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					                                                        Rules of
                             Department of Revenue
                         Division 10—Director of Revenue
                      Chapter 110—Sales/Use Tax—Exemptions

     Title                                                                                                        Page
12 CSR 10-110.013 Drugs and Medical Equipment ............................................................3
12 CSR 10-110.016 Refunds and Credits (Moved to 12 CSR 10-102.016) .................................5
12 CSR 10-110.200 Ingredient or Component Part Exemption, as Defined
                   in Section 144.030, RSMo ................................................................5
12 CSR 10-110.201 Materials and Other Goods Used or Consumed in Manufacturing,
                  as Defined in Section 144.054, RSMo..................................................6
12 CSR 10-110.210             Television and Radio Broadcasters........................................................6
12 CSR 10-110.220 Hotels and Motels ...........................................................................6
12 CSR 10-110.300 Common Carriers............................................................................7
12 CSR 10-110.400 Newspapers and Other Publications ......................................................9
12 CSR 10-110.600 Electrical Energy, as Defined in Section 144.030, RSMo ..........................10
12 CSR 10-110.601 Electrical, Other Energy and Water as Defined in Section
                   144.054, RSMo............................................................................12
12 CSR 10-110.621 Application of Sales Tax Exemption as Defined in Section
                  144.054, RSMo............................................................................13
12 CSR 10-110.900 Farm Machinery and Equipment Related Exemptions ...............................14
12 CSR 10-110.910 Livestock.....................................................................................17
12 CSR 10-110.920 Sales of Grains, Seed, Pesticides, Herbicides and Fertilizers.......................17
12 CSR 10-110.950 Letters of Exemption Issued by the Department of Revenue .......................18
12 CSR 10-110.955 Sales and Purchases—Exempt Organizations ..........................................19
12 CSR 10-110.990 Tax—Sales of Food.........................................................................21




     ROBIN CARNAHAN       (4/30/10)                   CODE OF STATE REGULATIONS                                            1
     Secretary of State
Chapter 110—Sales/Use Tax—Exemptions                                                                                  12 CSR 10-110


     Title 12—DEPARTMENT OF                       Federal Medicare Program under Title XVIII          Purchases of over-the-counter drugs by indi-
              REVENUE                             of the Social Security Act of 1965 are exempt       viduals with disabilities are exempt from
   Division 10—Director of Revenue                from tax.                                           sales tax. IT IS UNLAWFUL TO FRAUDU-
Chapter 110—Sales/Use Tax—Exemptions                 (B) Sales of orthopedic devices as defined       LENTLY CLAIM AN EXEMPTION. I
                                                  by the Federal Medicare Program under Title         CERTIFY THAT I HA       VE A DISABILITY
12 CSR 10-110.013 Drugs and Medical               XVIII of the Social Security Act of 1965 are        AND AM ENTITLED TO CLAIM THIS
Equipment                                         exempt from tax.                                    EXEMPTION OR I AM CLAIMING THIS
                                                     (C) Also exempt from sales tax are items         EXEMPTION ON BEHALF OF A PERSON
PURPOSE: Section 144.030.2(18), RSMo,             specified in section 1862(A)(12) of the Social      OR PERSONS WITH A DISABILITY.
provides an exemption for prescription drugs,     Security Act of 1965. Exempt items included
orthopedic and prosthetic devices, numerous       in this class are those used in connection with     Type of Purchase ______________________
dental items, hearing aids, hearing aid sup-      the treatment, removal or replacement of            Amount _____________________________
plies and certain sales of over-the-counter       teeth or structures directly supporting teeth.      Type of ID ___________________________
drugs. This rule explains the sales tax law as    Dental equipment or supplies are not exempt.        ID Number __________________________
it applies to these exemptions.                   The exempt items include:                           Name (print)__________________________
                                                        1. Dentures                                   Signature_____________________________
(1) In general, sales of prescription drugs,            2. Inlays
orthopedic and prosthetic devices and certain           3. Bridge work                                (B) Examples of exempt prosthetic devices
qualifying health-related equipment, and cer-                                                         include:
                                                        4. Fillings
tain sales of over-the-counter drugs, are                                                                   1. Breast prosthetics, including surgical
                                                        5. Crowns
exempt from Missouri sales tax.                                                                       brassieres for postmastectomy patients
                                                        6. Braces, or
                                                                                                            2. Cardiac pacemakers
                                                        7. Artificial dentistry and dental recon-
(2) Definition of Terms.                                                                                    3. Colostomy and other ostomy bags and
   (A) Orthopedic device—a rigid or semi-         structions, which are made, manufactured or
                                                                                                      the necessary equipment required for attach-
rigid leg, arm, back or neck brace and cast-      fabricated from molds or impressions made
                                                                                                      ment
ing materials which are directly used for the     by dentists of the mouths of their particular
                                                                                                            4. Electronic speech aids if the patient
purpose of supporting a weak or deformed          patients and sold to dentists for insertion in
                                                                                                      has had a laryngectomy or his/her larynx is
body member or restricting or eliminating         the patient’s mouth as the direct support of,       permanently inoperative
motion in a diseased or injured part of the       substitution for, or part of the patient’s teeth.         5. Hearing aids and hearing aid supplies
body.                                                (D) Sales of other specific health-related             6. Hemodialysis equipment
   (B) Over-the-counter drug—a drug product       equipment and accessories are exempt from                 7. Maxillofacial devices and devices
which may be purchased without a physi-           sales tax.                                          which replace all or part of the ear or nose
cian’s prescription.                                    1.These specific items are—                         8. Prosthetic lenses which replace the
   (C) Prescription drug—a drug dispensed                  A. Ambulatory aides                        lens of an eye
by a licensed pharmacist only upon a lawful                B. Braille writers                               9. Urinary collection systems, including
prescription from a licensed practitioner.                 C. Electronic Braille equipment            Foley catheters, when replacing bladder func-
   (D) Prosthetic device—a device that                     D. Home respiratory equipment and          tion in cases of permanent urinary inconti-
replaces all or part of the function of a per-    accessories                                         nence
manently inoperative or malfunctioning inter-              E. Hospital beds and accessories                 10. Eyeglasses, contact lenses, bedpans
nal body organ and is medically required.                  F. Stairway lifts                          and incontinent apparel are not considered
                                                           G. Wheelchairs, manual and powered         prosthetic devices and are subject to sales tax
(3) Basic Application of Tax.                           2. If purchased by or on behalf of a per-        (C) Examples of exempt orthopedic
   (A) Sales of prescription drugs, insulin,      son with one or more physical or mental dis-        devices include:
medical grade oxygen, drug samples and            abilities to enable them to function more                 1. Artificial legs, arms and eyes includ-
materials used to manufacture samples,            independently, the following items are also         ing terminal devices such as artificial hands
which may be dispensed by a licensed practi-      exempt:                                                   2. Hoods and space shoes which replace
tioner are exempt from tax. Sales of over-the-             A. Electronic print enlargers and          part of a foot
counter drugs when sold to an individual with     magnifiers                                                3. Orthotics
a disability or to the individual’s agent are              B. Electronic alternative and augmen-            4. Stump stockings and harnesses when
exempt from tax. When selling over-the-           tative communication devices                        they are essential to the effective use of an
counter drugs to an individual with disability,            C. Items used solely to modify motor       artificial limb
the retailer should obtain a purchaser’s          vehicles to permit the use of such motor vehi-            5. Trusses
signed statement of disability. The retailer      cles by individuals with disabilities                     6. Elastic braces, elastic stockings, arm
should retain these statements for three (3)               D. Reading machines                        slings, elastic wraps and garter belts, are not
years. The statement should include the pur-               E. Scooters                                considered orthopedic devices and are subject
chaser’s name, type of purchase and amount                                                            to sales tax
of purchase, and be signed by the purchaser       (4) Examples.                                          (D) Examples of exempt orthopedic and
or the purchaser’s agent. The retailer should        (A) A retailer sells an over-the-counter         prosthetic devices used in dentistry include:
request a form of identification, such as driv-   drug to an individual claiming a disability.              1. Restorative materials.
er’s license, credit card, etc. to verify the     The sale is exempt if the retailer obtains from              A. Acrylics
identity of the purchaser. Sales of prosthetic    the purchaser or their agent a statement sim-                B. Aluminum crowns
devices as defined on January 1, 1980, by the     ilar to the following:                                       C. Amalgam

       ROBIN CARNAHAN       (6/30/05)                        CODE OF STATE REGULATIONS                                                             3
       Secretary of State
              12 CSR 10-110—DEPARTMENT OF REVENUE                                                                      Division 10—Director of Revenue



         D. Bases and liners                           2. If purchased by or on behalf of a per-          Red Line Medical Supply, Inc. v. Director of
         E. Cements                              son with one (1) or more physical or mental              Revenue (AHC 1995). This case involved a
         F. Chrome steel crowns                  disabilities to enable them to function more             taxpayer engaged in the business of selling
         G. Copper bands                         independently, the following items are also              medical supplies at retail. The taxpayer stat-
         H. Crown forms                          exempt:                                                  ed its belief that enteral nutrients were “pros-
         I. Dentin enamel adhesives                       A. Electronic alternative and augmen-           thetic devices” under Title XVIII of the Social
         J. Denture anchors                      tative communication devices                             Security Act of 1965 and, therefore, its sales
         K. Denture repair materials                      B. Electronic print enlargers and mag-          of the nutrients were exempt from Missouri
         L. Denture teeth                        nifiers                                                  sales/use tax. The Commission found that the
         M. Gold                                          C. Items used solely to modify motor            federal statutes were interpreted in part by
         N. Mercury                              vehicles to permit the use of such motor vehi-           the Carriers Manual and, therefore, could be
         O. Pins                                 cles by individuals with disabilities                    utilized in determining whether enteral nutri-
         P. Pit and fissure sealants                      D. Reading machines                             ents were prosthetic devices. It further found,
         Q. Porcelains                                    E. Scooters                                     however, that the manual did not define enter-
         R. Posts                                                                                         al nutrients as prosthetic devices. The Com-
         S. Temporary filling materials          AUTHORITY: section 144.270, RSMo 1994.*                  mission also found that under Missouri case
         T. Zinc oxide (Eugenol)                 Original rule filed Sept. 29, 1999, effective            law, Medic House, Inc. v. Director of Rev-
      2. Prosthetic devices and supportive       April 30, 2000.                                          enue, 799 S.W.2d 81 (Mo. banc 1990), in
materials.                                                                                                order for enteral nutrients to qualify as “pros-
         A. Acrylics                             *Original authority: 144.270, RSMo 1939, amended 1941,   thetic devices,” they must “(1) ‘replace all or
         B. Bonding materials                    1943, 1945, 1947, 1955, 1961.                            part of an internal body organ’ and (2) be
         C. Chrome alloys                                                                                 ‘medically required.’” Applying the facts to
                                                 EBI Medical Systems, Inc. v. Director of                 the case, the Commission found that enteral
         D. Composed materials
                                                 Revenue (AHC 1997). The taxpayer manu-                   nutrients were not prosthetic devices and,
         E. Denture anchors
                                                 factured and sold osteogenic (bone) stimula-             therefore, taxpayer should have collected and
         F. Denture repair materials
                                                 tors. The devices provided small amounts of              remitted Missouri sales taxes on its sales of
         G. Denture teeth
                                                 electrical current that stimulate the bone to            enteral nutrients.
         H. Implant materials
                                                 promote growth and healing, and were avail-
         I. Metal alloys
                                                 able by prescription only. The taxpayer                  Four Rivers Home Health Care, Inc. v.
      3. Orthodontic devices and materials.
                                                 argued the stimulators were exempt from tax-             Director of Revenue (AHC 1992). Taxpayer
         A. Arch bar splits
                                                 ation under section 144.030.2(18), RSMo,                 sold oxygen for medicinal use and also sold
         B. Bone grafting materials
                                                 using three alternative theories: (1) as a pros-         durable medical equipment. Taxpayer did not
         C. Cresitine                                                                                     collect or remit sales tax on either oxygen or
         D. Endodontic materials                 thetic device, (2) as an orthopedic device,
                                                 and (3) as a prescription drug. The Commis-              durable medical equipment because it consid-
         E. Face bow head gear                                                                            ered both to be exempt pursuant to
         F. Gor-tex grafting materials           sion found the stimulator was an orthopedic
                                                 device, but not a prosthetic device nor a pre-           144.030.2(18), RSMo. Taxpayer sold oxygen
         G. Gutta percha points                                                                           only upon a physician’s prescription; but tax-
         H. Muscosal grafts (natural and arti-   scription drug. The stimulators qualified as
                                                 orthopedic devices under Regulation 12 CSR               payer did not have a licensed pharmacist on
ficial)                                                                                                   the premises. Taxpayer also sold wheelchairs,
         I. Orthodontic appliances               10-3.852(3) that defines orthopedic devices to
                                                 include orthotics. The Commission defined                motorized three-wheel vehicles, crutches,
         J. Orthodontic brackets                                                                          walkers, canes, commode chairs, pressure
         K. Orthodontic elastics                 orthotics as “an orthopedic appliance or
                                                                                                          pads and cushions, seat lift chairs and
         L. Orthodontic expansion screw          apparatus used to support, align, prevent, or
                                                                                                          patient lifts, arm slings, flow meters, oxygen
         M. Orthodontic resins                   correct deformities or to improve the function
                                                                                                          regulators and intermittent partial pressure
         N. Orthodontic separators               of movable parts of the body.” The Commis-
                                                                                                          breathing apparatus. The Commission found
         O. Orthodontic waxes                    sion concluded the stimulator promotes bone
                                                                                                          that oxygen was a drug. However, it is not
         P. Orthodontic wires                    growth to correct deformities, and therefore,            designated as a prescription drug. The Mis-
         Q. Root canal sealants                  was an orthotic and an orthopedic device.                souri Supreme Court has ruled that the sales
         R. Silver points                        The Social Security Act of 1965, 42 U.S.C.               tax exemption does not apply to this oxygen
         S. Surgical wires                       Section 1395x(s)(8), defines prosthetic                  since persons other than a licensed pharma-
   (E) Sales of other specific health-related    devices as devices “which replace all or part            cist dispense it. Medic House, Inc. v. Direc-
equipment and accessories are exempt from        of an internal body organ.” Since the stimu-             tor of Revenue, 799 S.W.2d 81 (Mo. banc
sales tax.                                       lators do not “replace all or part of the func-          1990). The Commission found that a pros-
      1. These specific items are—               tion of a permanently inoperative or malfunc-            thetic device physically replaces a missing
         A. Ambulatory aides                     tioning internal body organ,” the stimulators            organ. A device that accommodates the
         B. Braille writers                      were not prosthetic devices. The federal defi-           absence of an organ or supplements the
         C. Electronic Braille equipment         nition of “Prescription drug,” set forth in 21           impaired function of an organ is not a pros-
         D. Hospital beds and accessories        U.S.C.A. Section 321(g)(1), specifically                 thetic device. The listed durable medical
         E. Home respiratory equipment and       excludes devices or their component parts or             equipment did not replace a missing organ
accessories                                      accessories. The Commission found the stim-              and were not prosthetic devices. The Com-
         F. Stairway lifts                       ulator was a device, and therefore, by defini-           mission also found that orthopedic devices
         G. Wheelchairs, manual and powered      tion, was not a prescription drug.                       are defined in 42 U.S.C.1395x(s)(9). Leg,

