LR 8343
Taxability of Conveyor System
February 28, 2025
Dear Applicant:
This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated January 13, 2025.
The facts as presented in your letter ruling request, telephone conversation with the Director’s counsel, and on your company’s website are summarized as follows:
Applicant is a producer of fertilizer products as well as a service provider of fertilizer applications for agricultural customers. Applicant is constructing a new facility to warehouse and blend fertilizers for agricultural use. The facility will process raw fertilizer products into custom blends used in crop production, which will be sold at retail.
Applicant is inquiring as to the taxability of a custom conveyor receiving system purchased for its warehouse as manufacturing equipment or equipment for agricultural production under Section 144.030, RSMo.
Specifically, a truck dumps the fertilizer materials into the receiving system outside of the building. The system then hauls the fertilizer to the top of the building and drops it into its respective "bay," which is the space between the divider walls. This is how the ingredients are moved into the building and kept separate. A wheel loader subsequently retrieves the required quantities of raw materials from the bins and delivers them to a mixer, where the final blended fertilizer product is produced according to specific agricultural recipes. The mixer then conveys the finished products into an outbound truck.
ISSUE:
Is Applicant’s purchase of the conveyor system exempt from Missouri sales or use tax as manufacturing equipment?
RESPONSE:
No. Applicant’s purchase of the conveyor system is not exempt from Missouri sales or use tax as manufacturing equipment.
Section 144.020.1, RSMo, imposes a sales tax “[…] upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state.”
Section 144.610.1, RSMo, imposes a use tax for “[…] the privilege of storing, using or consuming within this state any article of tangible personal property.”
Section 144.030.2(5), RSMo, exempts, in pertinent part:
Machinery and equipment, and parts and the materials and supplies solely required for the installation or construction of such machinery and equipment, purchased and used to establish new or to expand existing manufacturing, mining or fabricating plants in the state if such machinery and equipment is used directly in manufacturing, mining or fabricating a product which is intended to be sold ultimately for final use or consumption.
Section 144.615(3), RSMo, exempts from Missouri use tax “[t]angible personal property, the sale or other transfer of which, if made in this state, would be exempt from or not subject to the Missouri sales tax pursuant to the provisions of subsection 2 of Section 144.030[.]”
Section 144.054.2 RSMo, exempts machinery, equipment, materials, and chemicals used or consumed in manufacturing, processing, compounding, mining or producing any product from sales and use tax.
The Missouri Supreme Court has determined that manufacturing “consists of 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.” Galamet, Inc. v. Dir. of Revenue, 915 S.W.2d 331, 333915 S.W.2d 331, 333 (Mo. 1996).
The “integrated plant theory” determines what machinery and equipment is used in manufacturing. In developing the theory, the Missouri Supreme Court determined that qualifying machinery and equipment must be “used in steps or operations that are essential to and comprise an integral part of [the manufacturing] process 'and are used directly for manufacturing or fabricating a product.'” Noranda Aluminum, Inc. v. Missouri Department of Revenue, 599 S.W.2d 1, 4 (Mo. banc 1980).
'The basic questions are the following: (1) Is the disputed item necessary to production? (2) How close, physically and causally, is the disputed item to the finished product? (3) Does the disputed item operate harmoniously with the admittedly exempt machinery to make an integrated and synchronized system?” Floyd Charcoal Co. v. Director of Revenue, 559 S.W.2d 173, 177 (Mo. banc 1980).
Missouri Code of State Regulations 12 CSR 10-111.010(2)(E) also provides guidance:
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).
(Emphasis added)
Applicant's conveyor system does not produce an article with a use, identity, and value different from the use, identity, and value of any original object or material. The system transports raw fertilizer material to bins before the manufacturing process begins at the mixers. Therefore, Applicant’s purchase of the conveyor system is not exempt from Missouri sales or use tax as manufacturing equipment under Sections 144.030 and 144.054, RSMo.
This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.
Should additional information be needed, please contact Senior Counsel Benjamin C. Slawson, General Counsel’s Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573-751-0961), or me.
Sincerely,
Trish Vincent