Missouri, like many states, offers several sales tax exemptions for manufacturers. However, understanding which purchases are exempt from sales tax and which purchases are taxable can be quite the burden. This article walks through the Missouri manufacturing sales tax exemption to help clarify what qualifies and why.
Forklift Example: How Missouri Defines “Direct Use”
To illustrate the complexities, let’s look at forklifts, for example. A manufacturer purchases three forklifts to be used throughout the plant.
- The first forklift is used to unload raw materials from the delivery truck.
- The second forklift is used to move work-in-process between one manufacturing step to another.
- The third forklift is used to load the finished product from its warehouse onto delivery trucks.
Even though all three forklifts are used by the manufacturer at its manufacturing plant, Missouri says only the first two forklifts are essential to the manufacturing process—and therefore exempt. Let’s take a closer look at the exemption.
When Does the Missouri Manufacturing Exemption Apply?
Missouri law is relatively generous when it comes to what qualifies for the manufacturing exemption. In Missouri, the manufacturing process begins when raw materials enter the plant site and ends when the product is finished. To qualify, items purchased must be directly used in the production of goods.
In determining what meets the requirement of being directly used, Missouri adopts the integrated plant theory. Under this approach, an item must be “essential to” and an “integral part” of the process to qualify for the Missouri manufacturing sales tax exemption.
Below we’ll walk through common manufacturing purchase categories to better explain the law and how it can be applied.
Machinery & Equipment That Qualify
In general, the purchase of machinery and equipment is exempt under the Missouri manufacturing sales tax exemption if used directly in manufacturing and for the replacement of or for a new or expanded plant. If the purchaser intends for the machinery and equipment to be used for nonexempt purposes, such as testing future products, the item does not qualify for the exemption.
The purchase of additional machinery as a result of the enlargement of an existing facility must result in one of the following to qualify:
- An increase in production volume
- An increase in employment
- An increase in the number of models or products produced
Ingredients and Component Parts: What’s Exempt
Purchases of ingredients or component parts that are consumed in the manufacturing process and blend with the final product are exempt from sales tax in Missouri. However, to qualify, a portion of the ingredients must remain with the finished product for resale. If the material is totally consumed and not intended to become part of the final product, the exemption does not apply.
Packaging Rules for Missouri Manufacturers
Purchases of packaging materials such as containers, pallets, drums, boxes, tape, foam, and strapping used to deliver a product for ultimate sale at retail are exempt. Packaging items that are used in-house or not sold as part of the final product are taxable.
For example, a company purchases boxes to store its merchandise. These boxes are not used or sold for shipments to its customers, therefore these boxes are taxable. The company also purchases boxes to store its finished product to be shipped to its customers. These boxes qualify for the exemption.
Utility Exemptions in Missouri Manufacturing
All purchases of electrical energy and gas used in manufacturing may qualify under the Missouri manufacturing sales tax exemption. Utilities used for general office operations, including lighting or heating, do not qualify for the exemption.
Manufacturers are responsible for providing utility vendors the appropriate documentation and percentage of their utilities used in exempt manufacturing activity.
Get Help Navigating Missouri’s Exemption Rules
As you can see, the nuances of the Missouri manufacturing sales tax exemption can be difficult to navigate. The purchase of an item may have different tax consequences depending on the company’s intended use. If you have any questions about whether something qualifies, please contact Clarus Partners for further assistance.
We offer:
- Sales & Use Tax Compliance – End-to-end tax return preparation, filing, and remittance
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- Exemption Certificate Management (AkuCert) – Automated tracking and audit protection
- Sales Tax Calculations (AkuCalc) – Ensure every transaction is calculated correctly
- Business License Management (AkuLicense) – Stay on top of license renewals and filings
- Audit Defense & Advisory Services – Support before, during, and after state audits
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