Missouri Code of State Regulations › Title 12 - DEPARTMENT OF REVENUE › Division 10 - Director of Revenue › Chapter 111 - Sales/Use Tax-Machinery and Equipment Exemptions › Section 12 CSR 10-111.010 - Manufacturing

Current through Register Vol. 49, No. 14, July 15, 2024
Machinery and Equipment Exemptions, as Defined in
				  Section
				  144.030,
				  RSMo
PURPOSE: Section 144.030.2(4) and (5), RSMo, exempts
				  from taxation certain machinery, equipment, parts, materials and supplies. This
				  rule explains what elements must be met in order to qualify for these
				  exemptions.
(1) In general,
				the purchase of machinery, equipment, parts, and the materials and supplies
				solely required for the installation or construction of such machinery,
				equipment and parts, are exempt from sales tax if they are for replacement or
				for a new or expanded plant and they are directly used in manufacturing,
				mining, fabricating or producing a product which is intended to be sold
				ultimately for final use or consumption.
(2) Definition of Terms.
(A) Establish a new manufacturing plant- The
				complete and final construction of a facility and all of its component parts.
				Construction shall be deemed completed within a reasonable period of time after
				production begins.
(B) Expand
				existing manufacturing plant- The purchase of additional machinery, equipment
				and parts as a result of the physical enlargement of an existing manufacturing,
				fabricating or mining facility; or the addition of machinery, equipment and
				parts constituting improvements that result in an actual or potential:
i) increase in production volume at the
				plant, ii) increase in employment at the plant, or iii) increase in the number
				of types or models of products produced at the plant. This actual or potential
				increase is measured in relation to the actual or potential production volume,
				employment or types or models of products produced at the plant before the
				machinery, equipment and parts were originally put into use at the plant.
				Documentation which may be provided to establish the requisite intent for
				potential increase in production include, but are not limited to, the
				following: capital expenditure authorization requests, production records,
				production plans, purchase invoices, work authorizations, plant equipment cost
				savings analysis or reports and asset justification reports.
(C) Fabrication-The process of
				transforming an item into a higher stage of development. It does not imply or
				signify manufacturing, but the meaning of the term is limited to cutting,
				carving, dressing, shaping; advancing an elementary shape to a higher stage of
				development; reworking and cutting shapes to required length.
(D) Machinery and equipment-Devices that have
				a degree of permanence to the business, contribute to multiple processing
				cycles over time and generally constitute fixed assets other than land and
				buildings for purposes of business and accounting practices.
(E) Manufacturing-i) the alteration or
				physical change of an object or material to produce an article with a use,
				identity and value different from the use, identity and value of the original;
				or ii) a process which changes and adapts something practically unsuitable for
				any common use into something suitable for common use; or iii) the production
				of new and different articles, by the use of machinery, labor and skill, in
				forms suitable for new applications; or iv) a process that makes more than a
				superficial transformation in quality and adaptability and creates an end
				product quite different from the original; or v) requires the manipulation of
				an item in such a way as to create a new and distinct item, with a value and
				identity completely different from the original. Manufacturing does not include
				processes that restore articles to their original condition (e.g., cleaning,
				repairing); processes that maintain a product (e.g., refrigeration); or
				processes that do not result in a change in the articles being processed (e.g.,
				inspecting, sorting).
(F)
				Mining-The process of extracting from the earth precious or valuable metals,
				minerals or ores. This process includes quarrying, but does not include
				equipment used for water-well drilling or reclamation performed to restore
				previously mined land to its original state.
(G) Parts-Articles of tangible personal
				property that are components of machinery or equipment, which can be separated
				from the machinery or equipment and replaced. Like machinery and equipment,
				parts must have a degree of permanence and durability. Items that are consumed
				in a single processing and benefit only one production cycle are materials and
				supplies, not parts. Items such as: nuts, bolts, hoses, hose clamps, chains,
				belts, gears, drill bits, grinding heads, blades, and bearings, would
				ordinarily be considered as parts. Substances such as fuels and coolants that
				are added to machinery and equipment for operation are not parts. Substances
				such as lubricants, paint and adhe-sives that adhere to the surface of
				machinery and equipment but are not distinct articles of tangible personal
				property, are not parts. These items would be considered as materials and
				supplies within the meaning of the exemptions.
(H) Producing-Includes the meanings of
				"manufacturing" and "fabricating," and is used in connection with the creation
				of intangibles that are taxable but which are not manufactured or fabricated in
				the sense those terms are commonly understood, e.g., information organized by
				computer and then sold on tangible media.
(I) Product which is intended to be sold
				ultimately for final use or consumption-Tangible personal property, or any
				service that is subject to state or local sales or use taxes, or any tax that
				is substantially equivalent thereto, in this state or any other state, which is
				intended at the time of manufacturing, mining or fabrication to be sold at
				retail. Property or services cannot be considered to be "subject to" the tax of
				a state unless the property or services are actually to be sold at retail in
				that state or delivered to a retail customer in that state.
(J) Used directly in manufacturing, mining,
				fabricating or producing a product-sub-stantially used in, essential to, and
				comprising an integral part of the manufacturing, mining, fabricating or
				producing process. Under the integrated plant theory, adopted by Missouri, it
				is not sufficient to meet only one (1) of these requirements. For example,
				items used in material storage or handling before the manufacturing process
				begins may be essential to the process, but generally are not an integral part
				of the manufacturing process and are therefore not used directly in
				manufacturing. Similarly, items used for storing the finished product are
				generally not an integral part of the manufacturing process. The factors that
				determine whether an article is directly used are: whether the item is
				essential or necessary to the process; how close, causally, is the item to the
				production process; and whether the item operates harmoniously with other
				machinery to make an integrated and synchronized system. The direct use
				requirement is not limited to those items of machinery, equipment and parts
				that produce a direct physical change in the composition of the raw materials
				or work in process. As long as there is a continuous progression from raw
				materials to finished product and there are no extended interruptions in the
				manufacturing process, the integrated and synchronized system begins when raw
				materials enter the production process and ends when the product is
				finished.