4                                                            CODE OF STATE REGULATIONS                                  (6/30/05)    ROBIN CARNAHAN
                                                                                                                                     Secretary of State
Chapter 110—Sales/Use Tax—Exemptions                                                                                   12 CSR 10-110


arm, back, and neck braces, and artificial         exemption does not apply to materials that         Aug. 14, 2007, effective Aug. 28, 2007,
legs, arms, and eyes, including replacements,      are totally consumed and are not intended to       expired Feb. 23, 2008. Amended: Filed Aug.
are exempt if required by a change in the          and do not become a part of the final prod-        14, 2007, effective Feb. 29, 2008.
patient’s physical condition. The durable          uct. In order to qualify for this exemption,
medical equipment items sold by taxpayer           the material in question must be intended to       *Original authority: 144.270, RSMo 1939, amended 1941,
were not artificial limbs or braces. These         remain in the finished product in at least trace   1943, 1945, 1947, 1955, 1961.
items are not exempt under section                 amounts for a specific purpose.
144.030.2(18), RSMo.                                  (B) Materials, including without limita-        The Doe Run Resource Company, d/b/a/
                                                   tion, slagging materials and firebrick, which      Doe Run Company Smelting Division, et al.,
                                                   are consumed in the manufacturing process          S.W.2d (Mo. banc 1998). The issue was the
12 CSR 10-110.016 Refunds and Credits              by blending, reacting or interacting with or       taxability of coke used in the processing of
(Moved to 12 CSR 10-102.016)                       by becoming, in whole or in part, component        lead. The Missouri Supreme Court found the
                                                   parts or ingredients of steel products to be       case to be analogous to the facts in Sipco,
                                                   sold ultimately for final use or consumption       Inc v. Director of Revenue, 875 S.W.2d 539
12 CSR 10-110.200 Ingredient or Com-                                                                  (Mo. banc 1994). In that case the court held
                                                   are exempt from tax.
ponent Part Exemption, as Defined in Sec-                                                             natural gas used in a singer to remove hair
                                                      (C) If any portion of purchased material
tion 144.030, RSMo                                                                                    from hog carcasses before butchering did not
                                                   qualifies as an exempt ingredient or compo-
                                                                                                      qualify as an ingredient or component part,
                                                   nent part, the entire purchase is exempt from
PURPOSE: Section 144.030.2(2), RSMo                                                                   because no part of the natural gas used in
                                                   tax. The material is exempt even if a signifi-     Sipco’s singer remained as an essential or
exempts from taxation certain materials,           cant portion is consumed in the manufactur-
goods, machinery and parts. This rule                                                                 necessary element of a finished pork product.
                                                   ing process.                                       The Court in Sipco concluded that no part of
explains the requirements for this exemption.         (D) Materials purchased to be used as an        the natural gas used in Sipco’s singer
                                                   ingredient or component part to repair exist-      remained as an essential or necessary ele-
(1) In general, purchases of ingredients or
                                                   ing property does not qualify for these            ment of the finished pork product. According-
component parts are exempt from tax if they
                                                   exemptions because the property produced           ly, the purchase was not tax exempt.
blend with the final product and are intended
to and do become a part of the finished prod-      from the repair work does not constitute
uct. In addition, materials that are consumed      “new personal property.”                           Spacewalker, Inc., v. Director of Revenue
in the manufacturing, processing, compound-                                                           (AHC 1997). The purchase of shielding gas
                                                   (4) Examples.                                      used in welding was held taxable. The pur-
ing, mining, producing or fabricating of
                                                      (A) A toy manufacturer purchases wood,          pose of the shielding gas was to shield the
products intended to be sold ultimately for
                                                   glue, and paint to use in the manufacturing of     puddle (molten metal) from the atmosphere
final use or consumption are exempt from
                                                   wooden rocking horses. The purchases of            and not to become mixed with the metal. The
tax.
                                                   wood, glue and paint are exempt from tax.          AHC referenced the Al-Tom decision, which
(2) Definition of Terms.                              (B) A restaurant purchases apple wood to        found that if any part of a material is intend-
   (A) Component part—a constituent ele-           use in the smoking of foods. The restaurant        ed and does remain as an essential or neces-
ment of a manufactured or fabricated prod-         burns the wood in a closed chamber, called a       sary element of the finished product, the
uct.                                               smoker, in which it places the food. The           entire purchase is exempt. Because the
   (B) Ingredient—an element in a mixture or       burning wood releases compounds, and small         shielding gases were present in the finished
compound.                                          but measurable quantities of the compounds         product, incidentally or accidentally, they
                                                   enter and permeate the food. Because a part        were not exempt as component parts. The
   (C) Interacting—means that the materials
                                                   of the wood, in the form of smoke particles,       Missouri Court of Appeals affirmed the deci-
and component parts or ingredients act upon
                                                   blends with and remains as part of the fin-        sion by the AHC.
each other in manufacturing a steel product.
   (D) Reacting—means that the materials           ished product, the apple wood may be pur-
                                                   chased tax exempt as an ingredient or com-         Concord Publishing House, Inc. d/b/a Cape
cause a chemical change in the component                                                              Mississippi Development, Inc., d/b/a South-
parts or ingredients in manufacturing a steel      ponent part.
                                                                                                      east Missourian v. Director of Revenue
product.                                              (C) An automobile manufacturer purchas-
                                                                                                      (AHC 1995). The taxpayer, a newspaper pub-
   (E) Steel product—the product made              es wax to wax all automobiles as they leave
                                                                                                      lisher and printer, claimed an ingredient or
entirely of steel resulting from:                  the manufacturing plant. The wax qualifies as
                                                                                                      component part exemption on its toner. The
      1. Smelting and refining molten pig          a component part because it is intended to         AHC held that the toner and toner cartridges
iron, scrap steel or other metals; or              remain with the product.                           did not qualify for exemption because the
      2. Rolling, drawing, casting or alloying        (D) A steel mill purchases firebrick and        toner became a component part of the layout
steel.                                             various gases to be used in the production of      from which the photonegative was developed.
                                                   steel. These purchases are exempt.                 The toner was not physically present in the
(3) Basic Application of Exemption.                   (E) A steel fabricator purchases welding        newspaper sold to the public.
   (A) Materials, manufactured goods,              rods for use in fabricating a product out of
machinery, and parts that become a compo-          steel plates. The welding rods are exempt          Robertson’s Creative Photography, (AHC
nent part or ingredient of new personal prop-      because they become a component part of            1994). The Commission held that the taxpay-
erty to be sold ultimately for final use or con-   new personal property.                             er as a commercial photographer was subject
sumption are not subject to tax. Purchases of                                                         to sales tax on its purchases of film. The film
ingredients or component parts are exempt          AUTHORITY: section 144.270, RSMo 2000.*            was not a component part or ingredient
from tax if they are intended to and do            Original rule filed Aug. 30, 2000, effective       because it did not remain as an essential or
become a part of the finished product. The         March 30, 2001. Emergency amendment filed          necessary element of the finished product.

        ROBIN CARNAHAN       (2/29/08)                        CODE OF STATE REGULATIONS                                                                   5
        Secretary of State
               12 CSR 10-110—DEPARTMENT OF REVENUE                                                                        Division 10—Director of Revenue



12 CSR 10-110.201 Materials and Other               the product. Catalysts and acids are also pur-           are 144.010, 144.011, 144.020, 144.021,
Goods Used or Consumed in Manufactur-               chased to interact with and clean the product            144.030 and 144.080, RSMo.
ing, as Defined in Section 144.054, RSMo            being manufactured. The coolants, hydraulic
                                                    fluids, greases, oils, catalysts and acids are           (1) In general, sales or charges for rooms,
PURPOSE: Section 144.054.2, RSMo,                   exempt from state tax and local use tax, but             meals or drinks at a place that regularly
exempts from state tax and local use tax, but       not local sales tax.                                     serves the public are taxable.
not local sales tax certain materials, goods,
machinery and parts. This rule explains the         AUTHORITY: section 144.270, RSMo 2000.*                  (2) Definitions. Permanent resident—An
requirements for this exemption.                    Emergency rule filed Aug. 14, 2007, effective            individual who contracts in advance for a
                                                    Aug. 28, 2007, expired Feb. 23, 2008. Origi-             room for a period of thirty consecutive days
(1) In general, purchases of electricity, gas       nal rule filed Aug. 14, 2007, effective March            or more and who actually remains a guest for
(natural, artificial, or propane), water, coal,     30, 2008.                                                thirty consecutive days or more. Businesses
and energy sources, chemicals, machinery,                                                                    do not qualify as permanent residents.
equipment and materials that are used or con-       *Original authority: 144.270, RSMo 1939, amended 1941,
sumed in the manufacturing, processing,             1943, 1945, 1947, 1955, 1961.                            (3) Basic Application of the Tax.
compounding, mining or producing a product                                                                      (A) Charges for rooms, meals, and drinks
are exempt from state tax and local use tax,                                                                 furnished by hotels, restaurants, and other
but not local sales tax. Local sales tax applies    12 CSR 10-110.210 Television and Radio                   establishments, in which rooms, meals, or
to these transactions.                              Broadcasters                                             drinks are regularly served to the public, are
                                                                                                             taxable. Rooms for lodging as well as meet-
                                                    PURPOSE: This rule explains the television               ing, banquet and conference rooms are tax-
(2) Basic Application of Exemption.                 and radio broadcasters sales tax exemption.              able.
   (A) Electricity, gas (natural, artificial, or                                                                (B) A permanent resident is not subject to
propane), water, coal, and energy sources,          (1) In general, radio and television broad-              tax on their lease or rental payments. A per-
chemicals, machinery, equipment and materi-         casters are exempt from sales and use tax,               manent reservation for any room is not syn-
als that are used or consumed in manufactur-        both state and local, on purchases of utilities,         onymous with permanent resident.
ing, processing, compounding, mining or             machinery, and equipment used or consumed                   (C) An educational institution, which fur-
producing a product are exempt from state           directly in the broadcasting of their pro-
                                                                                                             nishes room and board to students in pursuit
tax and local use tax, but not local sales tax.     grams.
                                                                                                             of their educational objectives, is not subject
It is not necessary for the item purchased to
be used directly in manufacturing, process-         (2) Definition of Terms.                                 to tax on the gross receipts.
ing, compounding, mining or producing a                (A) Broadcaster—An entity who transmits                  (D) Persons engaged in providing rooms
product in order to qualify for the exemption.      (a radio or television signal) over the airwaves         are subject to tax on the gross receipts from
                                                    for public or general use. A cable or satellite          the sale of tangible personal property and tax-
(3) Examples.                                       provider is not a broadcaster.                           able services:
   (A) A toy manufacturer purchases sandpa-                                                                        1. Receipts for food or drink are taxable
per to use in the manufacturing of wooden           (3) Basic Application.                                   regardless of whether the charge is made per
rocking horses. The purchase of sandpaper is           (A) A Missouri radio or television station            meal, daily, weekly, or monthly;
exempt from state tax and local use tax, but        purchases utilities, machinery and equipment                   2. In room pay-per-view programs or
not local sales tax because it is a material that   for use directly in the broadcasting of their            movies are not subject to tax; and
is consumed in producing a product.                 programming. The purchase of the utilities,                    3. All persons engaged in providing
   (B) An automobile manufacturer purchases         machinery and equipment are not subject to               rooms must collect tax on all charges for
soap to wash all automobiles as they leave the      state or local tax.                                      telecommunication services, including intra-
manufacturing plant. The soap qualifies as a                                                                 state and interstate calls.
material used or consumed in manufacturing          AUTHORITY: section 144.270, RSMo 2000                       (E) Rooms, meals and drinks are exempt
and is exempt from state tax and local use          and section 144.054, RSMo Supp. 2007.*                   from tax if sold to an exempt organization or
tax, but not local sales tax.                       Emergency rule filed Aug. 14, 2007, effective            a representative of that organization if the
   (C) A steel fabricator purchases gases for       Aug. 28, 2007, expired Feb. 23, 2008. Origi-             seller has documentation of the exemption. If
use in fabricating a product out of steel           nal rule filed Aug. 14, 2007, effective Feb.             the representative claims the exemption, even
plates. The gases that are consumed in the          29, 2008.                                                if the representative pays with his own funds
fabrication process are exempt from state tax
                                                                                                             and is reimbursed, and the hotel has a copy
and local use tax, but not local sales tax,         *Original authority: 144.054, RSMo 2007 and 144.270,
                                                                                                             of a valid exemption letter issued by the Mis-
because they are consumed in producing a            RSMo 1939, amended 1941, 1943, 1945, 1947, 1955,
product.                                                                                                     souri Department of Revenue to the organiza-
                                                    1961.
   (D) A foundry creates a steel product by                                                                  tion, the sale is exempt. An agent of the Unit-
casting molten steel. After casting, a cleaning                                                              ed States government paying with a U.S.
solution is poured over the product to remove       12 CSR 10-110.220 Hotels and Motels                      government credit card is also exempt.
impurities from the surface. The solution is                                                                    (F) Persons providing complimentary
used or consumed in the producing of a prod-        PURPOSE: This rule explains the taxability               meals and drinks or non-reusable tangible
uct and is exempt from state tax and local use      of rooms, meals and drinks provided by                   personal property as part of the room accom-
tax, but not local sales tax.                       hotels, motels, and similar establishments in            modation should not pay tax on the purchas-
   (E) A metal container manufacturer pur-          which these items are regularly provided to              es. Non-reusable items include soap, sham-
chases coolants, hydraulic fluids, greases and      the public. It also covers purchases made by             poo, tissue, and food or confectionery items
oils for use in machines that are used to shape     these establishments. The applicable sections            offered to the guests without charge.

