Missouri – Manufacturer’s Purchases of Chemicals, Coal, Natural Gas, and Electricity are Taxable

SALT Report 2018 – The Missouri Supreme Court upheld a lower court’s ruling that a herbicide and pesticide manufacturer’s purchases of chemicals, coal, natural gas, and electricity did not qualify for a sales tax exemption because the Taxpayer failed to prove it was a materials recovery processing plant.

The issues in this case originated after the Director of Revenue performed an audit of the Taxpayer’s Missouri plant.  At the conclusion of the audit, the Director issued a use tax assessment on the Taxpayer’s purchases of certain chemicals and natural gas.  The Taxpayer remitted the use tax assessment and then filed a refund claim. In its refund claim, the Taxpayer also requested a refund for its purchases of coal and electricity. The Director denied all refund claims, and the Taxpayer appealed the decision.

Upon review of the case, the Court determined that the Taxpayer did not qualify as a material recovery plant because the Taxpayer merely recaptures the chemicals that are used in the manufacturing processes so that it can reuse the chemicals in subsequent manufacturing cycles. Further, the Court found that the chemicals that the Taxpayer recovers “are not waste, are not converted, are never discarded materials, and are removed from the final product for reuse.”

Based on this decision, the Court held that the chemicals at issue were not exempt because the Taxpayer failed to prove that the chemicals were necessary for the operation of material recovery machinery and equipment.

In addition, the Court rejected the Taxpayer’s claim that it was entitled to an exemption for its purchases of natural gas and coal because the Taxpayer failed to show that the purchases of coal and natural gas were purchases of supplies “required solely for the operation of qualified machinery and equipment.”

Finally, the Court concluded that the Taxpayer owed taxes on its electricity purchases because it failed to prove that the raw materials used in its processes contained at least 25% recovered materials.

For Further Information:

Supreme Court of Missouri – Docket Number SC92446

Opinion