Mo. Code Regs. tit. 12 § 10-2.165
Current through Register Vol. 49, No.12, June 17, 2024
Section 12 CSR 10-2.165 - Net Operating LossesPURPOSE: This rule explains the proper Missouri income tax treatment of net operating losses by corporations.
(1) Federal Taxable Income Not Less Than Zero (0). Federal taxable income is the starting point for computing Missouri taxable income. Federal taxable income, as it is used to compute Missouri taxable income, may not be less than zero (0) or a negative figure. (A) Example: In the current year taxpayer had a federal net operating loss of one (1) million dollars, of which one hundred twenty-five thousand dollars ($125,000) was attributable to Missouri income taxes. In a prior year, taxpayer had federal taxable income of $2,500,000. For this example, assume the taxpayer had no Missouri modifications to federal taxable income. Also assume the prior year return reflected a deduction of seven hundred fifty thousand ($750,000) for federal tax liability and after applying the net operating loss (NOL) the federal tax liability was reduced to four hundred fifty thousand dollars ($450,000). The taxpayer should determine his/her current and prior year Missouri income tax as follows: | Current year | Federal subtotal | <$ 875,000> |
| Mo. state income tax | <$ 125,000> |
| Federal NOL | <$1,000,000> |
| Mo. return line -1 | $0 |
| Mo. state income tax | $ 125,000 |
| Mo. taxable income | $ 125,000 |
| Mo. tax rate | x 5% |
| Mo. tax due | $ 6,250 |
| Prior year | Federal taxable income | $2,500,000 |
| Minus NOL carry back | <$1,000,000> |
| Federal taxable income as amended | $1,500,000 |
| Minus federal tax liability | $ 450,000 |
| Mo. taxable income | $1,050,000 |
| Mo. tax rate | x 5% |
| Mo. tax due | $ 52,500 |
| Mo. tax paid on original return | <$ 87,500> |
| Mo. tax refund due | <$ 35,000>* |
*The thirty-five thousand dollar ($35,000) refund includes $6,250 attributable to the $125,000 deduction for state taxes.
(2) NOL. (A) Taxpayers who file a consolidated Missouri return must treat NOLs identically on the federal and Missouri returns.(B) Taxpayers who file separate federal and Missouri returns must treat NOLs identically on the federal and Missouri returns.(C) Consolidated Federal and Separate Missouri Return. Taxpayers who file consolidated federal and separate Missouri returns shall compute separate federal taxable income as if each member filed a separate federal return with the limitation that the taxpayer shall be bound by the election to carry losses forward or backward which is made on the consolidated return. If there is a consolidated gain, then the Missouri taxpayer may elect to carry loss backward or forward pursuant to Internal Revenue Code section 172. 1. Example: Company D files federal consolidated and Missouri separate returns. In 1986, Company D has a federal consolidated loss of one hundred thousand dollars ($100,000), which it carries back for federal income tax purposes to its return for 1983, reducing federal taxable income and federal income tax liability. Assuming taxpayer has separate company loss to carry back from 1986, that loss may be deducted on its separate Missouri return for 1983. That loss may not be used to reduce federal taxable income on the Missouri return to a negative number.(3) Recomputation of the Federal Income Tax Deduction for Separate Missouri Return Filers to Reflect Consolidated Return NOL. Taxpayer's federal income tax deduction shall be determined as follow:
1) a fraction shall be created, the numerator of which is the taxpayer's original taxable income reduced by its pro rata share of the consolidated loss and the denominator of which is the original consolidated taxable income reduced by total consolidated loss; and 2) total federal income tax of the consolidated group after deduction of the net operating loss is multiplied by the fraction to arrive at the adjusted federal income tax deduction. (A) Example: First, allocate the loss to the loss companies. | Company | Line 30 Loss | To Total Percent | Allocated Consolidated Loss |
| A | ($ 50,000) | 45.455% | $34,091 |
| B | | | |
| C | ($ 50,000) | 45.455% | $34,091 |
| D | | | |
| E | ($ 10,000) | 9.090% | $ 6,818 |
| ($110,000) | 100% | ($75,000) |
Second, reduce original taxable income by the allocated loss.
| Company | 1980 Original Line 30 | 1983AllocatedLoss | New Taxable Income | ToTotal Percent | 1139TaxLiability |
| A | $100,000 | ($34,091) | $ 65,909 | 26.460% | $19,845 |
| B | $ 50,000 | | $ 50,000 | 20.073% | $15,055 |
| C | $ 25,000 | ($34,091) | | | |
| D | $100,000 | | $100,000 | 40.146% | $30,110 |
| E | $ 40,000 | ($ 6,818) | $ 33,182 | 13.321% | $ 9,990 |
| $315,000 | ($75,000) | $249,091 | 100% | $75,000 |
(B) Actual separate return loss will be used to compute separate return federal taxable income.(4) Leaving a Consolidated Group. A former member of a consolidated group who filed a separate Missouri return must recompute its federal income tax deduction to reflect any decrease in consolidated federal income tax liability attributable to an NOL carry back by the group and to reflect any change in its relative share of federal income tax liability attributable to the net operating loss carry back by the group.(5) Taxpayers who elect a proper method of computing the federal income tax deduction for a particular year shall continue to use that method to compute the effect of NOL on the federal income tax deduction for that year, regardless of the method used in the year of the loss.(6) When a member of an affiliated group of corporations that files a federal consolidated return files a separate Missouri return or when a member included in a federal consolidated return is properly excluded from the Missouri consolidated return and its items of income and deduction are not included in the group's Missouri consolidated return, then the carryover attributes for the Missouri return may be different from the carryover attributes for the federal consolidated return. When the filing status or combination for the Missouri return for any taxable year is different from the federal filing status or combination for that taxable year, the taxpayer must follow the federal Internal Revenue Code (IRC) and regulations as they would apply to the facts and circumstances for the Missouri return. Under no circumstances may the same loss or deduction be used more than once for Missouri purposes. No loss or deduction will be allowed unless the taxpayer provides a schedule identifying the source of each loss or deduction. AUTHORITY: section 143.961, RSMo 2000.* Original rule filed Oct. 22, 1986, effective March 26, 1987. Amended: Filed Feb. 23, 1989, effective Aug. 11, 1989. Amended: Filed Jan. 10, 2002, effective July 30, 2002. *Original authority: 143.961, RSMo 1972.