6                                                               CODE OF STATE REGULATIONS                                 (2/29/08)    ROBIN CARNAHAN
                                                                                                                                       Secretary of State
Chapter 110—Sales/Use Tax—Exemptions                                                                                       12 CSR 10-110


   (G) The purchaser must pay tax on the pur-            HBE Corp. v. Director of Revenue, (A.H.C.          (1) In general, materials, replacement parts,
chase of reusable items including furniture,             1992). The hotel marked up the charges for         and equipment purchased for use directly
curtains, linens, towels, pillows, mirrors,              guest phone calls over the rate paid to its sup-   upon, and for the repair and maintenance or
radios and televisions for room accommoda-               plier. The Commission ruled the hotel “sold”       manufacture of, motor vehicles, watercraft,
tion.                                                    telephone services to “others,” its hotel          railroad rolling stock or aircraft engaged as
                                                         guests. Where a retail sale occurs between a       common carriers of persons or property are
(4) Examples.                                            Missouri buyer and Missouri seller, the            not subject to tax. Pumping machinery and
   (A) A hotel rents a room to a guest for a             exemption for interstate commerce does not         equipment used to propel products delivered
night. The soap and shampoo are included in                                                                 by pipelines engaged as common carriers are
                                                         apply. See, Bratton Corp. v. Director of Rev-
the price of the room and may be purchased                                                                  not subject to tax. Railroad rolling stock used
                                                         enue, 783 S.W.2d 891 (Mo banc 1990). Even
tax exempt by the hotel under a resale exemp-
                                                         though the sale involved the transmission of       in transporting persons or property in inter-
tion. The complimentary breakfast provided
                                                         telephone message to a recipient located in        state commerce is not subject to tax. Motor
to the guest is also included in the price of the
                                                         another state, it was not exempt as a sale in      vehicles licensed for a gross weight of twen-
room, and the hotel may purchase the food
                                                         commerce.                                          ty-four thousand (24,000) pounds or trailers
under a resale exemption. The towels, bed
                                                                                                            used by common carriers in the transporta-
linens and furniture are subject to tax at the
                                                         The Hotel Majestic (Majestic Associates) v.        tion of persons or property are not subject to
time of purchase.
                                                         Director of Revenue, (A.H.C. 1989). A Mis-         tax.
   (B) A hotel provides a complimentary
                                                         souri limited partnership that owned and
room for a couple’s wedding night. The hotel
                                                         operated a hotel was properly denied a sales       (2) Definition of Terms.
includes a free bottle of champagne and a free
                                                         tax refund on certain payments it received            (A) Common carrier—any person that
breakfast. The hotel must pay tax on the cost
                                                         under a long-term room reservation rental          holds itself out to the public as engaging in
of the champagne and the breakfast because
the hotel did not charge for the room.                   agreement. The hotel agreed to reserve             the transportation of passengers or property
   (C) An airline reserves rooms at a hotel              between 10 and 20 rooms per day for the use        for hire. A common carrier is required by law
under a long-term room contract. In exchange             and convenience of a public utility. Any           to transport passengers or property for others
for room availability, the airline agrees to pay         reserved room that was not taken by a guest        without refusal if the fare or charge is paid.
for all rooms on a guaranteed basis, whether             of the utility prior to 6:00 p.m. daily could be   To qualify as a common carrier, a carrier
or not it uses the rooms. The entire charge for          let by the hotel to the general public for that    must be registered as a common carrier with
the rooms is taxable, regardless of whether              night. In exchange for making reserved rooms       all agencies that require such registration,
the rooms are actually used.                             available, the utility agreed to pay for all the   such as the United States Department of
                                                         rooms on a monthly basis, whether it used          Transportation.
AUTHORITY: section 144.270, RSMo 1994.*                  them or not, with the exception of reserved           (B) Contract carrier—any person under
Original rule filed June 13, 2000, effective             rooms let to other patrons.                        individual contracts or agreements that
Dec. 30, 2000.                                                                                              engages in transportation of passengers or
                                                         National Land Management, Inc., v. Direc-          property for hire or compensation. A contract
*Original authority: 144.270, RSMo 1939, amended 1941,   tor of Revenue, (A.H.C. 1984). The Com-            carrier is a carrier that meets the special
1943, 1945, 1947, 1955, 1961.                                                                               needs of certain customers to transport its
                                                         mission found that receipts from time sharing
Drury Supply Co., et al v. Director of Rev-              arrangements at resorts are not taxable. The       passengers or property.
enue, (A.H.C. 1996). The Commission                      payments in question did not constitute               (C) Directly upon—used in a direct man-
found that the “sale for resale” exclusion               charges for rooms furnished in any hotel,          ner without anything intervening and with a
applies to the sale of a taxable service and,            motel, inn, tourist camp or tourist cabin.         certain degree of physical immediacy.
therefore, the purchases of the tangible per-            Because the time-shares include a thirty-year         (D) Motor vehicle—any vehicle, truck,
sonal property used to provide “free” break-             lease, the occupants are not transitory in the     truck-tractor, motor bus, or any self-pro-
fasts and the guest consumables were not                 sense that travelers or tourists are. Rooms in     pelled vehicle and trailers or semi-trailers
subject to Missouri taxes. It further found              taxpayer’s resort are not regularly rented         used upon the highways of the state in trans-
that the guest room supplies (towels, bed                because they are only open to the general          portation of property or passengers.
linens, waste baskets and other items placed             public when they are not already reserved.            (E) Private carrier—any person engaged in
in the rooms for the guests’ use) were prop-                                                                the transportation of passengers or its proper-
erty used and consumed by the hotel/motel to             Chase Hotel, Inc, v. Director of Revenue,          ty, but not as a common carrier or a contract
provide the service to the guests and owner-             (A.H.C. 1982). The taxpayer’s purchase of          carrier.
ship of the property was not transferred to the          furnishings for use in its hotel was not a “sale      (F) Watercraft—any boat or craft, includ-
guests. Therefore, the purchases of the guest            for resale” because the hotel was the ultimate     ing a vessel, used or capable of being used as
room supplies were subject to tax. The Com-              consumer of the materials purchased for its        a means of transport on waters.
mission also found that the taxpayer had                 renovation program.
accepted exemption certificates from exempt                                                                 (3) Basic Application of Exemption.
entities in good faith. Therefore the sales of                                                                 (A) Railroad Rolling Stock. Sales of rail-
room services to persons representing the                12 CSR 10-110.300 Common Carriers                  road rolling stock are exempt provided that it
exempt entities were exempt from tax even                                                                   is used in transporting persons or property in
though payment did not come directly from                PURPOSE: Sections 144.030.2(3), (10), (11),        interstate commerce. The sale of flanged
the exempt entities. Finally, the Commission             (20) and (30), RSMo, exempt from taxation          wheel equipment used to repair and maintain
found that the taxpayer’s charge to the cus-             certain materials, parts and equipment used        the railroad track used in interstate commerce
tomer for telecommunications services was                by common carriers. This rule explains what        is also exempt. Railroad rolling stock for use
taxable.                                                 qualifies for the exemptions.                      solely in intrastate commerce is not exempt.

         ROBIN CARNAHAN         (2/29/08)                           CODE OF STATE REGULATIONS                                                            7
         Secretary of State
              12 CSR 10-110—DEPARTMENT OF REVENUE                                                                      Division 10—Director of Revenue



   (B) Aircraft. Sales of aircraft to common           (B) A manufacturer maintains a fleet of          AUTHORITY: section 144.270, RSMo 2000
carriers for storage or for use in interstate      trucks to transport finished products to vari-       and section 144.030, RSMo Supp. 2007.*
commerce are not subject to sales tax.             ous distribution centers throughout the Unit-        Original rule filed Jan. 24, 2001, effective
   (C) Pipeline Pumping Equipment. Sales of        ed States. The manufacturer also negotiates          Aug. 30, 2001. Emergency amendment filed
machinery and equipment used to propel             with other companies to transport goods on           Aug. 14, 2007, effective Aug. 28, 2007,
products by pipelines engaged as common            return trips from the distribution centers. The      expired Feb. 23, 2008. Amended: Filed Aug.
carriers are exempt. The exemption does not        purchase of the manufacturer’s fleet of trucks       14, 2007, effective Feb. 29, 2008.
apply to contract carriers or to private carri-    and repair parts for the fleet are taxable
ers. All other machinery and equipment such        because the manufacturer is not a common             *Original authority: 144.030, RSMo 1939, amended 1941,
                                                   carrier.                                             1943, 1945, 1949, 1961, 1965, 1967, 1969, 1977, 1979,
as pipelines, connecting lines, communica-                                                              1980, 1982, 1983, 1985, 1986, 1988, 1989, 1991, 1994,
                                                       (C) A common carrier purchases a cab and
tion equipment, monitoring equipment,                                                                   1995, 1996, 1997, 1998, 1999, 2003, 2004, 2005, 2007
                                                   chassis. The cab and chassis are licensed for        and 144.270, RSMo 1939, amended 1941, 1943, 1945,
accessory equipment, such as fuel tanks to         a gross weight of 24,000 pounds and will be          1947, 1955, 1961.
provide fuel for pumping engines, and mani-        used only in intrastate commerce as a com-
folds used to connect pumping equipment to         mon carrier. The purchase of the cab and             Burlington Northern Railroad v. Director of
the main lines are subject to tax.                 chassis is not taxable. The common carrier           Revenue, 785 S.W.2d 272 (Mo. banc 1990).
   (D) Power Take-Off Units. Equipment on          subsequently purchases a dump bed to add to          Railroad rolling stock normally has flanged
motor vehicles used by common carriers             the cab and chassis. The dump bed is exempt          wheels. The equipment does not have to be
which is exempt from tax includes power            from tax because it is materials or equipment        used directly in transporting persons or prop-
take-off (PTO) units which are attached to the     used in the manufacture of a motor vehicle to        erty in interstate commerce. Thus, this flange
transmission of the power unit of the vehicle      be used by a common carrier.                         wheeled equipment used to repair and main-
and all materials and replacement parts for            (D) The sale of a switch engine to be used
                                                                                                        tain the track was held exempt.
the power take-off units.                          to move railroad cars around a switching
   (E) Materials. Materials used by common         yard, if part of an interstate rail system, is not
                                                                                                        Trailiner Corp. v. Director of Revenue, 783
carriers directly upon and for the mainte-         subject to tax.
                                                                                                        S.W.2d 917 (Mo. banc 1990). The court held
nance or repair of motor vehicles, watercraft,         (E) A common carrier purchases a trailer.
                                                   The common carrier subsequently purchases            that the trailers constituted “motor vehicles”
railroad rolling stock or aircraft, which qual-                                                         within the meaning of 144.030.2(3). The
ify for the exemption from tax include, but        a refrigeration unit to add to the trailer. The
                                                   refrigeration unit is exempt from tax because        court relied on the definition of motor vehicle
are not limited to, grease, motor oil, gear oil                                                         found in chapter 390, RSMo, rather than
                                                   it is materials or equipment used in the man-
and lube, water additives, antifreeze, fuel                                                             chapter 301, RSMo, as argued by the direc-
                                                   ufacture of a motor vehicle to be used by a
additives, cleaners and paint for body work.                                                            tor.
                                                   common carrier.
   (F) Replacement Parts. Replacement parts            (F) The sale of a switch engine to be used
used by common carriers directly upon and          to move railroad cars around a switching             Hogan Motor Leasing, Inc. v. Director of
for the maintenance or repair of motor vehi-       yard, if part of an interstate rail system, is       Revenue (AHC 1999), Hogan Transports,
cles, watercraft, railroad rolling stock or air-   not subject to tax.                                  Inc. v. Director of Revenue (AHC 1999). The
craft, which qualify for the exemption from            (G) An airline purchases equipment to test       taxpayer purchased equipment that allowed
tax include, but are not limited to, decals,       engine parts that have been removed from the         the taxpayer to monitor the maintenance
permit pouches, tarpaulins and tie-downs,          plane and brought to their repair facility. The      needs of its trucks, which were used to trans-
wind deflectors, winter fronts, and radio          equipment purchased would be exempt from             port goods in interstate commerce. The
repair parts purchased for use on the vehicle.     tax.                                                 equipment also permitted certain communica-
   (G) Barges. The purchase of barges used             (H) The owner of a Missouri furniture            tions functions between the truck and dis-
primarily in the transportation of property or     store is registered as a common carrier, but         patchers. The communications functions were
cargo on interstate waterways is exempt from       does not hold itself out to the general public       implemented first. The commission held that
tax.                                               as a common carrier. It uses its truck only to       the maintenance functions of the equipment
   (H) Tools. Tools and equipment purchased        deliver furniture sold to customers residing in      made it equipment that was purchased for use
for use directly upon, and for the repair and      and outside Missouri. The owner installs new         directly upon and for the repair and mainte-
maintenance or manufacture of, motor vehi-         brakes on the truck. Even though the owner           nance of the trucks and therefore, exempt.
cles, watercraft, railroad rolling stock or air-   is registered as a common carrier, the brakes
                                                                                                        Furthermore, the original purchase was
                                                   are taxable because the furniture store is
craft engaged as common carriers of persons                                                             exempt because the evidence established that
                                                   operating as a private carrier.
or property are not subject to tax.                                                                     the taxpayer intended when it purchased the
                                                       (I) A charter company contracts with pri-
                                                   vate groups for exclusive use of its bus and         equipment to add the maintenance functions
(4) Examples.                                                                                           after implementation of the communications
                                                   driver for transportation between Missouri
   (A) A manufacturer registered as a com-                                                              functions was complete.
                                                   and destinations in the Southeastern United
mon carrier maintains a fleet of trucks to         States. The company provides no other trans-
transport finished products to various distri-     portation services. The charter company pur-         Craftsmen Limousine, Inc. v. Director of
bution centers throughout the United States.       chases new tires. The tires are taxable              Revenue (AHC 1997). After providing defini-
The manufacturer advertises that it will trans-    because the business is a contract carrier.          tions for common, contract and private carri-
port goods belonging to others on return trips         (J) A railroad purchases a flanged wheel         ers, the commission found that the taxpayer’s
from the distribution centers and advertises       mechanized tie replacement machine for               customers (limousine services) could be any
that service. The purchase of the manufactur-      repairing broken rail segments on an inter-          of the three. Because the taxpayer did not
er’s fleet of trucks and repair parts for the      state system. The purchase of the machine is         prove that its customers were common carri-
fleet are not taxable.                             exempt.                                              ers it was not entitled to the exemption.

