Software and Equipment Do Not Qualify for Missouri Manufacturing Exemption

Missouri has held that a computer company didn’t qualify for the state’s manufacturing exemption from use tax on the sales of software and equipment to a credit card company since the credit card company’s activities were not manufacturing activities. The state’s manufacturing exemption is available for purchases when the customer uses or consumes the equipment during the manufacture of a product. The purchaser used the software and equipment to transmit approvals and disapprovals of credit card transactions and summarize credit card transactions each day. The Missouri Supreme Court ruled that receiving and analyzing information then relaying the analysis to customers is not manufacturing for purposes of the exemption.The fact that the calculations were done using sophisticated hardware and software does not change the fact that the activity is not “manufacturing.” Since the taxpayer is attempt to take advantage of an exemption, it must be narrowly and strictly be interpreted according to its plain and ordinary meaning. Manufacturing must result in the alteration or physical change of an object or material in such a way that produces an article with a use, identity and value different from the use, identity and value of the original. This does not occur in the approval of credit. (IBM Corp. v. Dept. of Revenue, Missouri Supreme Court, No. SC94999, April 5, 2016)

UPDATE: Missouri has enacted legislation clarifying that the state’s manufacturing exemption includes certain telecommunications services.

Posted on May 4, 2016