Earlier this year, the Missouri Department of Revenue amended Missouri Code of State Regulations 12, Section 10-2.165, relating to net operating losses (NOLs) for corporate tax returns. The amendment updates – among other things – the NOL rule to better reflect changes in law since the rule was last amended, takes into account some subsequent Administrative Hearing Commission decisions on the subject of NOLs, and specifies that nothing in the rule should be read as incorporating by reference any regulation, standard, or policy of a federal agency. The rule is effective for the 2024 tax year for calendar year-end taxpayers. Key highlights of the amendment are listed below.

• The rule provides that if an NOL is carried back more than two years or carried forward more than 20 years on the federal income tax return, that amount of the NOL generally must be added to federal taxable income to determine Missouri taxable income under §143.121.2(4), RSMo.
• Any loss carryforward deducted from federal taxable income but disregarded for Missouri income tax purposes under § 143.121.2(4), RSMo, may be carried forward and deducted from any income on the Missouri corporate tax return for a period not to exceed 20 years after the year of the original loss.
• The rule addresses the calculation of the federal income tax withholding for Missouri taxpayers filing separate returns to reflect the consolidated tax return NOL:

1. First, a fraction is formed whose numerator is the taxpayer’s original federal taxable income less his or her pro rata consolidated loss and whose denominator is the taxpayer’s original federal taxable consolidated income less the total consolidated loss.
2. The consolidated group’s total federal income tax after deducting the NOL is then multiplied by the fraction and then multiplied by 50% to determine the adjusted federal income tax withholding.

• If a member of an affiliated business group filing a consolidated federal return files a separate Missouri return, or if a member included on a consolidated federal return is properly excluded from the consolidated Missouri return and its items of income and deductions are not included on the group’s consolidated Missouri return, the carryover attributes for the Missouri return will likely be different from the carryover attributes for the consolidated federal return. As a result, the taxpayer must provide a schedule identifying the source of each loss or deduction.
• The loss year referred to in §143.431.4, RSMo, may include another taxpayer’s loss year if the NOL occurred in another taxpayer’s loss year. For example, in a corporate merger, if the taxpayer whose loss year gave rise to the NOL did not survive the merger, the NOL addition modification must still be calculated by reference to the addition and subtraction modifiers for the loss year of the entity that did not survive the merger. For purposes of §143.431.4, RSMo, if more than one NOL addition modifier must be calculated for a given taxable year, the NOL addition modifiers are calculated in the same order in which the NOLs are used as NOL deductions for federal income tax.

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