8                                                             CODE OF STATE REGULATIONS                                (2/29/08)      ROBIN CARNAHAN
                                                                                                                                      Secretary of State
Chapter 110—Sales/Use Tax—Exemptions                                                                                 12 CSR 10-110


Rocky Mountain Helicopters, Inc. v. Direc-        tion and sale of newspapers and other publi-       Items that are consumed in a single process-
tor of Revenue (AHC 1992). Pursuant to con-       cations. Additionally, section 144.030.2(8),       ing and benefit only one (1) production cycle
tracts with Missouri hospitals, taxpayer oper-    RSMo exempts from taxation newsprint, ink,         are materials and supplies, not parts. Items
ated an air ambulance service which picked        computers, photosensitive paper and film,          such as: nuts, bolts, hoses, hose clamps,
up and transported patients to the hospital. A    toner, printing plates and other machinery,        chains, belts, gears, drill bits, grinding heads,
common carrier must convey passengers or          equipment, replacement parts and supplies          blades, and bearings, would ordinarily be
freight without refusal if the approved fare is   used in producing newspapers published for         considered parts. Substances such as fuels
paid. Assuming a carrier carries passengers       dissemination of news to the general public.       and coolants that are added to machinery and
or freight without refusal, the crucial test is   This rule explains what elements must be met
                                                                                                     equipment for operation are not parts. Sub-
whether the carrier holds itself out as a com-    in order to qualify for this exemption. The
                                                                                                     stances such as lubricants, paint and adhe-
mon carrier. Thus, a carrier may be a com-        sale of publications that are not in tangible
mon carrier even if it limits its operations to   form is not subject to tax and is not              sives that adhere to the surface of machinery
special contract or charter flights. Because      addressed in this rule.                            and equipment but are not distinct articles of
the taxpayer held itself out as a common car-                                                        tangible personal property, are not parts;
rier, through promotional material and use of     (1) In general, newspapers, magazines,             these items would be considered materials or
its insignia and placard on the aircraft, and     newsletters, periodicals, trade journals, books    supplies within the meaning of the exemp-
carried, within the limits of its capacity, all   and other publications are tangible personal       tions.
persons desiring its services, it was found to    property and their sale is subject to tax to the      (E) Producing—for purposes of this rule
be a common carrier.                              same extent as any other personal property.        only, the process of creating a newspaper.
                                                  Sellers of printed materials are subject to all       (F) Publisher—a person who prepares and
St. Louis Refrigerator Car Co. v. Director of     rules applicable to other sellers of tangible      issues a publication for public distribution.
Revenue (AHC 1992). Items purchased for           personal property, except as otherwise specif-        (G) Publication—any written material,
either repair or maintenance may qualify for      ically provided in this rule. Machinery,
the exemption. Use of the phrase “directly                                                           such as newspapers, magazines, newsletters,
                                                  equipment, replacement parts, and supplies         periodicals, trade journals, and books,
upon” does not relate to the relationship         used to produce newspapers for dissemination
between the item and the repair or mainte-                                                           offered for sale or distribution.
                                                  of news to the general public are exempt from         (H) Supplies—for purposes of this rule
nance process. In this way “directly upon” in
                                                  tax. Publishers of other printed materials are     only, tangible personal property consumed in
section 144.030.2(3), RSMo, is distinguish-
                                                  not included within the same exemption as          the production of a newspaper. The term sup-
able from “used directly for” in section
144.030.2(4), RSMo. “Directly upon” indi-         newspapers that disseminate news to the gen-       plies does not include fuel.
cates the close physical relationship required    eral public but may qualify for exemptions
between the item and the mode of transporta-      applicable to manufacturers to the same            (3) Basic Application of Exemption.
tion. While physical contact is not required,     extent as any other manufacturer.                     (A) If the retail purchaser buys a publica-
there must be a certain degree of physical                                                           tion directly from the publisher or the pub-
immediacy.                                        (2) Definition of Terms.                           lisher bears the risk of loss for noncollection,
                                                     (A) Equipment—devices that have a degree        the publisher is the seller and must collect
Metro Crown International, Inc. v. Director       of permanence to the business, contribute to
                                                                                                     and remit the tax. If the retail purchaser buys
of Revenue (AHC 1990). Exemption certifi-         multiple processing cycles over time and gen-
cates must be provided as evidence for a com-                                                        the publication from someone other than the
                                                  erally constitute fixed assets, other than land
mon carrier’s claim of exemption.                                                                    publisher and that person bears the risk of
                                                  and buildings, that are capitalized and depre-
                                                                                                     loss for noncollection, then that person is the
Trans World Airlines, Inc. v. Director of         ciated for purposes of business and account-
                                                                                                     seller and must collect and remit the tax.
Revenue (AHC 1988). Cleaners, abrasives,          ing practices.
                                                                                                        (B) If the purchaser receives the publica-
solvents and test equipment qualified for the        (B) Machinery—combinations of parts that
                                                  work together as a functioning unit, even if       tion in Missouri, the seller must collect and
section 144.030.2(3), RSMo, exemption even                                                           remit sales tax, unless the order for the pub-
though they were used on parts of the aircraft    they are subordinate elements of more com-
                                                  plex machinery. Machinery may be simple or         lication is approved outside Missouri and
that were removed for servicing. Cleaning
                                                  complex, but does not include the replace-         delivered to the purchaser from outside Mis-
soaps used to clean the floor of the repair
                                                  ment of an individual part, even if that part      souri by common or contract carrier, in
facility were not used “directly upon” the air-
craft and, therefore, not exempt.                 becomes an element of a functioning                which case the seller must collect and remit
                                                  machine.                                           use tax.
Emerson Electric Co. v. Director of Rev-             (C) Newspapers published for the dissemi-          (C) The sale of a publication subject to
enue, 133 S.W.3d 31 (Mo. banc 2004). A            nation of news to the general public—publi-        state sales tax is subject to the local sales tax
common carrier does not have to use an air-       cations that are published at stated short         at the rate in effect at the seller’s place of
craft as part of its common carrier operations                                                       business in Missouri. A sale of a publication
                                                  intervals, usually daily or weekly, and contain
to qualify to purchase the aircraft exempt                                                           subject to state use tax is subject to the local
                                                  news of current events available for distribu-
from tax. “Mere storage or use of the plane in                                                       use tax in effect where the publication is first
                                                  tion to anyone; that do not, when successive
interstate commerce qualifies the common                                                             delivered in Missouri.
carrier for the exemption.”                       issues are put together, constitute a book; and
                                                  that are generally in sheet form.                     (D) The sale by the publisher of a publica-
                                                     (D) Parts—articles of tangible personal         tion through a vending machine is subject to
12 CSR 10-110.400 Newspapers and Other            property that are components of machinery          tax based on one hundred thirty-five percent
Publications                                      or equipment, which can be separated from          (135%) of the average price at which the pub-
                                                  the machinery or equipment and replaced.           lisher sells the publication to vendors or on
PURPOSE: This rule explains the applica-          Like machinery and equipment, parts must           actual gross receipts. The sale of a publica-
tion of sales and use tax law to the publica-     have a degree of permanence and durability.        tion through a vending machine is subject to

       ROBIN CARNAHAN       (2/29/08)                        CODE OF STATE REGULATIONS                                                              9
       Secretary of State
               12 CSR 10-110—DEPARTMENT OF REVENUE                                                                         Division 10—Director of Revenue



local sales tax at the rate in effect where the      lisher does not have a place of business in              extended the holding in Daily Record to sup-
vending machine is located.                          Missouri. The publisher is the seller and                plements printed by a third party printer and
   (E) If the purchaser is required to pay for       must collect and remit use tax, including                delivered to a newspaper publisher for distri-
delivery, handling, postage costs or similar         local use tax at the rate in effect where the            bution with the newspaper.
service charges as part of the sale price of the     newspaper is delivered. Tax is imposed on the
publication, the entire sale price is subject to     entire sale price, including postage and han-
tax. If the purchaser is not required to pay the     dling charges.                                           12 CSR 10-110.600 Electrical Energy, as
service charge as part of the sale price of the         (D) A retailer sells local and national pub-          Defined in Section 144.030, RSMo
publication, the amount paid for the service         lications. The retailer is the seller of the pub-
is not subject to tax if the charge for such ser-    lications and must collect and remit sales tax,          PURPOSE: Section 144.030.2(12), RSMo
vice is separately stated. If the charge for the     including local sales tax at the rate in effect          exempts from tax certain purchases of electri-
service is not separately stated, the entire sale    at the retailer’s place of business. The retail-         cal energy used in primary or secondary
price is subject to tax.                             er may claim a resale exemption when pur-                manufacturing, processing, compounding,
   (F) A publisher may set the individual            chasing the publications from the publishers.            mining or producing a product, or processing
copy price to a round amount including tax,             (E) A publisher prints a daily newspaper              of raw materials that contain recovered mate-
provided that the publication states some-           and occasionally prints extra copies for free            rials. Section 144.030.2(31), RSMo exempts
where that the amount of the price includes          distribution to nonsubscribers. The publisher            from tax electricity used in connection with
tax. Any other seller must collect and remit         should not remit tax on the copies distributed           the manufacturing of cellular glass products
tax on the sale price of the publication.            for free and the supplies used to produce the            or in any material recovery processing plant.
   (G) A publisher may purchase an insert to         newspaper are exempt.                                    Section 144.030.2(33), RSMo exempts from
its publication exempt from tax as an ingredi-          (F) Publisher A prints and sells a newspa-            tax utilities used or consumed directly or
ent or component part. See 12 CSR 10-                per to publisher B. Publisher B distributes the          exclusively in the research and development
110.200.                                             newspaper for free. Publisher A should col-              of agricultural biotechnology products and
                                                     lect and remit tax on its sales to publisher B.          plant genomics products and prescription
(4) Examples.                                           (G) Same facts as (4)(F), except publisher            pharmaceuticals consumed by humans or ani-
   (A) An individual in Missouri subscribes          B sells the newspaper. Publisher B must collect          mals. This rule explains when these exemp-
to the local newspaper by contracting with the       and remit tax on its sale of the newspaper, but          tions apply and how a taxpayer may claim the
publisher. The publisher contracts with a            may issue a resale exemption certificate and             exemptions at the time of purchase of the
third party to deliver the newspaper and col-        purchase the newspaper from publisher A                  electrical energy.
lect the entire cost of the newspaper, includ-       exempt from tax.
ing delivery charges, which are not separate-                                                                 (1) In general, electrical energy used in facil-
                                                        (H) A publisher produces an advertising
ly stated. The publisher bears the risk that the                                                              ities owned or leased by the taxpayer in the
                                                     circular that it distributes for free. The pub-
individual will not pay for the subscription.                                                                 actual primary manufacturing, processing,
                                                     lisher should pay tax on the machinery,
The publisher is the seller and must collect                                                                  compounding, mining or producing of a
                                                     equipment and supplies used to produce the
and remit sales tax, including local sales tax                                                                product is exempt from tax if the cost of the
                                                     circular.
at the rate in effect at the publisher’s place of                                                             electrical energy used exceeds ten percent
                                                        (I) Same facts as (4)(H), except the pub-
business. Tax is imposed on the entire sale                                                                   (10%) of the total cost of the primary manu-
                                                     lisher sells the circular. The publisher must
price, including delivery charges, because the                                                                facturing, processing, compounding, mining
                                                     collect and remit tax on its sales of the circu-
delivery charges are not separately stated.                                                                   or producing, exclusive of the cost of electri-
                                                     lar. The machinery and equipment used to
The publisher may set the price at a round           produce, and the ingredients or component                cal energy so used. Electrical energy used in
amount, including tax, as long as the publi-         parts incorporated in, the circular are exempt           facilities owned or leased by the taxpayer in
cation states somewhere that the price               from tax when purchased because the pub-                 the actual secondary manufacturing, process-
includes tax.                                        lisher is manufacturing a product sold at                ing, compounding, mining or producing of a
   (B) An individual in Missouri subscribes          retail.                                                  product is exempt from tax if the cost of the
to an out-of-state newspaper by contracting                                                                   electrical energy used exceeds ten percent
with a Missouri newspaper carrier, which is          AUTHORITY: sections 144.270 and 144.705,                 (10%) of the total cost of the secondary man-
the only way to obtain this newspaper in Mis-        RSMo 2000.* Original rule filed Dec. 1,                  ufacturing, processing, compounding, mining
souri. The carrier bears the risk that the indi-     2004, effective July 30, 2005.                           or producing, exclusive of the cost of electri-
vidual will not pay for the subscription. The                                                                 cal energy so used. Electrical energy used in
                                                     *Original authority: 144.270, RSMo 1939, amended 1941,
carrier is the seller and must collect and           1943, 1945, 1947, 1955, 1961 and 144.705, RSMo 1959.
                                                                                                              a material recovery processing plant owned
remit sales tax, including local sales tax at                                                                 or leased by the taxpayer or in manufacturing
the rate in effect at the carrier’s place of busi-   Hearst Corp. v. Director of Revenue, 779                 cellular glass products is exempt from tax.
ness. Tax is imposed on the entire sale price,       S.W.2d 557 (Mo. banc 1990). Newpapers are                Utilities used or consumed directly or exclu-
including delivery charges, because the deliv-       tangible personal property subject to sales              sively in the research and development of
ery charges must be paid to receive the news-        tax.                                                     agricultural biotechnology products and plant
paper.                                                                                                        genomics products and prescription pharma-
                                                     Daily Record Co. v. Ray James, 629 S.W.2d
   (C) An individual in Missouri subscribes                                                                   ceuticals consumed by humans or animals are
                                                     348 (Mo. banc 1982). Newspaper inserts are
to an out-of-state newspaper by contracting                                                                   exempt from tax. Electrical energy used in
                                                     component parts of the newspaper and
with the out-of-state publisher that has nexus                                                                facilities owned or leased by the taxpayer in
                                                     exempt from tax on the purchase.
with Missouri. The publisher delivers the                                                                     processing raw materials that contain at least
newspaper by mail, which is the only way to          In James v. Mars Enders, Inc., 629 S.W.2d                twenty-five percent (25%) recovered materi-
obtain the newspaper in Missouri. The pub-           331 (Mo. banc 1982), the Supreme Court                   als is exempt from tax.

