LR 8358
Taxability of Research and Development Not Related to Manufacturing
May 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 April 18, 2025.
The facts as presented in your letter ruling request are summarized as follows:
Applicant is a business located in Greene County Missouri. The activities focused on by Applicant are innovation, testing and development of new products or technologies, which Applicant states typically qualify for exemption from Missouri sales tax. Applicant states that its activities are distinct from manufacturing as they involve experimentation, prototyping, and research rather than production of goods for commercial sale.
ISSUE:
Are Applicant and its experimentation, prototyping, and research activities exempt from Missouri state sales and use tax?
ANSWER:
No. Applicant and its experimentation, prototyping, and research activities are not exempt from Missouri state sales and use tax.
Section 144.054.2, RSMo, provides:
In addition to all other exemptions granted under this chapter, there is hereby specifically exempted from the [sales and use tax laws] […] electrical energy and gas, whether natural, artificial, or propane, water, coal, and energy sources, chemicals, machinery, equipment, and materials used […] in research and development related to manufacturing, processing, compounding, mining, or producing any product. The construction and application of this subsection as expressed by the Missouri supreme court in DST Systems, Inc. v. Director of Revenue, 43 S.W.3d 799 (Mo. banc 2001); Southwestern Bell Tel. Co. v. Director of Revenue, 78 S.W.3d 763 (Mo. banc 2002); and Southwestern Bell Tel. Co. v. Director of Revenue, 182 S.W.3d 226 (Mo. banc 2005), is hereby affirmed.
Applicant does not engage in manufacturing or any qualifying activities in relation to its research and development and does not qualify for an exemption from Missouri's sales and use tax laws.
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 If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.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, e-mail Kent.Brown@dor.mo.gov.
Sincerely,
Trish Vincent