Tax rates are among the lowest in the country in Missouri with the 8th best corporate tax rate. The nonpartisan Tax Foundation ranks Missouri’s business tax climate 14th and Illinois’ 36th among the 50 states.
Illinois and Missouri Business Tax Climate Index Rankings, 2019
Source: “2020 State Business Tax Climate Index” The Tax Foundation, Accessed 10/9/19.
Greater St. Louis stands as one of the most tax-friendly metro areas in the U.S. for doing business, even before additional incentives are taken into account.
Both Missouri and Illinois offer a variety of tax incentive programs to help lower operating costs for startups and expanding businesses. These include enterprise zones, workforce training programs and competitive tax credit programs as well as property tax abatements and workforce training grants.
|Corporate Income Tax||9.5% of Illinois taxable income (Federal taxable income with state modifications based on a one-factor in-state sales formula), which includes 7% state income tax and 2.5% personal property replacement tax (1.5% for S-Corps, partnerships and trusts).||4.0% of Missouri taxable income based on a single factor, market-based apportionment corporate income tax model based only on sales.|
|Local Income Tax||No local earnings taxes.||City of St. Louis residents, workers, and businesses pay a 1% earnings tax. Businesses pay based on the average allocation of gross receipts, payroll, and property in the City of St. Louis. Employers also pay a payroll tax of 0.5% (20% of which is credited against the 1% earnings tax due).|
|Franchise Tax||Initial franchise tax of 0.15% of paid-in capital, thereafter annual franchise tax of 0.1% of paid-in capital, minimum of $25, maximum of $2 million. Beginning in 2020, Illinois will phase out this tax and will completely repeal it after 2023.||No tax imposed.|
|Property Tax||Real property is assessed at 33 1/3% of market value. Personal property is not taxed. Business inventories are not taxed. Tax rates are the aggregate of local taxing districts.||Residential property is assessed at 19% of true or fair market value; commercial and industrial property at 32%; personal property at 33 1/3%. Business inventories are not taxed. Tax rates are the aggregate of local taxing districts and a .03% state tax.|
|Sales & Use tax||6.25% of purchase price of tangible personal property and selected services. 1% tax on qualifying food, drugs, and medical appliances. Local sales taxes also apply and vary by jurisdiction.||4.225% of purchase price of tangible personal property and enumerated services. In lieu of a regular use tax, a 4% special use tax is imposed on motor vehicles, trailers, boats, and outboard motors. Local sales taxes also apply and vary by jurisdiction.|
Source: “2020 State Tax Handbook” CCH, 2019.
For a metropolitan area its size, St. Louis has very competitive wage rates, representing a cost advantage for firms operating in this market. The average annual wage for workers in the St. Louis area in May 2017 was $49,180, which is below the U.S. average of $50,620.
Both Illinois and Missouri offer a wide range of tax credits and other economic incentives.
Missouri Works: These tax incentives help eligible businesses facilitate the creation of quality jobs. Tax incentives are awarded based on the number of jobs created, the amount of private capital investment and the wages offered compared to the county averages. Other discretionary benefits may be offered based on the overall size of the project, the company’s financial stability and its location in an Enhanced Enterprise Zone, among other factors.
Missouri One Start: Missouri partners with community colleges to offer technical and leadership training as well as recruiting services for a wide range of eligible industries. Missouri One Start requires capital investments or the creation of new jobs as well as the presence of permanent, full-time employees with competitive wages.
Skilled Workforce Missouri: The Missouri Department of Economic Development offers a wide range of flexible services and experienced staff to assist your company. Through Skilled Workforce Missouri, we partner with community colleges as well as other local educational agencies to meet the needs of your company.
Business Use Incentives for Large-scale Development: The BUILD program provides refundable state tax credits to certain businesses for debt service payments for industrial revenue bonds related to a portion of project infrastructure costs. Manufacturing, services (in interstate commerce) and research and development projects are eligible if within three years the capital improvements exceed $15 million ($10 million for office projects) and 100 new jobs (500 for offices) are created.
Missouri Chapter 100 Bonds: Chapter 100 industrial revenue bonds allow local governments to offer personal property and real property tax abatement. Terms such as length and percentage of the abatement are subject to negotiation. To facilitate this transaction, the company transfers the title of the property to the city or county “in name only” and then subleases that property back at a rate equal to the principal and interest on the bonds. Sales tax abatement on construction materials and personal property may also be available.
Data Center Incentives: Data centers may be eligible to receive an exemption from state and local sales and use taxes on construction materials, equipment and utilities. New centers are required to invest $25 million ($5 million for expansions) and create 10 jobs (5 for expansions) with wages of at least 150% of the county average or state average wage, whichever is lower.
Tax Increment Financing: TIF can help fund costs incurred by, or incidental to, a development project in a blighted area. Up to 100% of the new local real property taxes and 50% of the new local economic activity taxes (sales, wage and utility taxes) created by the project for 23 years can be captured and bonded to underwrite project costs. Instead of bonds, local governments may issue TIF notes, which can in turn be held by the company benefiting from the TIF incentive (thus acting as a rebate on captured tax revenues) or pledged to obtain private bank financing to help underwrite project costs.
For more information about Missouri incentives, please contact us.
Economic Development For A Growing Economy tax credit program: The EDGE tax credit encourages businesses to locate or expand in Illinois. EDGE provides tax credits of 50% of state income taxes for new jobs (75% if in an “underserved area”) for ten years. EDGE credits have job creation thresholds and larger companies (100+ employees) must also invest $2,500,000. Tax credits for large companies can’t exceed the amount of their investment. Additional credits for qualifying job training costs are available.
Industrial Development Revenue Bond Program: Bonds are issued for manufacturers and not-for-profit organizations to finance fixed assets including land, buildings (new or renovated) and equipment. These bonds provide long-term financing of up to 100% of project costs at rates lower than conventional financing. Tax-exempt bonds are usually the lowest cost form of financing offering an interest rate typically 2-3% lower than taxable debt. Interest due to bondholders on Industrial Development Revenue Bonds is exempt from federal but not state income taxation.
Tax Increment Financing: Illinois cities may also utilize TIF to fund development related costs. Up to 100% of the new local real property taxes and sales taxes in some cases are eligible. These incremental taxes can be captured and bonded for 23 years to underwrite project costs. Instead of bonds, local governments may utilize a range of financing options including bonds, loans and notes. Illinois TIF may be used for public and institutional properties as well as vacant land. TIFs may be approved to be extended an additional 12 years for a total of 35 years.
High Impact Business: This program is designed to support large economic development projects. It provides tax incentives to businesses making a capital investment of $12 million and creating 500 jobs or investing $30 million and retaining 1,500 jobs. Benefits may include investment tax credits and selected state sales tax exemptions. Investments must occur in designated locations outside of an Enterprise Zone.
Federal, local: In addition to these and other state incentive, a range of federal and local incentive programs may be available, including several zone-based programs designed to incentivize investment in underserved areas such as federal Enterprise Zones, Opportunity Zones, Promise Zones and New Market Tax Credits.
For more information about Illinois incentives, please contact us.