In 2016, Missouri lawmakers enacted a law allowing a deduction from the taxpayer’s federal adjusted gross income when determining Missouri adjusted gross income in an amount equal to 50% of the net capital gain recognized from the sale of employer securities to an employee stock ownership plan (ESOP). The deduction was meant to incentivize business owners to sell to an ESOP instead of selling to an out-of-state company, thus keeping jobs in Missouri. This incentive sunset in 2022.
On September 6, 2023, Gov. Mike Parson signed Senate Bill 20 that reauthorizes the 50% Missouri income tax deduction.1 To qualify for the deduction, the owner(s) must sell stock of a Missouri corporation to an ESOP and the ESOP must own at least 30% of all the outstanding stock of the Missouri corporation post-transaction.
The Missouri Chamber of Commerce and Industry, along with representatives of existing employee-owned companies, strongly supported the reauthorization of this deduction that promotes employee ownership in Missouri.
Dan Mehan, president and CEO of the Missouri Chamber said, “We believe ESOPs are incredibly important, especially when we’re in a global competition for jobs and talent. Employee-owned businesses often exhibit higher levels of employee satisfaction, increased productivity, and greater long-term stability. In turn, these companies contribute to the local economy, driving growth and job creation. This ESOP tax deduction plays a crucial role in facilitating the transition to employee ownership, making it more financially viable for businesses.”
Selling to an ESOP can be an attractive alternative to consider as part of a business succession strategy for a variety of tax and nontax reasons. This extension of law adds another tax advantage for business owners who pay Missouri income tax.
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- 1“Gov. Parson Signs Bill Reauthorizing Employee Stock Ownership (ESOP) Tax Deduction,” mochamber.com, September 6, 2023.