SALT Report 2589 – The Missouri Department of Revenue issued a Letter Ruling regarding the taxability of automated medication dispensing equipment. The Taxpayer in this case, is an out-of-state manufacturer who markets and sells its products to hospitals, pharmacies, and long-term care facilities.
One of the Taxpayer’s products is a unit that consists of several drawers for storing medication, a canister motor with optical sensors for counting medication, hoppers and shutters to transport the medication, and a label printing and packaging device, cutter unit, and sealer for dispensing the medication into a labeled plastic pouch bag.
The machine’s component parts are connected to, and controlled by, a computer that instructs the unit to count, sort, prepare, and package the medication according to a prescription entered into the computer by a nurse or physician. The pill packaging machine is designed to facilitate the administration, distribution and packaging of solid medications in a variety of health care settings.
The Taxpayer requested a ruling as to whether the automated medication dispensing machine qualifies as manufacturing equipment and the sales tax exemption provided in Missouri Code of State Regulations 12 CSR 10-111.010(2)(E).
In its response, the Department referred to the 1996 Missouri Supreme Court ruling Galamet, Inc. v. Dir. of Revenue, 915 S.W.2d 331, 33. In this ruling the Court 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.”
In addition, the Department referred to Missouri Code of State Regulations 12 CSR 10-111.010(2)(E) which defines manufacturing as the process of creating new and distinct items. The regulation also specifically excludes processes that restore articles to their original condition; processes that maintain a product; or processes that do not result in a change in the articles being processed.
Based on the above, the Department determined that the Taxpayer’s automated medication dispensing equipment is in fact, packaging equipment and that the state does not provide any specific exemption from sales or use tax for this type of equipment.
Additionally, the Taxpayer’s machine does not qualify as exempt manufacturing equipment because it does not produce an article with a use, identity, or value different from the use, identity, or value of the original object or material. Basically, the machine’s only purpose is to count, sort, and package medication; it does not change or alter the medication in any way.
As a result, the Department determined that retail sales of the Taxpayer’s machine are subject to sales and use tax and do not qualify for any exemption.
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