10                                                               CODE OF STATE REGULATIONS                                  (2/29/08)    ROBIN CARNAHAN
                                                                                                                                         Secretary of State
Chapter 110—Sales/Use Tax—Exemptions                                                                                   12 CSR 10-110


(2) Definition of Terms.                               (B) Every transformation of materials does     release the fully frozen food product back to
   (A) Compounding—Producing a product              not constitute a separate production activity.    the manufacturer for distribution. The frozen
by combining two (2) or more ingredients or         In order to be a separate production activity,    food products that the business produces have
parts.                                              the activity must create a new marketable         a new and different identity from the fresh or
   (B) Fabrication—See 12 CSR 10-111.010.           product. If a taxpayer produces only one (1)      partially frozen products that it receives.
   (C) Manufacturing—See 12 CSR 10-                 marketable product, there can only be prima-      Frozen foods have a longer shelf life and a
111.010.                                            ry production activity. All production costs      broader distribution system than refrigerated
   (D) Material recovery processing plant—          must be included in calculating the total cost    foods. The business qualifies for the exemp-
See 12 CSR 10-111.060.                              of production. Secondary production activity      tion if the electricity used in the freezing pro-
   (E) Mining—See 12 CSR 10-111.010.                can only exist when an already marketable         cess exceeds 10% of the cost of producing the
   (F) Primary processing—Manufacturing,            product produced by the taxpayer undergoes        fully frozen food products from the fresh or
processing, compounding, mining or produc-          subsequent production activity that produces      partially frozen food products. The business
ing that results in the first marketable prod-      a second marketable product. When there is        does not have to include the cost of its cus-
uct.                                                secondary production activity, the production     tomer’s production of the fresh or partially
   (G) Producing—See 12 CSR 10-111.010.             costs attributable to the primary production      frozen products because the fresh or partially
   (H) Product—An item with a new identity,         activity are not included in the total cost of    frozen food is a separate marketable product
use and market value produced by the tax-           production of the secondary production activ-     from the frozen food.
payer’s efforts which is intended at the time       ity.                                                 (D) A frozen food manufacturer uses
of the production activity to be sold ultimate-                                                       $100,000 of electricity in manufacturing its
ly for final use or consumption. A product          (4) Examples.                                     products. The manufacturer also uses
may be tangible personal property or a ser-            (A) A manufacturing firm produces              $150,000 of electricity in its on-premises,
vice, if the property or service is subject to      extruded sheet plastic. The automated pro-        refrigerated warehouse to maintain its prod-
state or local sales or use taxes, or any tax       duction line is a closed system connected         ucts at the necessary temperature prior to
that is substantially equivalent thereto, in this   together by use of vacuum feed-pipe. When         shipping. Total cost of producing the prod-
state or any other state.                           an order is received, the computer controlled     ucts, excluding electricity, is $2,000,000.
   (I) Production activity—Manufacturing,           production line first blends the necessary raw    The combined electricity cost of $250,000
processing, compounding, mining, producing          materials. After blending, the mix is con-        exceeds 10% of the $2,000,000 cost of pro-
or fabricating.                                     veyed through vacuum pipe to be dried, and        duction. The manufacturer qualifies for the
   (J) Raw material—any ingredient or com-          then to the extruder, where the mix is heated     exemption because processing includes any
ponent that becomes part of, or is made into        to meltdown and rolled into sheets by the         treatment by the producer at the production
a finished product.                                 extruder rollers. These sheets are the end        facility that is necessary to maintain the prod-
   (K) Recovered materials—See 12 CSR 10-           product. The cost of raw materials is 95% of      uct.
111.060. In order for an item to be a recov-        the total cost of producing the end product.         (E) A paper manufacturer uses recycled
ered material, a facility must recover it from      The cost of electrical energy is 99% of the       paper in its primary processing of producing
the solid waste stream. An item used in pro-        cost of drying and extruding the blended raw      rolls of newsprint. The newsprint includes
cessing for its original intended purpose is        materials. The plastic sheet is the only mar-     50% recovered paper, qualifying the manu-
not a recovered material.                           ketable product produced by this continuous,      facturer for the electrical energy exemption
   (L) Secondary processing—Further pro-            indivisible operation. Because the cost of        from state and local taxes. The newsprint is
cessing or fabricating of a marketable product      electricity does not exceed 10% of the total      subsequently cut into sheets during secondary
that results in another marketable product.         cost of producing the product, the purchase of    processing for sale to a book printer. The cost
   (M) Solid waste—See 12 CSR 10-111.060.           the electricity does not qualify for the exemp-   of electricity used during the secondary pro-
   (N) Total cost—All allocated costs               tion.                                             cessing does not exceed 10% of the total cost
incurred in producing the product, including           (B) A manufacturer produces glass bottles      of producing the cut sheets. However, the
all elements of production cost in accordance       to be used as packaging. The manufacturer         electrical energy used to produce the final
with generally accepted accounting princi-          combines raw materials, including recycled        product is also exempt because the secondary
ples.                                               glass obtained from recyclers, which is then      process uses at least 25% recovered materi-
                                                    melted under extreme heat. The molten glass       als.
(3) Basic Application of Exemption.                 is then formed into bottles, which are the
   (A) A taxpayer may claim this exemption          manufacturer’s only product. The electrical       AUTHORITY: section 144.270, RSMo 2000.*
at the time of purchase of the electrical ener-     energy costs exceed 10% of the total cost of      Original rule filed July 25, 2001, effective
gy by presenting the seller with a direct pay       production; therefore the manufacturer quali-     Feb. 28, 2002. Emergency amendment filed
                                                                                                      Aug. 14, 2007, effective Aug. 28, 2007,
certificate issued by the department. In order      fies for the exemption. If the manufacturer’s
                                                                                                      expired Feb. 23, 2008. Amended: Filed Aug.
to obtain a direct pay certificate, the taxpayer    raw materials include at least 25% recovered
                                                                                                      14, 2007, effective Feb. 29, 2008.
must submit an electrical energy direct pay         material, the manufacturer may avoid the
authorization application. The application          time and cost involved in the calculations        Original authority: 144.270, RSMo 1939, amended 1941,
must demonstrate, by the use of the previous        necessary to support the exemption under the      1943, 1945, 1947, 1955, 1961.
calendar year’s data, a probable entitlement        10% threshold and claim the exemption based
to the electrical energy exemption for the          on its use of recovered materials.                Mid America Dairymen, Inc. v. Director of
coming year. The taxpayer must file and                (C) A business contracts with manufactur-      Revenue, 924 S.W.2d 280 (Mo. banc 1996).
remit the appropriate tax on energy purchas-        ers of frozen food products to receive fresh or   Processing consists of the alteration or phys-
es that do not qualify for this exemption on its    partially frozen food products, reduce the        ical change of an object or material that pro-
sales tax return.                                   temperature to zero degrees or below, and         duces an article with a use, identity and

        ROBIN CARNAHAN       (2/29/08)                        CODE OF STATE REGULATIONS                                                                 11
        Secretary of State
               12 CSR 10-110—DEPARTMENT OF REVENUE                                                                 Division 10—Director of Revenue



market value different from the use, identity       However, the total cost of electricity used in    (1) In general, purchases of electricity, gas
and market value of the original. The prima-        the processing did exceed 10% of the total        (natural, artificial, or propane), water, coal,
ry product need not actually be marketed, as        cost of the processing. The court held that the   and energy sources used or consumed in
long as it is marketable. It is incumbent on        taxpayer was engaged in primary mining and        manufacturing, processing, compounding,
the taxpayer to prove the existence of a mar-       secondary processing, and was entitled to the     mining or producing any product, or used or
ket. If there is not a market for all of the out-   exemption for the electricity used in the pro-    consumed in the processing of recovered
put, the taxpayer may not claim secondary           cessing.                                          materials, or used in research and develop-
processing exists for the portion of the output                                                       ment related to manufacturing, processing,
for which there is no market. When a taxpay-        Bridgeton Refrigerated Warehouse v. Direc-        compounding, mining or producing any prod-
er produces only one marketable product,            tor of Revenue (AHC 1998). The taxpayer           uct are exempt from state tax and local use
there can only be primary processing. Sec-          contracted with manufacturers of frozen food      tax, but not local sales tax.
ondary processing exists only when there is a       products to receive the products, reduce the
second marketable product that results from         temperature to zero degrees or below, and         (2) Definition of Terms.
further processing of an already marketable         releases the product back to the manufactur-         (A) Compounding—Producing a product
product. Assuming production stages can             er for distribution. The Commission held that     by combining two (2) or more ingredients or
properly be split into primary and secondary,       freezing the food constituted secondary pro-      parts.
a taxpayer may allocate its total production        cessing.                                             (B) Energy source—Those resources, such
costs accordingly.                                                                                    as petroleum, coal, gas, wind, steam, nucle-
                                                    NF Properties L.P. v. Director of Revenue         ar fuel and sunlight, from which energy is
Hudson Foods, Inc. v. Director of Revenue,          (AHC 1997). The taxpayer leased a refriger-       produced.
924 S.W.2d 277 (Mo. banc 1996). The tax-            ated warehouse to a meat distributor. The            (C) Fabrication—See 12 CSR 10-111.010.
payer received live poultry. After the poultry      distributor processed the meat into frozen           (D) Manufacturing—See 12 CSR 10-
was killed and dressed it was chilled (tem-         meat patties. The Commission held that the        111.010.
perature reduced to 40°), crusted (tempera-         refrigeration provided by the taxpayer to the        (E) Material recovery processing plant—
ture reduced to 28°) or frozen solid. The           distributor was not a marketable product and      See 12 CSR 10-111.060.
court held that chilling, crusting and freezing     the taxpayer was not entitled to the exemp-          (F) Mining—See 12 CSR 10-111.010.
were all processing. The taxpayer did not           tion.                                                (G) Producing—See 12 CSR 10-111.010.
merely maintain a temperature, but actually                                                              (H) Recovered materials—See 12 CSR 10-
reduced the temperature to decrease spoilage        Hazelwood Farms Bakeries, Inc. v. Director        111.060.
and extend shelf life.                              of Revenue (AHC 1994). The taxpayer was a
                                                    commercial baker. Typically, the taxpayer         (3) Basic Application of Exemption.
McKinley Iron v. Director of Revenue, 888           mixed the ingredients of products and froze          (A) A taxpayer may claim the exemption
S.W.2d 705 (Mo. banc 1994). The taxpayer            the mixture. The taxpayer would ship the          for state tax and local use tax, but not local
operated a scrap metal processing plant that        products to its customers, which baked and        sales tax at the time of purchase. A taxpayer
processed raw scrap metal into densified            sold them. The Commission found that the          may not claim an exemption from local tax
scrap metal. Approximately 10-20% of the            products were marketable before freezing and      and then remit the tax directly to the depart-
raw scrap metal was marketable after the ini-       that the frozen product had a use, identity and   ment. It is the seller’s responsibility to collect
tial processing. The remainder was processed        market value different from the unfrozen          and remit the proper amount of local tax to
further before sale. The court found that den-      products. Therefore, the taxpayer was entitled    the department.
sified scrap metal was the only product             to the exemption for electricity used in the         (B) Purchases reported to the department
produced by the taxpayer. Even though the           secondary process of freezing the products,       under direct pay and Electrical Energy Direct
initial processing enhanced the value and           which exceeded 10% of the total cost of the       Pay (EEDP) are exempt from the application
marketability of the scrap metal, it was not a      freezing process.                                 of subsection (3)(A) of this rule.
separate process. The court also held that                                                               (C) The energy source and water that is
“total cost of production” is all-inclusive and                                                       subject to this exemption is not required to be
the cost of materials must be included. [Note:      12 CSR 10-110.601 Electrical, Other Ener-         directly used in the process for which the
In 1998, the exemption was expanded to              gy and Water as Defined in Section 144.           exemption is being claimed. There is also no
include a material recovery processing plant        054, RSMo                                         requirement that the energy source and water
that uses more than 25% recovered materi-                                                             comprise ten percent (10%) of the cost of a
als.]                                               PURPOSE: Section 144.054.2, RSMo,                 primary or secondary production process in
                                                    exempts from state tax and local use tax, but     order to qualify for this exemption. There is
Wetterau, Inc. v. Director of Revenue, 843          not local sales tax, electricity, gas (natural,   also no requirement that twenty-five percent
S.W.2d 365 (Mo. banc 1992). The taxpayer            artificial, or propane), water, coal, and ener-   (25%) of the raw materials be recycled in
stored and maintained frozen and refrigerated       gy sources used or consumed in manufactur-        order for the purchaser to claim this exemp-
foods as a business. The court held maintain-       ing, processing, compounding, mining or           tion.
ing food in a frozen state is not processing.       producing any product or used in research
                                                    and development related to manufacturing,         (4) Method of Collection and Apportionment
Union Electric Co. v. Goldberg, 578 S.W.2d          processing, compounding, mining or produc-           (A) Energy and water vendors are respon-
921 (Mo. banc 1979). The taxpayer mined             ing any product or in the processing of recov-    sible for remitting tax to the department. Pur-
and processed ore. The total cost of electric-      ered materials. This rule explains when this      chasers are responsible for informing energy
ity used in the combined operations did not         exemption applies and how a taxpayer may          vendors on the MO-149 (Sales/Use Tax
exceed 10% of the total cost of production.         claim the exemption at the time of purchase.      Exemption Certificate) of the percentage of

