Missouri’s manufacturing exemptions do seem to lend themselves to a broad interpretation, but this week’s decisions suggest that the state’s Supreme Court may be reluctant to support too expansive a reading of their applicability. Although these cases all involved construction, the facts-and-circumstances-type analyses applied by the court might well be applied to deny exemptions in other industries.
At issue in the first two of these cases was Missouri’s expanded sales and use tax exemption for materials used or consumed in manufacturing, processing, compounding or producing. In Fred Weber Inc. v. Dir. of Rev., No. SC94109 (Mo. Jan. 13, 2015), the court reversed an administrative ruling applying this exemption to paving materials. Had this ruling been upheld, Fred Weber Inc. would have been entitled to a sales tax refund of $139,654 on paving materials it sold to paving contractors.
The company argued in favor of the exemption that the terms “manufacturing,” “processing,” “compounding” or “producing” should be interpreted to include the sort of paving activities conducted by these contractors. The court disagreed, stating that paving activities are not “what can best be described as large-scale industrial activities” and, therefore, not the type of activity to which the exemption was intended to apply. For this reason, the court ruled, the exemption did not apply.
In Ben Hur Steel Worx LLC v. Dir. of Rev., No. SC94209 (Mo. Jan. 13, 2015), the court similarly held the exemption inapplicable to steel components. Ben Hur Steel Worx LLC had sought a use tax refund of nearly $200,000 on such components that it used to construct steel frames for buildings and other structures. As in Fred Weber, the court found that these items were used in construction activities, not appropriately characterized as “manufacturing,” “processing,” “compounding,” or “producing.” As in that case, the court disallowed the exemption.
In a third case, Alberici Constructors Inc. v. Dir. of Rev., No. SC93771 (Mo. Jan. 13, 2015), the court again denied a contractor’s claim under Missouri’s manufacturing exemptions. Notably, the exemption at issue specifically applies to construction activities, exempting materials used to construct manufacturing facilities. The taxpayer had sought a refund of $18,593 in use tax that it paid on cranes and a welder used to construct such facilities. Again interpreting the exemption narrowly against the taxpayer, the court found that these items were not “materials” and, therefore, ineligible for exemption.
In 2007, Missouri expanded its sales and use tax exemptions for manufacturers, removing the prior requirement that materials be used “directly” in manufacturing to qualify and thereby allowing manufacturers to claim an exemption for materials used at almost any step of the manufacturing process. Nearly eight years following this expansion, it seems the Missouri Supreme Court may be narrowing the exemption’s application.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Based on these decisions, is the court reining expansive in readings of this exemption?
Take a free trial to Premier State Tax Library, a comprehensive research service that delivers deep, unique analysis, and time-saving practice tools to help practitioners make well-informed decisions.
by Ernst Hunter
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)