Missouri – Taxability of Damaged and Obsolete Inventory

SALT Report 3091 – The Missouri Department of Revenue issued a letter ruling regarding whether a part that is damaged in the manufacturing process and must be discarded prior to completion, is subject to tax under section 144.610.1, RSMo.

In its ruling the Department stated that under section 144.610.1, RSMo a tax is imposed “for the privilege of storing, using or consuming within this state any article of tangible personal property.”  However, if a part that is intended to be used in the manufacturing process is scrapped because it becomes damaged, these provisions do not apply. Therefore, the Taxpayer is not required to pay use tax on its purchase of parts if they are damaged and scrapped prior to completion. Likewise, the taxpayer is not required to pay use tax on obsolete inventory if it is taken out of inventory and written off.

However, the Department advised that if the Taxpayer sells any of the obsolete or scrap parts to a dealer, the Taxpayer will be required to collect and remit sales tax on those sales, unless the scrap dealer provides the Taxpayer with a resale certificate.

For Further Information

Missouri Department of Revenue – Letter Ruling #LR 7316