LR 8355
Taxability of Medical Product
April 30, 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 March 26, 2025.
The facts as presented in your letter ruling request are summarized as follows:
Applicant is beginning a new business involving cell therapy and leukapheresis. The process involves taking biological samples from human donors (raw materials) and separating white blood cells (processing) from these biological samples. The processing creates a new product that can be sold to customers for research, development, and therapeutic purposes. Customers for the new product will be biotechnology, research and development companies, medical/lab equipment suppliers, hospitals and universities, cell therapy manufactures and clinical research organizations.
Will purchases of materials to be used in Applicant’s work be exempt from Missouri sales tax and use tax?
RESPONSE:
Yes. Purchases of materials to be used in Applicant’s work will be exempt from sales tax and use tax.
Section 144.020.1, RSMo, imposes a sales tax upon all sellers of tangible personal property in Missouri for the privilege of engaging in the business of selling tangible personal property within the state of Missouri. Taxpayers bear the burden of demonstrating that they qualify for an exemption. DI Supply I, LLC v. Director of Revenue, 601 S.W.3d 195, 196-97 (Mo. banc 2020). “Exemptions from taxation are to be strictly construed against the taxpayer and any doubt is resolved in favor of application of the tax.” Id. Section 144.610.1, RSMo, imposes a use tax on the privilege of storing, using or consuming within this state any article of tangible personal property in an amount equivalent to the percentage imposed by the sales tax.
Section 144.030, RSMo, exempts from sales tax, materials which when used in manufacturing, processing, compounding, mining, production or fabricating become a component part or ingredient of the new personal property resulting from such process and which new personal property is intended to be sold ultimately for final use or consumption. Section 144.054, RSMo, exempts from sales tax, energy and materials consumed in manufacturing and research and development related to the manufacturing or processing of any product.
The process employed by Applicant meets the statutory definition of manufacturing. An initial input material is processed and a different, marketable material results. In interpreting Section 144.030.2(5), RSMo, the Courts have held the term “manufacturing” encompasses only activities that “transform an input into an output with a separate and distinct use, identity, or value” from the original. Branson Props. USA, L.P. v. Dir. of Revenue, 110 S.W.3d 824, 826 (Mo. banc 2003). See also Galamet, Inc. v. Dir. of Revenue, 915 S.W.2d 331, 333 (Mo. banc 1996) (“Manufacturing” is “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.”) Applicant’s manipulation of the materials at issue meets this requirement.
Applicant’s processing of an initial input raw material in a manner that results in the alteration or physical change of that material into a new material with a use, identity, and value different from the use, identity, and value of the original and which is intended to be sold ultimately for final use or consumption, satisfies the statutory requirements for sales and use tax exemption under Missouri law. Neither sales nor use tax is due on machinery and equipment or materials used directly in the manufacturing process.
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 Kent L. Brown, General Counsel’s Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.
Sincerely,
Trish Vincent