12                                                             CODE OF STATE REGULATIONS                            (2/29/08)     ROBIN CARNAHAN
                                                                                                                                  Secretary of State
Chapter 110—Sales/Use Tax—Exemptions                                                                                        12 CSR 10-110


energy used for activities exempt under sec-         because it is used or consumed in producing             producing any product, or used or consumed
tion 144.054, RSMo. The purchaser may use            a product.                                              in the processing of recovered materials, or
any reasonable method to calculate this per-            (E) A manufacturer uses water to cool a              used in research and development related to
centage, such as square footage or reference         product during the manufacturing process.               manufacturing, processing, compounding,
to a use analysis. The exemption will be             The water is exempt from state tax and local            mining or producing any product is exempt
applied as follows:                                  use tax, but not local sales tax.                       from state sales and use tax and local use tax,
                                                        (F) A manufacturer preserves its final               but not local sales tax.
Purchaser’s Calculated                               product in a warehouse located at the produc-
  Exempt Percentage Percentage Exempt                tion facility awaiting shipment. The purchase           (2) Definition of Terms.
      76–100              100                        of energy to maintain the desired environ-                 (A) Compounding—See 12 CSR 10-
        51–75               75                       ment and provide lighting is exempt from                110.601.
        26–50               50                       state tax and local use tax, but not local sales           (B) Energy source—See 12 CSR 10-
         1–25               25                       tax.                                                    110.601.
            0                0                          (G) A construction company that has been                (C) Fabrication—See 12 CSR 10-111.010.
                                                     deemed a manufacturer purchases fuel to be                 (D) Manufacturing—See 12 CSR 10-
   (B) Beginning on August 28, 2007 and              used in a concrete ready-mix truck. The fuel            111.010.
ending on January 31, 2008, any vendor who           is subject to motor fuel tax; however if a                 (E) Material recovery processing plant—
receives an exemption certificate exempting          refund claim is made, the refund will be                See 12 CSR 10-111.060.
sales of electricity, gas (natural, artificial, or   exempt from state tax and local use tax, but               (F) Mining—See 12 CSR 10-111.010.
propane), water, coal, and energy sources            not local sales tax, because the fuel is used in           (G) Producing—See 12 CSR 10-111.010.
used or consumed in manufacturing, process-          producing a product.                                       (H) Recovered materials—See 12 CSR 10-
ing, compounding, mining or producing any                                                                    111.060.
product, or used or consumed in the process-         (6) Taxable Examples.
ing of recovered materials, or used in                  (A) A restaurant preparing food for imme-            (3) Basic Application of Exemption.
research and development related to manu-            diate consumption is not exempt as a manu-                 (A) A taxpayer may claim the exemption
facturing, processing, compounding, mining           facturer. Therefore, all state and local taxes          for state sales and use tax and local use tax,
or producing any product after the bill was          apply.                                                  but not local sales tax at the time of purchase.
issued may take the correction as an adjust-                                                                 A taxpayer may not claim an exemption from
ment on its sales tax return provided the net        AUTHORITY: section 144.270, RSMo 2000                   local tax and then remit the tax directly to the
result is not a negative figure. In the event an     and 144.054, RSMo Supp. 2007.* Emergency                department. It is the seller’s responsibility to
exemption certificate is received after Jan-         rule filed Aug. 14, 2007, effective Aug. 28,            collect and remit the proper amount of local
uary 31, 2008, and an exemption was due and          2007, expired Feb. 23, 2008. Original rule              tax to the department.
not properly applied by the vendor, the ven-         filed Aug. 14, 2007, effective March 30,
dor may submit a refund request to the               2008.                                                   (4) Exempt Examples.
department.                                                                                                     (A) A manufacturer purchases propane to
                                                     *Original authority: 144.054, RSMo 2007; and 144.270,   operate forklifts that move raw materials
(5) Exempt Examples.                                 RSMo 1939, amended 1941, 1943, 1945, 1947, 1955,        between production lines. The fuel is exempt
   (A) A manufacturer purchases propane to           1961.                                                   from state sales and use tax and local use tax,
operate forklifts that move raw materials to                                                                 but not local sales tax.
production lines, move work-in-process                                                                          (B) A manufacturer uses electricity to run
between production steps, move finished              12 CSR 10-110.621 Application of Sales                  its equipment, maintain a moderate tempera-
goods to an on-site storage area, and to load        Tax Exemption as Defined in Section                     ture in its production facility and to light the
finished goods on trucks for shipment from           144.054, RSMo                                           interior of the plant. The purchase of all of
the plant. The fuel is exempt from state tax                                                                 its electricity is exempt from state sales and
and local use tax, but not local sales tax.          PURPOSE: Section 144.054.2, RSMo,                       use tax and local use tax, but not local sales
   (B) A manufacturer uses electricity to run        exempts from state sales and use tax and local          tax.
its equipment, maintain a moderate tempera-          use tax, but not local sales tax, electricity,             (C) A manufacturer uses coal to fuel boil-
ture in its production facility and light the        gas (natural, artificial, or propane), water,           ers to generate steam used to manufacture a
plant. The purchase of all of its electricity is     coal, and energy sources used or consumed               product. The purchase of the coal is exempt
exempt from state tax and local use tax, but         in manufacturing, processing, compounding,              from state sales and use tax and local use tax,
not local sales tax, because it is used or con-      mining or producing any product or used in              but not local sales tax.
sumed in producing a product.                        research and development related to manu-                  (D) A manufacturer purchases compressed
   (C) A manufacturer uses coal to fuel boil-        facturing, processing, compounding, mining              gas used for welding a product. The pur-
ers to generate steam used to manufacture a          or producing any product or in the processing           chase of the compressed gas is exempt from
product. The purchase of the coal is exempt          of recovered materials. This rule explains              state sales and use tax and local use tax, but
from state tax and local use tax, but not local      when this exemption applies.                            not local sales tax.
sales tax, because it is used or consumed in                                                                    (E) A manufacturer uses water to cool a
producing a product.                                 (1) In general, electricity, gas (natural, artifi-      product during the manufacturing process.
   (D) A manufacturer purchases compressed           cial, or propane), water, coal, and energy              The manufacturer’s purchase of water is
gas used for welding a product. The purchase         sources, chemicals, machinery, equipment,               exempt from state sales and use tax and local
of the compressed gas is exempt from state           and materials used or consumed in manufac-              use tax, but not local sales tax.
tax and local use tax, but not local sales tax       turing, processing, compounding, mining or                 (F) A manufacturer preserves its final

        ROBIN CARNAHAN        (4/30/10)                          CODE OF STATE REGULATIONS                                                                13
        Secretary of State
              12 CSR 10-110—DEPARTMENT OF REVENUE                                                                    Division 10—Director of Revenue



product in a warehouse located at the produc-    ery, equipment, and materials used by the              12 CSR 10-110.900 Farm Machinery and
tion facility awaiting shipment. The manufac-    telecommunication company to manufacture               Equipment Related Exemptions
turer’s purchase of energy to maintain the       the phone call are exempt from state sales and
desired temperature and provide lighting         use tax and local use tax, but not local sales         PURPOSE:         Sections     144.030.2(22),
inside the warehouse is exempt from state        tax.                                                   144.045.1, 144.047, and 144.063, RSMo,
sales and use tax and local use tax, but not        (O) A bakery creates baked goods for sale           exempt certain farm machinery, equipment,
local sales tax.                                 directly to the public or through retailers.           repair parts, supplies, lubricants, and fuels
   (G) A construction company, who has been      The energy sources, chemicals, machinery,              from taxation. This rule explains which items
deemed a manufacturer, purchases fuel to be      equipment, and materials used by the bakery            qualify for these exemptions.
used in a concrete ready-mix truck. The          are exempt from state sales and use tax and
manufacturer’s purchase of fuel is subject to    local use tax, but not local sales tax.                (1) In general, the purchase of farm machin-
motor fuel tax, however if a refund claim is        (P) A factory purchases safety equipment            ery, equipment, and repair and replacement
made, the refund is exempt from state sales      such as earplugs and goggles for use by the            parts and supplies and lubricants used exclu-
tax, but not local sales tax.                    employees on the manufacturing floor. These            sively, solely, and directly for producing
   (H) A cabinetmaker creates cabinets or        items used by the employees who are manu-              crops, raising and feeding livestock, fish, or
counter tops from raw materials for sale to      facturing a product are exempt from state              poultry, or producing milk for ultimate sale at
contractors or customers. The cabinetmaker’s     sales and use tax and local use tax, but not           retail, and motor fuel used for agricultural
purchases of energy sources, chemicals,          local sales tax.                                       purposes is exempt from tax.
machinery, equipment, and materials used or
                                                 (5) Taxable Examples.                                  (2) Definition of Terms.
consumed in the manufacturing process are
                                                    (A) A restaurant preparing food for imme-              (A) Equipment—Devices that have a
exempt from state sales and use tax and local
                                                 diate consumption is not exempt. Therefore,            degree of permanence to the business, con-
use tax, but not local sales tax on items
                                                 all state and local taxes apply.                       tribute to multiple processing cycles over
allowed under section 144.054, RSMo.
                                                    (B) A wireless company operates a cus-              time, and generally constitute fixed assets,
   (I) A manufacturer builds mobile homes in
                                                 tomer support call center to assist its cus-           other than land and buildings, that are capi-
its factory. The manufacturer’s purchases of
                                                 tomers with questions. The call center is not          talized and depreciated for purposes of busi-
energy sources, chemicals, machinery, equip-
                                                 exempt. Therefore, all state and local taxes           ness and accounting practices.
ment, and materials used or consumed in the
                                                 apply.                                                    (B) Farm machinery, equipment, and
manufacturing process are exempt from state         (C) The construction of a road, building,           parts—Machinery, equipment, and parts used
sales and use tax and local use tax, but not     or other fixed structure is not exempt. There-         directly and exclusively in the agricultural
local sales tax on items allowed under section   fore, all state and local taxes apply.                 production process.
144.054, RSMo.                                      (D) The activities of a florist are not                (C) Machinery—Combinations of parts
   (J) A manufacturer creates pre-fabricated     exempt. Therefore, all state and local taxes           that work together as a functioning unit, even
steel and concrete products for sale to the      apply.                                                 if they are subordinate elements of more
public. The manufacturer’s purchases of             (E) An auto repair facility repairs vehicles        complex machinery. Machinery may be sim-
energy sources, chemicals, machinery, equip-     by installing or replacing parts. This is not          ple or complex, but does not include the
ment, and materials used or consumed in the      exempt. Therefore, all state and local taxes           replacement of an individual part, even if that
manufacturing process are exempt from state      apply.                                                 part becomes an element of a functioning
sales and use tax and local use tax, but not        (F) A butcher shop receives a side of beef          machine.
local sales tax on items allowed under section   and cuts it into steaks and hamburger. This is            (D) Motor fuel—Gasoline, diesel fuel,
144.054, RSMo.                                   not exempt. Therefore, all state and local             kerosene, and blended fuel, as defined in sec-
   (K) A hobby shop builds a frame to            taxes apply.                                           tion 142.800, RSMo.
enclose photographs or pictures. The hobby          (G) A manufacturer preserves its final                 (E) Repair and replacement parts—Articles
shop’s purchases of energy sources, chemi-       product in a warehouse not located at the pro-         of tangible personal property that are compo-
cals, machinery, equipment, and materials        duction facility. The purchase of energy to            nents of machinery and equipment, which
used or consumed in the manufacturing pro-       maintain the desired temperature and provide           can be separated from the machinery or
cess of building the frame are exempt from       lighting inside the warehouse is not exempt            equipment and replaced. Like machinery and
state sales and use tax and local use tax, but   due to the location of the warehouse. There-           equipment, parts must have a degree of per-
not local sales tax on items allowed under       fore, all state and local taxes apply.                 manence and durability. Included in the
section 144.054, RSMo.                              (H) A cable television provider’s purchase          repair and replacement part category are bat-
   (L) A company uses energy to test manu-       of energy is not exempt. Therefore, all state          teries, tires, fan belts, mufflers, spark plugs,
facturing equipment as it is installed. This     and local taxes apply.                                 oil filters, plow points, standard type motors,
energy is exempt from state sales and use tax                                                           and cutting parts. Substances such as coolants
and local use tax, but not local sales tax.      AUTHORITY: section 144.270, RSMo 2000                  that are added to machinery and equipment
   (M) A commercial printer uses energy          and section 144.054, RSMo Supp. 2007.*                 for operation are not parts. Substances such
sources, chemicals, machinery, equipment,        Emergency rule filed Oct. 10, 2007, effective          as paints or adhesives that adhere to the sur-
and materials in its process. These items are    Oct. 20, 2007, expired April 16, 2008. Orig-           face of machinery and equipment, but are not
exempt from state sales and use tax and local    inal rule filed Oct. 10, 2007, effective April         distinct articles of tangible personal property,
use tax, but not local sales tax.                30, 2008.                                              are not parts.
   (N) A telecommunication company pro-          *Original authority: 144.054, RSMo 2007 and 144.270,      (F) For the purposes of this rule, supplies
duces a wireless or landline based telephone     RSMo 1939, amended 1941, 1943, 1945, 1947, 1955,       shall mean—Tangible personal property con-
call. The energy sources, chemicals, machin-     1961.                                                  sumed in producing crops or milk, or raising

14                                                           CODE OF STATE REGULATIONS                                (4/30/10)    ROBIN CARNAHAN
                                                                                                                                   Secretary of State
Chapter 110—Sales/Use Tax—Exemptions                                                                            12 CSR 10-110


and feeding livestock, fish, poultry, pheas-        purposes are exempt.                               Binders
ants, chukar, or quail for ultimate sale at            (F) The fact that particular items may be       Brooders
retail.                                             considered to be essential or necessary will       Bulk feed storage tanks
                                                    not automatically entitle them to exemption.       Bulk milk coolers
(3) Basic Application of Exemption.                 The following categories of items are exclud-      Bulk milk tanks
   (A) To qualify for exemption pursuant to         ed from the meaning of the term farm               Bulldozers used exclusively in agricul-
section 144.030.2(22), RSMo, items pur-             machinery and farm equipment, including             tural production
chased must be—                                     supplies, and are subject to tax:                  Calcium for tires
      1. Used exclusively for agricultural pur-           1. A motor vehicle and parts for a motor     Calf weaners and feeders
poses;                                              vehicle do not qualify as exempt farm              Cattle currying and oiling machine
      2. Used on land owned or leased for the       machinery or equipment. A trailer and parts        Cattle feeder, portable
purpose of producing farm products; and             for a trailer generally do not qualify as tax      Chain saws for commercial use in har-
      3. Used directly in producing farm prod-      exempt farm machinery or equipment. The             vesting timber, lumber, and in orchard
ucts to be sold ultimately in processed form        terms motor vehicle and trailer are defined by      pruning
or otherwise at retail or in producing farm         Chapter 301, RSMo;                                 Chicken pluckers
products to be fed to livestock or poultry to             2. Containers and storage devices such       Choppers
be sold ultimately in processed form at retail.     as oil and gas storage tanks, pails, buckets,      Cleansing agents and disinfectants for
The term “used directly” encompasses items          and cans;                                           agricultural process
that are used in some manner prior to the                 3. Hand tools and hand-operated items        Combines
actual commencement of production, during           such as wheelbarrows, hoes, rakes, pitch-          Conveyors, portable
production, or in some manner after the pro-        forks, shovels, brooms, wrenches, pliers, and      Corn pickers
duction has terminated. In determining              grease guns;                                       Crawlers, tractor
whether items are used directly, consideration            4. Attachments and accessories not           Crushers
must be given to the following factors:             essential to the operation of the machinery        Cultipackers
         A. Where the items in question are         itself (except when sold as part of the assem-     Cultivators
used;                                               bled unit) such as cigarette lighters, radios,     Curtains and curtain controls for live-
         B. When the items in question are          canopies, air-conditioning units, cabs, deluxe      stock and poultry confinement areas
used; and                                           seats, tool or utility boxes, and lubricators;
                                                                                                       Debeakers for productive animals
         C. How the items in question are used            5. Equipment used in farm management
                                                                                                       Dehorners for productive animals
to produce a farm product.                          such as communications and office equip-
                                                                                                       Discs
   (B) Pursuant to section 144.045.1, RSMo,         ment, repair, service, security, or fire protec-
                                                                                                       Drags
farm machinery or equipment that would oth-         tion equipment;
                                                                                                       Dryers
erwise qualify as exempt farm machinery and               6. Building materials and general heat-
                                                                                                       Dusters
equipment will not lose its exempt status           ing, lighting, and ventilation equipment for
                                                                                                       Ear Tags
merely because the machinery or equipment           nonproduction areas; and
is attached to a vehicle or real property. Such                                                        Egg handling equipment
                                                          7. Machinery and equipment used for a
equipment includes, but is not limited to, a                                                           Ensilage cutters
                                                    dual purpose, one purpose being agricultural
grinder mixer mounted on a vehicle or spe-          and the other being nonagricultural, are not       Ether
cial livestock flooring. When exempt farm           exempt.                                            Fans, livestock and poultry
machinery or equipment attached to a motor             (G) Example A is a list of items of farm        Farm tractors
vehicle is sold with the motor vehicle, the         machinery, equipment, and supplies that will       Farm wagons
part of the total sales price attributable to the   usually be exempt if used exclusively for agri-    Farrowing houses, portable
farm machinery or equipment is exempt from          cultural purposes on land owned or leased for      Farrowing crates
tax if the farm machinery or equipment is           the purpose of producing farm products and         Feed carts
separately invoiced. If not separately              used directly in producing farm products or        Feed grinders/mixers
invoiced, the total sales price is subject to tax   livestock to be sold ultimately at retail.         Feed storage bins
as a motor vehicle.                                                                                    Feeders
   (C) Pursuant to section 144.047, RSMo,           (4) Examples.                                      Fencing Materials
farm machinery includes aircraft used solely           (A) Usually Exempt Items.                       Fence Posts
for aerial application of agricultural chemi-            Anti-freeze                                   Fertilizer distributors
cals.                                                    Artificial insemination equipment             Field drain tile
   (D) Pursuant to section 144.030.2(34),                Augers                                        Flooring slats
RSMo, all sales of grain bins for storage of             Bale loader                                   Foggers
grain for resale are exempt; pursuant to this            Bale transportation equipment                 Forage boxes
section, parts purchased separately for these            Baler twine                                   Forage harvester
bins are not exempt. However, grain bins,                Baler wire                                    Freon
including all parts, that are used in produc-            Balers                                        Fruit graters
tion of a farm product and qualify as farm               Batteries for farm machinery and equip-       Fruit harvesters
machinery and equipment are exempt pur-                   ment                                         Fuel additives
suant to section 144.030.2(22), RSMo.                    Bedding used in production of livestock       Gates
   (E) Pursuant to section 144.063, RSMo,                 or poultry for food or fiber                 Generators
fencing and motor fuel used for agricultural             Binder twine                                  Gestation crates

