The Supreme Court of Missouri has sided with the Department of Revenue and ruled that CarFax cannot claim manufacturing exemptions for their use of servers to generate vehicle information reports. The Department originally denied CarFax’s claim of the manufacturing exemption under audit, and CarFax appealed the determination to the Administrative Hearing Commission, who ruled that the servers did qualify as manufacturing equipment.
In their decision, the court focused their analysis on the state’s definition of the term “manufacturing”, and cited precedent that defined the term as to “transform an input into an output with a separate and distinct use, identity, or value.” In examining the process used to generate vehicle information reports from raw data, the court ruled that the data being fed into the analysis was not meaningfully transformed in use or identity to be considered manufacturing. The court used the analogy of a phone book for the inputs used for Carfax’s process and likened the output to the service of locating and isolating a particular number in the phone book.
Manufacturing, and what is and isn’t included in any exemptions related to it, is often unclear based on the plain language of the sales tax law. As the court writes, “As with many of the cases … in which this Court is called upon to determine whether the term “manufacturing” includes activities that scarcely could have been imagined when that word first was used in these statutes, [this] case is a close call.” Unless your business’s activities fall plainly and indisputably within your state’s manufacturing exemption, it’s helpful to find out what standards the state has used in prior disputes to decide what is and isn’t manufacturing, especially if you manufacture a product that didn’t exist at the time the law was written.
Carfax Inc. v. Missouri Dir. of Revenue; No. SC99367