New manufacturing tax exemptions take effect

Under Senate Bill 30, manufacturers no longer have to pay Missouri’s 4.225 percent sales tax when they purchase specified items, including electrical energy, gas, water, coal, energy sources, chemicals, machinery and materials.

Prior to the Aug. 15 release of the rulings and procedure for taking the exemptions, several manufacturers were puzzled by the Missouri Department of Revenue’s new rules, mostly on how they applied to energy consumption.

In general, the procedure adds a column to the existing manufacturers exemption form and expands the number and type of items exempted to include utilities.

Accountant Cary Jones at BKD LLP said the new rules are reasonable.

“It makes a lot of sense. Instead of starting from scratch, they said here’s how we give an exemption – we give a form to the vendor,” Jones said. “They simply added a column on there for the new manufacturers exemption.”

Details are available at www.dor.mo.gov.

A balancing act

Lowell Pearson, Deputy Director of the Missouri Department of Revenue, said the final rulings were a balancing act.

“What we have tried to do here is interpret a pretty general statute in a way that is practical and reasonable and in a way that the cost to taxpayers does not eat up a huge percentage of the tax relief that the General Assembly intended,” Pearson said. “Those were our three goals: to be practical, reasonable and keep costs to a minimum.”

Jones also is pleased with the way utilities are calculated for exemption.

“You can use any reasonable method to determine your usage, including square footage,” Jones said. “To make it even simpler, they said if you are between 76 (percent) and 100 percent then the state is going to give you a 100 percent exemption on the utilities. If you are between 51 and 75 percent, then they are going to round it up to 75 percent and so on.”

In writing the new rules, the Missouri Department of Revenue worked with various organizations, including Associated Industries of Missouri, six utilities and thousands of manufacturers. Officials said they held more than 20 public meetings.

“We spent a lot of time trying to figure out how to do that in a way that gave us a level of precision that is appropriate but did not have our auditors out there counting lightbulbs or require taxpayers to hire some expensive energy consultant and fill out a bunch of paperwork in order to get the exemption,” Pearson said.

According to Ray McCarty, executive director of Taxpayers Research Institute of Missouri in an AIM press release, this exemption levels the playing field for Missouri manufacturers, which employ more than 300,000 and pay more than $3.5 billion in salaries annually, according to the Missouri Economic Research and Information Center.

“This is landmark legislation that will give a huge boost to the manufacturers of this state,” McCarty said in the release. “This exemption allows Missouri to better compete with other states for manufacturing operations.”

Pearson said it is important for manufacturers to get the forms from the DOR site and contact their suppliers. Pearson added that manufacturers will want to continue using previous exemptions where appropriate.

“This only exempts the state portion of sales and use tax,” Pearson said. “If you have something that was already exempt, then you are better off sticking with that exemption which covers all sales and use tax.”

AIM plans to address the new law during two tax conferences: the 2007 Tax Conference, Oct. 18–19 at Lodge of the Four Seasons in Lake Ozark, and the 2007 Manufacturing Conference, Nov. 14–15 at the Courtyard Marriott in Columbia. More information is available at www.aimo.com by clicking on “Conferences/Seminars.”

Additionally, the Missouri Chamber of Commerce is selling its members 2007 Manufacturers’ Exemption Seminar DVDs for $129 with an in-depth presentation by Pearson and a panel discussion by tax experts. More information is available at www.mochamber.com.

The Taxpayer Research Insitute of Missouri’s McCarty, however, cautions businesses about using DVDs because they might not contain the latest information about the new law. He said updated information is posted regularly at www.motaxpayers.com.