On June 13, 2007, Governor Matt Blunt signed into law Senate Bill 30 (SB 30), which became effective on August 28, 2007. SB 30 modifies several provisions of Missouri’s sales and use tax laws. Amongst these changes, SB 30 authorizes a sales tax exemption for the cost of utilities, chemicals, machinery, equipment, and materials used or consumed in the manufacturing, processing, compounding, mining, or production of a product or research and development related to manufacturing. The provisions of this new manufacturing inputs exemption can be found in Section 144.054, Missouri Revised Statutes.
Under the manufacturing inputs exemption, all energy sources (such as electricity, gas, and coal), water, chemicals, machinery, equipment and materials when used or consumed in manufacturing, mining, compounding, processing or producing any product will now be exempt from tax. The exemption extends only to state sales and use taxes (4.225%) and local use taxes; local sales taxes will continue to apply. The bill also similarly exempts these items when used in research and development related to manufacturing.
For items purchased for use directly in the manufacturing, mining, compounding, processing a product, the manufacturing equipment exemptions in Missouri Statute 144.030 still apply. However, it is important to note that you are not required to be a “manufacturer” to obtain the inputs exemption. Businesses must be performing one of the following activities to be eligible for new manufacturing inputs exemption: manufacturing, processing, compounding, mining or producing a product.
The Missouri Department of Revenue’s interpretation of this new exemption has not been fully developed. The Department continues to refine its interpretation, issue draft regulations and guidance. For example, recently, the Department of Revenue has decided that parts purchased for use on machinery and equipment that are entitled to the manufacturing inputs exemption would also be exempt. As such, the purchase of such parts will be exempt from state sales tax and state and local use taxes, but not local sales tax.
The Department’s pronouncements on the manufacturing inputs exemption can be found on its website (http://www.mo.dor.gov), including proposed regulations. Proposed regulations can be confusing for taxpayers that do not regularly read such drafts. When reading proposed regulations, the language that is enclosed in brackets ( [ ] ) is intended to be deleted and language appearing in bold is intended to be added to the rule.
The information provided herein is for informational purposes only. Due to the ever changing interpretation of this exemption by the Department, we suggest that taxpayer’s contact a state and local tax advisor or RubinBrown’s State and Local Tax Group to discuss the applicability of this new exemption to your specific business operations.
Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.
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