employment tax for tax years beginning in 2007 to $97,500. All net earnings of at least $400 are subject to the Medicare part of the tax.
• The maximum amount of wages subject to the Social Security tax for 2007 is $97,500. There is no limit on the amount of wages subject to the Medicare tax.
• The standard mileage rate deduction for business travel increases to 48.5 cents per mile.
• The IRS has changed rules surrounding the welfare-to-work credit which is now combined with the work opportunity credit.

A business's accountant will have details on the IRS changes.

At the state level, the Missouri Department of Revenue has changed how it taxes Social Security payments as well as public and private pensions. The maximum exemption allowed for a public pension is $6,000 or 20 percent of an individual's public retirement benefits. The deductible percentage of the public retirement benefits will increase until 100 percent in 2012. To be eligible for the full deduction the Missouri adjusted gross income must fall within income guidelines: $85,000 single, head of household or qualifying widow; $100,000 married filing jointly and $85,000, married filing separately.

The maximum exemption for a private pension is $6,000. To be eligible for the full pension exemption the Missouri adjusted gross income must fall with in certain limits: $25,000 for single, head of household or qualifying widow; $32,000 for married filing jointly and $16,000 for married filing separately.

Up to 20 percent of taxable Social Security or Social Security disability payments may be exempt from state income taxes. The deductible percentage of Social Security and disability benefit will increase until 2012. Income limits are the same as with public pensions.

McCarty of the Taxpayers Research Institute said that very few changes in Missouri income taxes will affect businesses. The Department of Revenue Web site does mention that long-term care insurance may be deducted 100 percent for 2007 instead of 50 percent as in years past.