United States: Missouri Enacts Legislation Providing For Sourcing Of Services And Intangibles Under Optional Single Factor Formula

On May 6, the state of Missouri enacted legislation expanding the optional single factor apportionment method for corporate income tax purposes to the sale of services and intangibles.1 The legislation addresses the issue of how to source the sales of services and intangibles for the optional single factor apportionment method. Under the legislation, market-based sourcing is used for sales other than sales of tangible personal property.2


In 2013, the state of Missouri enacted legislation which provided taxpayers with a new optional single factor apportionment method.3 The optional formula is based on total sales from transactions in Missouri divided by total sales everywhere.4 For purposes of determining Missouri sales of tangible personal property, if the purchaser's destination point is outside Missouri, the sale is not considered a Missouri sale.5 The 2013 legislation was silent as to how the sales of services and intangibles should be sourced. The Missouri Department of Revenue took the position that the optional single factor apportionment method was only available to corporations whose Missouri income was derived solely from the sale of tangible personal property.

New Sourcing Rules for Services and Intangibles

The recent legislation provides that a transaction involving a sale other than a sale of tangible personal property is in Missouri if the taxpayer's market for the sale is in the state.6 The taxpayer's market for a sale is in Missouri in the following situations:

  • The sales, rentals, leases, or licenses of real property or rentals, leases, or licenses of tangible personal property are in-state sales to the extent that the property is located in the state.7
  • Sales of services are in-state sales to the extent that the ultimate beneficiary of the services is in the state.8
  • Rentals, leases, or licenses of intangible property are in-state sales to the extent that the property is used in the state by the rentee, lessee, or licensee. Intangible property used to market a good or service to a consumer is used in the state if the good or service is purchased by a consumer in the state.9
  • Franchise fees or royalties received for the rent, lease, license, or use of a trade name, trademark, service mark, or franchise system or provides a right to conduct business activity in a specific geographic area are used in Missouri to the extent the franchise location is in the state.10
  • Sales of intangible property are sourced to Missouri to the extent the property is used in the state. If a sale is for the right to conduct a business activity (such as contract rights, government licenses or similar intangible property) in a certain geographic area, the property is considered to be used in Missouri if the geographic area includes all or part of the state.11
  • If receipts from sales of intangible property are contingent on the productivity, use, or disposition of the property, the receipts are treated as receipts from the rental, lease, or licensing of the intangible property stated above.12
  • Receipts from all other sales of intangible property are excluded from the numerator and denominator of the sales factor.13
  • If the state of assignment cannot be determined by the above rules, a reasonable approximation is to be made.14
  • If the state of assignment cannot be determined or reasonably approximated, the sales are excluded from the denominator of the sales factor.15


This legislation should provide Missouri-based companies with an attractive option for computing Missouri taxable income. Under the language of the 2013 legislation, taxpayers with substantial service and intangible revenue streams may have calculated their income to be apportioned to Missouri under the assumption that they could not qualify for the optional single sales apportionment method. Upon the enactment of this recent legislation, the Missouri optional single sales factor formula includes sourcing provisions relevant to taxpayers who have revenue streams from sources other than the sale of tangible personal property. Taxpayers with substantial physical presence in Missouri with service and intangible revenue streams drawn from a multistate market are most likely to benefit from the adopted legislation.

The legislation does not provide a specific effective date for the treatment of the sales of services or intangibles. Arguably, these provisions are effective on August 28, 2015 (90 days after this year's adjournment of the Missouri legislature), but some questions remain regarding whether the election may be available for use by taxpayers for the 2015 calendar year. No guidance yet has been issued by the Department, though it is possible that the Department will take the same position taken with the 2013 legislation. If this were to occur, the Department would treat these provisions as effective only for original returns filed on or after August 28, 2015.

There is no retroactive or other language in the newly enacted legislation that addresses the position the Department has taken since the single sales factor election legislation was originally enacted in 2013. This leaves open the issue of the treatment of taxpayers who are currently in the protest or appeal stage, since they filed under the optional single factor formula and were denied the use of that formula because they had revenue streams other than the sale of tangible personal property.


1 S.B. 19, Laws 2015.

2 MO. REV. STAT. § 143.451.2(3)(e).

3 H.B. 128, Laws 2013.

4 MO. REV. STAT. § 143.451.2(3)(b).

5 MO. REV. STAT. § 143.451.2(3)(c).

6 MO. REV. STAT. § 143.451.2(3)(e).

7 MO. REV. STAT. § 143.451.2(3)(e).a, b.

8 MO. REV. STAT. § 143.451.2(3)(e).c.

9 MO. REV. STAT. § 143.451.2(3)(e).d(i).

10 Id.

11 MO. REV. STAT. § 143.451.2(3)(e).d(ii).i.

12 MO. REV. STAT. § 143.451.2(3)(e).d(ii).ii.

13 MO. REV. STAT. § 143.451.2(3)(e).d(ii).iii.

14 MO. REV. STAT. § 143.451.2(3)(f).

15 MO. REV. STAT. § 143.451.2(3)(g).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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