        ROBIN CARNAHAN       (4/30/10)                         CODE OF STATE REGULATIONS                                                    15
        Secretary of State
              12 CSR 10-110—DEPARTMENT OF REVENUE                                                                   Division 10—Director of Revenue



     GPS—Global Positioning System equip-               Seeders                                            Office supplies and equipment
      ment                                              Shellers                                           Packing room supplies
     Grain augers                                       Silo unloaders                                     Paint and decals
     Grain bins for storage of grain for resale         Snow Fence                                         Personal property installed in or used in
      (but not separately billed parts or add-          Sorters                                             housing for farm workers
      ons to these grain bins)                          Sowers                                             Pumps for household or lawn use
     Grain binders                                      Sprayers                                           Pumps, gasoline
     Grain conveyors                                    Spreaders                                          Refrigerators for home use
     Grain drills                                       Sprinkler systems, livestock and poultry           Repair tools
     Grain elevators, portable                          Squeeze chutes                                     Road maintenance equipment
     Grain handling equipment                           Starting Fluid                                     Road scrapers
     Grain planters                                     Subsoiler                                          Roofing
     Greases and oils                                   Tarps to protect agriculture products              Sanders
     Harrows (including spring-tooth harrow)            Threshing machines                                 Shovels
     Hay loaders                                        Tillers                                            Silos
     Head gates                                         Tires for exempt machinery                         Small tools
     Heaters, livestock and poultry                     Tractors, farm                                     Snowplows and snow equipment
     Hog feeders, portable                              Vacuum coolers                                     Staples
     Hog rings                                          Vegetable graders                                  Supplies for home or personal use
     Hoists, farm                                       Vegetable washers                                  Tanks, air
     Husking machines                                   Vegetable waxers                                   Tanks, gasoline
     Hydraulic fluid                                    Wagons, farm                                       Tools for repair construction
     Hydro-coolers                                      Washers, fruit, vegetable, and egg                 Tractors, garden
                                                                                                           Truck beds
     Incubators                                         Waxers
                                                                                                           Water hose
     Irrigation equipment                               Weeders
                                                                                                           Welding equipment
     Light bulbs                                        Wire fencing
                                                                                                           Wrenches
     Livestock feeding, watering, and han-           (B) Usually Taxable Items.
                                                                                                        (C) A farmer purchases a lawnmower. The
      dling equipment                                   Acetylene torches
                                                                                                     farmer uses the lawnmower to mow in an
     Lubricating oils and grease                        Air compressors
                                                                                                     orchard, as well as to mow his lawn. The pur-
     Manure handling equipment (including               Air tanks                                    chase of the lawnmower is subject to tax,
      front and rear-end loaders and blades)            All-terrain vehicles (unlike an off-road     because the lawnmower is not used exclusive-
     Manure spreaders                             utility vehicle that does not meet the defini-     ly and directly for agricultural production.
     Marking chalk                                tion of a motor vehicle, an all-terrain vehicle       (D) A farmer purchases a water chiller for
     Milk cans                                    is a motor vehicle because it has a seat that is   use to control the climate inside the hatchers
     Milk coolers                                 straddled and handlebars for steering)             and setters. The water chiller is also used to
     Milk strainers                                     Automobiles                                  cool the administrative areas in the hatchery.
     Milking equipment (including bulk milk             Axes                                         The purchase of the water chiller is subject to
      refrigerators, coolers, and tanks)                Barn ventilators                             tax, because it is not used exclusively for
     Milking machine                                    Brooms                                       agricultural production.
     Motor Fuel (gasoline, diesel fuel, kero-           Brushes                                         (E) A farmer takes his tractor to the imple-
      sene, and blended fuel)                           Building materials and building supplies     ment dealer for routine maintenance, which
     Mowers, hay and rotary blade used                  Bulldozers                                   includes changing the oil, filters, and
      exclusively for agricultural purposes             Cement                                       antifreeze. The sale of the oil, filters, and
     Off-road utility vehicles, other than all-         Chain saws                                   antifreeze are exempt.
       terrain vehicles (provided the vehicle           Construction tools                              (F) A farmer buys a bale spike to be
      qualifies as farm machinery or equip-             Electrical wiring                            installed on his pickup truck. The bale spike
      ment)                                             Equipment and supplies for home or           is not subject to tax.
     Panels, livestock                                   personal use                                   (G) A farm supply store sells commercial
     Pickers                                            Fence building tools                         rabbitry equipment, such as feeders, nest
     Planters                                           Field toilets                                boxes and wire hanging cages used for rabbit
     Plows                                              Fire prevention equipment                    cages and feeders, to a farmer who raises rab-
     Posthole diggers                                   Garden hose                                  bits in confinement for human consumption.
     Poultry feeder, portable                           Garden rakes and hoes                        These items are not subject to tax.
     Pruning and picking equipment                      Gasoline tanks and pumps
     Repair and replacement parts for exempt            Golf carts                                   AUTHORITY: section 144.270, RSMo Supp.
      machinery                                         Hammers                                      2009 and section 144.705, RSMo 2000.*
     Rollers                                            Hand tools                                   Original rule filed Nov. 18, 1999, effective
     Root vegetable harvesters                          Hog ringers                                  June 30, 2000. Amended: Filed Oct. 2, 2009,
     Rotary hoes                                        Lamps                                        effective May 30, 2010.
     Scales (not truck scales)                          Lanterns
                                                                                                     *Original authority: 144.270, RSMo 1939, amended 1941,
     Seed cleaners                                      Lawnmowers                                   1943, 1945, 1947, 1955, 1961, 2008; and 144.705, RSMo
     Seed planters                                      Nails                                        1959.


16                                                           CODE OF STATE REGULATIONS                              (4/30/10)      ROBIN CARNAHAN
                                                                                                                                   Secretary of State
Chapter 110—Sales/Use Tax—Exemptions                                                                                   12 CSR 10-110


Charles A. Johnson, Jr. v. Director of Rev-        tening or nourishment of livestock or poultry.     when—
enue (AHC 1986). A seed cleaner was pur-              (D) Feed additives—Tangible personal                  1. The poultry is sold for breeding pur-
chased under a claim of exception to process       property, including medicine or medical addi-      poses; or
soybeans. The Commission ruled that                tives added to feed.                                     2. The poultry is sold to persons who
although the taxpayer bought the seed clean-          (E) Livestock—Cattle, calves, sheep,            raise the poultry for subsequent sale in
er to process his own soybeans, he used the        swine, ratite birds, including but not limited     dressed or processed form; or
equipment to process other farmers’ seed as        to, ostrich and emu, aquatic products as                 3. The poultry is used to produce eggs
well. Processing the seed of others failed to      defined in section 277.024, RSMo, elk docu-        to be ultimately sold in processed form or
meet the requirement that the equipment be         mented as obtained from a legal source and         otherwise at retail; or
used directly and exclusively for the produc-      not from the wild, goats, horses, other                  4. The poultry are purchased for resale.
tion of farm products.                             equine, or rabbits raised in confinement for          (J) Sales of animals for the purchaser’s
                                                   human consumption.                                 personal enjoyment or use only, are subject to
Crystal Lake Fisheries v. Director of Rev-            (F) Poultry—Any domesticated bird, such         tax. Sales of animals for breeding or feeding
enue (AHC 1989). A nearby creek could              as adult or baby chickens, turkeys, ducks,         purposes as part of a business enterprise are
flood raceways used to raise rainbow trout. A      guinea fowl or geese.                              not subject to tax.
dike prevents the creek from flooding the
raceways. A bulldozer was purchased, which         (3) Basic Application of Exemptions.               (4) Examples.
was used to repair and maintain the dike. The         (A) Pursuant to section 144.030.2(1),              (A) An individual purchases feed, nonpre-
bulldozer is also used to prevent flooding of      RSMo, sales of feed for livestock or poultry       scription vaccines, and bedding for show
pasture, hay, and land containing hardwood         are not subject to tax.                            horses. The purchase of the feed is not sub-
and softwood trees, all of which are harvest-         (B) Pursuant to section 144.030.2(22),          ject to tax, however the purchase of the vac-
ed as required. The court found that the bull-     RSMo, sales of feed additives, medications         cines and the bedding is subject to tax.
dozer in question met the three requirements       or vaccines administered to livestock or poul-        (B) A farmer purchases feed, vaccines and
of the exemption statute. The bulldozer was        try in the production of food or fiber, and        bedding for use in his swine operation. The
used exclusively for agricultural purposes, on     sales of pesticides used in the production of      purchases of the feed, vaccines and bedding
land owned or leased for the purpose of farm-      livestock or poultry for food or fiber are not     are exempt.
ing, and directly in producing farm products.      subject to tax. Examples include hormones,            (C) A rancher breeds and sells horses. The
                                                   digestive aids, antibiotics, hog wormers, ton-     sales of the horses are not subject to tax.
                                                   ics, medical preparations.                            (D) A rabbit farmer raises rabbits, which
12 CSR 10-110.910 Livestock                           (C) Pursuant to section 144.030.2(7),           are sold for processing as food for human
                                                   RSMo, sales of animals used for breeding or        consumption. Feed for the rabbits is not sub-
PURPOSE:           Sections      144.030.2(1),     feeding purposes are exempt. Unlike the            ject to tax because rabbits raised in confine-
144.030.2(7), 144.030.2(22), 144.030.2(29)         exemptions for feed and feed additives, which      ment for human consumption are livestock.
and 144.030.2(32), RSMo, exempt from taxa-         are limited to livestock or poultry, this             (E) A person sells feed to a pet shop which
tion certain livestock, feed and feed additives,   exemption applies to all animals.                  raises and sells rabbits to the general public
medicines and vaccines, and pesticides and            (D) Pursuant to section 144.030.2(22),          as pets. The sale of the feed is subject to tax.
herbicides. This rule explains the require-        RSMo, sales of bedding used in the produc-            (F) A fish farmer purchases fish for use in
ments that must be met to qualify for these        tion of livestock or poultry for food or fiber     his aquacultural operation. The purchase of
exemptions.                                        are exempt. Examples of bedding may                the fish is exempt from tax.
                                                   include, but are not limited to, wood shav-           (G) An individual decides to construct and
(1) In general, the sale of livestock, animals     ings, straw and shredded paper.                    stock a lake on his farm for recreational fish-
or poultry used for breeding or feeding pur-          (E) Pursuant to section 144.030.2(29),          ing by his family, neighbors and friends. The
poses, feed for livestock or poultry, feed         RSMo, livestock sales are exempt when the          purchase of the fish is subject to tax.
additives, medications or vaccines adminis-        seller is engaged either in the growing, pro-         (H) A breeder of parakeets purchases feed
tered to livestock or poultry in the production    ducing or feeding of such livestock, or in the     for breeding stock. The bird feed is subject to
of food or fiber, and sales of pesticides and      business of buying and selling, bartering or       tax, because a parakeet breeder does not fit
herbicides used in the production of aquacul-      leasing of such livestock.                         the definition of a commercial breeder.
ture, livestock or poultry are exempt from            (F) Pursuant to section 144.030.2(32),
tax.                                                                                                  AUTHORITY: section 144.270, RSMo 1994.*
                                                   RSMo, sales of pesticides or herbicides used
                                                                                                      Original rule filed Jan. 3, 2000, effective July
                                                   in the production of aquaculture, livestock or
(2) Definition of Term.                                                                               30, 2000.
                                                   poultry are exempt.
   (A) Aquaculture—The controlled propaga-            (G) Pursuant to section 144.030.2(35),
tion, growth and harvest of aquatic organisms                                                         *Original authority: 144.270, RSMo 1939, amended 1941,
                                                   RSMo, sales of feed which are developed for        1943, 1945, 1947, 1955, 1961.
as defined in section 277.024, RSMo.               and used in the feeding of pets owned by a
   (B) Commercial breeder—A person, other          commercial breeder when such sales are
than a hobby or show breeder, engaged in the       made to a commercial breeder, licensed pur-        12 CSR 10-110.920 Sales of Grains, Seed,
business of breeding animals for sale or           suant to sections 273.325 to 273.357, RSMo         Pesticides, Herbicides and Fertilizers
exchange in return for consideration and who       are exempt.
harbors more than three (3) intact females for        (H) Sales of poultry to persons to produce      PURPOSE: Sections 144.030.2(1), (22), and
the primary purpose of breeding animals for        eggs for the sole purpose of the person’s con-     (32), RSMo, exempt the sales of certain
sale.                                              sumption are subject to tax.                       grains, seed, pesticides, limestone, fertilizer
   (C) Feed—Food essential for growth, fat-           (I) Sellers of poultry are not subject to tax   and herbicides. This rule explains the

