The Missouri Department of Revenue (DOR) issued a letter ruling stating that the state’s manufacturing exemption for sales and use tax does not apply to a company that performs custom machining and laser services for parts and materials. The orders are custom orders and subject to the needs of the customer.
In the letter ruling, the DOR cited the court case Interventional Center for Pain Management v. Director of Revenue, in which the Missouri Supreme Court stated that in order to qualify for the manufacturing exemption, the taxpayer must show that its product can be marketed to multiple buyers. Additionally, the legislature did not define “product,” but the Court has held that the term “product” means “an output with market value.” Also, a taxpayer is not required to actually market the good or service, but the taxpayer must prove the existence of a market; and a good or service is a product only if it can be marketed to various buyers. Finally, to successfully demonstrate eligibility for the manufacturing exemption, a taxpayer must show it uses the disputed items in compounding a product output with market value that can be marketed to various buyers.
The DOR stated in the letter ruling that the company in question manufactures custom orders that are specific to their customers’ specifications, and thus are not “products” for the purposes of the manufacturing exemption. As a result, the company is not a manufacturer, and it does not qualify for the state’s manufacturing exemption.
This letter ruling is an interesting examination of what constitutes a “product” based on who it can be marketed to and how that affects eligibility for the manufacturing exemption. (Letter Ruling No. LR 8310, Missouri Department of Revenue, July 31, 2024, released October 2024)