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Use Tax Exemptions Case: Non-Traditional Manufacturer in Missouri

author photo of Lauren Stinson

When talking about manufacturing, images of massive buildings with huge pieces of equipment are the first things that usually comes to mind. But are you aware that other activities can be considered manufacturing?

These activities don’t fit into the traditional definition of manufacturing and are outside the “box” of what we think of as a manufacturing company. Examples include restaurants, grocery deli departments and even software companies. Many of these non-traditional manufacturers are included in state manufacturing tax codes.

Recent Court Ruling
That was the case in a recent Missouri Supreme Court Case handed down on April 5, 2016. The case focused on a use tax exemption associated with computer software used in the processing of debit and credit card transactions. The Missouri Supreme Court determined that the Missouri Director of Revenue's original decision was correct and should not have been reversed.

Summary of Case
The Administrative Hearing Commission overturned the Director of Revenue's audit decision and determined that the credit card company's use of the hardware and software qualified as manufacturing a product. The Director of Revenue petitioned the Court for a review of the Commission's decision. The Court determined that the credit card company did not qualify for the exemption because receiving and analyzing information and relaying the analysis to customers is not part of the manufacturing process.

The software and equipment were used to transmit approvals and rejections of credit card transactions and to summarize the credit card transactions every day. It was determined that this activity did not meet the exemption allowed for manufacturing because the customer did not use or consume the equipment during the manufacturing of a product as the exemption is defined in Sec. 144.054.2 (IBM Corp. v. Dept. of Revenue, Missouri Supreme Court, No. SC94999, April 5, 2016).

Lesson Learned
The fact that this case went all the way to the Missouri Supreme Court supports that it may be worth exploring these exemptions for non-traditional manufacturers in your particular state. Understanding the rules may help you avoid the audit challenges and flip flop decisions of an audit assessment.

Questions? Comments?
 Are you a non-traditional manufacturer taking advantage of sales or use tax breaks in your state? Share your story!
 If you have questions about your company qualifying for any (traditional or non-traditional) manufacturing exemptions - feel free to contact me to discuss.

About the Author: Lauren Stinson,CMI, is Principal and National Leader - Sales & Use Tax at Cherry Bekaert LLP; a national CPA and consulting firm ranked as one of the top 25 in the country. Previously, Lauren was Owner and President of Windward Tax, a sales and use tax consulting firm. She has more than 25 years experience working with manufacturers on sales and use tax issues. Lauren is pleased to share her expertise with SalesTaxSupport readers as the Manufacturing contributor in SalesTaxSupport’s Industry blog, as well as the Georgia Sales Tax contributor in the States blog.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. More specific questions or requests may be sent to Lauren directly using the orange "REQUEST" link on Lauren's Firm Profile page.

Other recent “Manufacturing & Distribution” posts by Lauren Stinson, CMI:

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