Missouri and capital gains exclusion

[Cstoll]

Missouri has a new provision where they do not tax capital gains.  Good for them.  

Say you have a nonresident taxpayer who works in MO.  They have $100K of income from a W-2 in MO.  They also have $100K of capital gain distributions from a brokerage account (sourced to resident state).  Currently, Lacerte is making the $100K of Illinois capital gain a subtraction on the MO-A.  This flows to the 1040, line 4, which then flows to the MO-NRI, page 2, line T.  That then wipes out all Missouri income and the result is this taxpayer pays ZERO tax to MO.

I do not believe this is correct.  I called Lacerte a couple days ago, was on for 30-40 mins and they assured me it was correct.  I called a fellow CPA of mine who uses different software and it does NOT do the same calculation for him.  

Basically, any non-resident of MO that has capital gains is going to have that amount excluded from MO income and MO is missing out on that tax revenue due to income that has nothing to do with MO.  I cannot believe that was the intent of MO lawmakers.  

Does anyone have any useful input here?  Anyone else come across this and wonder like me?  It just doesn't seem right and I am fearing notices at some point that will make me and my firm incompetent (while costing us interest and penalty reimbursement).  

I'm all ears.  Please and thank you.

[IntuitKate]

Hi @Cstoll  I hope that someone else in the Community will respond and let you know what they've seen.  If you'd like us to take a second look, you can submit a Calculation Challenge Request. Here's How to challenge a calculation in Lacerte.  

[abctax55]

 Did you 'source' that capital gain to MO, or to the resident state?

[Cstoll]

As stated in the original post, it has been sourced to the resident state.