        ROBIN CARNAHAN       (4/30/10)                        CODE OF STATE REGULATIONS                                                                  17
        Secretary of State
              12 CSR 10-110—DEPARTMENT OF REVENUE                                                                        Division 10—Director of Revenue



requirements that must be met in order to          mouse poison is not subject to tax because it            (2) Application of the Rule.
qualify for these exemptions. Section              is used in the production of an agriculture                 (A) The seller is responsible for collecting
144.020.1(3), RSMo, taxes certain utility ser-     product.                                                 tax unless the exempt entity provides proof
vices. This rule explains the application of                                                                that it is exempt. One form of proof of
this taxing provision for sales to agricultural    AUTHORITY: section 144.270, RSMo 1994.*
                                                                                                            exemption is a letter of exemption issued by
consumers.                                         Original rule filed Jan. 3, 2000, effective July
                                                                                                            the department.
                                                   30, 2000.
                                                                                                               (B) An organization seeking a letter of
(1) In general, the sale of grains to be con-      *Original authority: 144.270, RSMo 1939, amended 1941,   exemption certificate must complete a Mis-
verted into foodstuffs or seed, and limestone,     1943, 1945, 1947, 1955, 1961.
fertilizer, and herbicides used in connection                                                               souri Sales/Use Tax—Exemption Applica-
with the growth or production of crops, live-      Conagra Poultry Co. v. Director of Revenue,              tion—Form 1746. If the documentation estab-
stock or poultry is exempt from tax.               862 S.W.2d 915 (Mo. banc 1993). Wood                     lishes that the entity qualifies as an exempt
                                                   shavings were sold by the taxpayer, a turkey             entity, the department issues a letter of
(2) Definition of Terms.                           processor, to its contractors as part of the             exemption. Once a letter of exemption is
   (A) Herbicides—Chemical substances              contractors’ compensation for raising the                issued by the department, it will continue in
used to destroy or inhibit the growth of           turkeys. The contractors expected to use as              effect unless there are changes in the struc-
plants, especially weeds.                          fertilizer all the litter that the turkey-raising        ture or operation of the organization causing
   (B) Livestock—See 12 CSR 10-110.900.            operation would produce in their own farm-               the exemption to be invalid.
   (C) Pesticides—Chemicals used to kill           ing. The court ruled that at the time the wood              (C) The department may require the fol-
pests, especially insects. Pesticides include      shavings passed to the contractors, the wood             lowing supporting documentation to verify
adjuvants such as crop oils, surfactants, wet-                                                              the claim:
                                                   shavings had no value as fertilizer. The wood
ting agents and other pesticide carriers used
                                                   shaving become fertilizer upon absorbing                       1. A copy of the Articles of Incorpora-
to improve or enhance the effect of a pesti-
                                                   nutrients in the turkey droppings. The wood              tion, Bylaws or both;
cide and the foam used to mark the applica-
tion of pesticides and herbicides for the pro-     shavings were not exempt as materials used in                  2. A copy of the Section 501 tax exemp-
duction of crops, livestock or poultry.            processing because even though the wood                  tion letter or ruling issued by the United
                                                   shavings became a component part of the fer-             States Department of Treasury, Internal Rev-
(3) Basic Application of Tax.                      tilizer, the contractors used the fertilizer for         enue Service;
   (A) The sale of grain to be converted into      their own farming and did not sell any prod-                   3. A copy of the tax exemption ruling
foodstuffs ultimately sold in processed form       ucts for final use or consumption.                       issued by the assessing officers in each coun-
at retail is exempt.                                                                                        ty in which the applicant’s property is or will
   (B) The sale of seed, lime or fertilizer used   Norwin G. Heimos Greenhouse, Inc. v.                     be located for property tax purposes;
in producing crops that will be sold at retail     Director of Revenue, 724 S.W.2d 505 (Mo.                       4. Financial statements of the organiza-
or will be fed to livestock or poultry to be       banc 1987). Gas, water and electricity were              tion for the previous three (3) years, indicat-
sold ultimately in processed form at retail is     used for the operation of greenhouses. A                 ing sources and amount of revenue, and a
exempt.                                            refund was requested on tax paid on utilities            breakdown of the disbursements, or if just
   (C) Sales of pesticides or herbicides used      used in the greenhouse’s production of flower            beginning the organization, an estimated bud-
in the production of crops, orchards, aqua-        and vegetable plants for sale to retailers. The          get for one (1) year;
culture, livestock or poultry are exempt.          court found that the greenhouse’s use of util-
   (D) Seed, pesticides and fertilizers sold for                                                                  5. A copy of the not-for-profit certifi-
                                                   ities constituted agricultural consumption               cate, registration or charter issued by the
nonagricultural use are subject to tax. Sales      and was not subject to sales tax under Section
of fertilizer for lawns, shrubbery and similar                                                              Missouri secretary of state’s office, if regis-
                                                   144.020.1(3), RSMo. The legislatures distin-             tered or incorporated within Missouri; and
ornamental uses and seeds for ornamental           guished between agricultural and commercial
purposes are examples of sales subject to tax.                                                                    6. Any other documents, statements and
                                                   in the property tax statutes and the Employ-
   (E) The sale of electricity, water, and gas                                                              information as may reasonably be requested
                                                   ment Security Law. The court concluded that
used for agricultural production is exempt.                                                                 by the Department of Revenue.
                                                   the legislature also intended that agricultural
                                                                                                               (D) If any of the documents requested
(4) Examples.                                      consumers be considered as a class separate
                                                                                                            above are not submitted with the application,
   (A) A pesticide dealer sells pesticides to an   from commercial consumers for sales tax pur-
                                                                                                            a letter of explanation must accompany the
orchard to spray on the fruit trees to kill        poses.
                                                                                                            application. Federal agencies and instrumen-
insects. The sale of the pesticide is not sub-                                                              talities, Missouri state agencies and Missouri
ject to tax.                                                                                                political subdivisions are not required to send
   (B) An agricultural chemical dealer sells       12 CSR 10-110.950 Letters of Exemption
                                                   Issued by the Department of Revenue                      supporting documentation. Out-of-state polit-
foam marker to a farmer to aid in determin-
                                                                                                            ical subdivisions do not qualify.
ing where herbicides have been sprayed on
crops. The sale of the foam marker is not          PURPOSE: Chapter 144, RSMo provides that                    (E) Foreign diplomatic and consular per-
subject to tax.                                    certain organizations are exempt. This rule              sonnel exempt from Missouri sales by treaty
   (C) A seed dealer sells seed, pesticides and    sets out the steps necessary to obtain a letter          need not obtain a letter of exemption. The
fertilizer to a construction company for use       of exemption from the department.                        United States Department of State will issue
on a construction site. These sales are subject                                                             an exemption card for use.
to tax.                                            (1) In general, the department issues letters of
   (D) A pesticide dealer sells fly spray for      exemption to qualifying exempt entities.                 AUTHORITY: section 144.270, RSMo 2000.*
dairy cattle and rat and mouse poison for use      Documentation verifying the exempt status of             Original rule filed Aug. 1, 2000, effective
in the dairy barn. The sale of the fly spray is    the organization must be filed with the                  Jan. 30, 2001. Amended: Filed Oct. 15,
not subject to tax. The sale of the rat and        department to obtain a letter of exemption.              2002, effective April 30, 2003.

18                                                             CODE OF STATE REGULATIONS                                 (4/30/10)    ROBIN CARNAHAN
                                                                                                                                      Secretary of State
Chapter 110—Sales/Use Tax—Exemptions                                                                                       12 CSR 10-110


*Original authority: 144.270, RSMo 1939, amended 1941,      (D) Direct sales—sales of tangible person-      in their civic or charitable functions and
1943, 1945, 1947, 1955, 1961.
                                                         al property or taxable services to an organi-      activities are exempt from tax providing the
                                                         zation for use in its exempt functions and         net proceeds are designated for civic or char-
                                                         activities or sales by an organization where       itable functions and activities. Sales to or by
12 CSR 10-110.955 Sales and Purchases—
                                                         the net proceeds from such sales are for its       not-for-profit civic, social, service or frater-
Exempt Organizations
                                                         charitable purpose.                                nal organizations of other states are exempt
PURPOSE: Sections 144.030.1, 144.030.2(6),                  (E) Direct costs—costs directly incurred in     from tax if such organizations are exempt
144.030.2(17), 144.030.2(19), 144.030.2(20),             making direct sales. Direct costs do not           from a similar tax in their own states and oth-
144.030.2(21), 144.030.2(22), 144.030.2(27),             include indirect costs such as overhead costs.     erwise qualify for the exemption in Missouri.
144.030.2(36) and 144.062, RSMo exempt                      (F) Educational—to provide with knowl-             (F) All sales made to or by public elemen-
certain types of organizations from tax on cer-          edge or training.                                  tary and secondary schools in their educa-
tain transactions. This rule clarifies which                (G) Net proceeds—the proceeds remaining         tional functions and activities are exempt
transactions are exempt for each type of orga-           from direct sales after deducting direct costs.    from tax. School districts are also exempt
nization.                                                   (H) Exemption letter—a document issued          from all sales by or to the district. All sales
                                                         by the Department of Revenue recognizing an        to or by public elementary and secondary
(1) In general, some organizations are exempt            organization’s exemption from sales or pur-        schools of other states are exempt from tax
from tax on all or certain sales and purchas-            chases or both.                                    providing such public elementary and sec-
es, while other organizations are only exempt                                                               ondary schools are exempt from a similar tax
on all or certain purchases. An exemption                (3) Basic Application of Rule.                     in their own states.
from federal income tax does not necessarily                (A) All sales of tangible personal property        (G) All sales to eleemosynary, penal insti-
exempt an organization from state sales or               or taxable services to the United States gov-      tutions and industries of the state of Missouri
use tax.                                                 ernment or its agencies and all sales of tangi-
                                                                                                            are exempt from tax. Sales by such organiza-
                                                         ble personal property used exclusively in the
                                                                                                            tions are subject to tax, unless otherwise
(2) Definition of Terms.                                 manufacturing, processing, modification or
                                                                                                            exempt.
   (A) Exempt organization—one (1) of the                assembling of products that are sold to the
                                                                                                               (H) All sales to public and private not-for-
following types of organizations:                        United States government or its agencies are
                                                                                                            profit post-secondary education institutions
      1. United States government or agency;             exempt from tax. See 12 CSR 10-112.300.
                                                                                                            are exempt from tax. Sales by such organiza-
      2. Political subdivisions of the state of             (B) All sales of tangible personal property
                                                                                                            tions are subject to tax, unless otherwise
Missouri;                                                or taxable services to the state of Missouri or
                                                                                                            exempt. Sales made to or by public and pri-
      3. Missouri Department of Transporta-              its political subdivisions are exempt from tax.
                                                                                                            vate not-for-profit post-secondary education
tion;                                                    Except for school districts and the Missouri
                                                                                                            institutions of other states are exempt from
      4. Rural water districts;                          Department of Transportation, sales by the
                                                         state of Missouri and its political subdivisions   tax if such organizations are exempt from a
      5. Religious organizations and institu-
                                                         are subject to tax. Sales by school districts      similar tax in their own states.
tions;
                                                         and the Missouri Department of Transporta-            (I) All sales to state of Missouri relief
      6. Charitable organizations and institu-
                                                         tion are exempt from tax. Amounts paid in or       agencies are exempt from tax. Sales by such
tions;
                                                         for any place of amusement, entertainment or       organizations are subject to tax, unless other-
      7. Public elementary and secondary
                                                         recreation, games or athletic events, includ-      wise exempt.
schools;
                                                         ing museums, fairs, zoos and planetariums,            (J) All ticket sales by benevolent, scientif-
      8. Not-for-profit civic, social, service or
fraternal organizations;                                 owned or operated by a political subdivision       ic and educational agricultural associations
      9. Eleemosynary, penal institutions and            are exempt from tax, if all the proceeds ben-      which are formed to foster, encourage, and
industries of the state of Missouri;                     efit the political subdivision. Sales to other     promote progress and improvement in the sci-
      10. Public and private not-for-profit              states and their political subdivisions are not    ence of agriculture and in the raising and
post-secondary educational institutions;                 exempt from tax.                                   breeding of animals are exempt from tax. All
      11. State of Missouri relief agencies;                (C) All sales of tangible personal property     ticket sales by the same type of associations
      12. Benevolent, scientific and educa-              to Missouri rural water districts are exempt       of other states are exempt from tax providing
tional agricultural associations;                        from tax. Sales by such organizations are          such associations are exempt from a similar
      13. Nonprofit summer theater organiza-             subject to tax, unless otherwise exempt.           tax in their own states.
tions;                                                      (D) All sales made to or by any religious          (K) All ticket sales by nonprofit summer
      14. Missouri state fair and county agri-           and charitable organizations and institutions      theater organizations exempt from federal
cultural and mechanical societies;                       in their religious, charitable or educational      income tax under the provisions of the Inter-
      15. Private not-for-profit elementary and          functions and activities are exempt from tax.      nal Revenue Code are exempt from tax. All
secondary schools;                                       All sales by the same type of organizations        ticket sales by the same type of organizations
      16. Interstate compact agencies.                   and institutions of other states are exempt        of other states are exempt from tax providing
   (B) Charitable—to benefit the common                  from tax providing such organizations and          such organizations are exempt from a similar
good and welfare of the people of a commu-               institutions are exempt from a similar tax in      tax in their own states.
nity while relieving government of a financial           their own states.                                     (L) All admission charges and entry fees to
burden that it would otherwise be required to               (E) All direct sales made to or by Missouri     the Missouri state fair and any fair conducted
meet.                                                    not-for-profit civic, social, service or frater-   by a county agricultural and mechanical soci-
   (C) Civic—concerned with and related to               nal organizations, including qualified frater-     ety organized and operated pursuant to sec-
the citizenry at large and benefiting the com-           nal organizations exempt under Internal Rev-       tions 262.290 to 262.530, RSMo are exempt
munity it serves on an unrestricted basis.               enue Code Section 501(c)(8) and (10), solely       from tax.

         ROBIN CARNAHAN         (4/30/10)                           CODE OF STATE REGULATIONS                                                            19
         Secretary of State
               12 CSR 10-110—DEPARTMENT OF REVENUE                                                                        Division 10—Director of Revenue



   (M) All sales to private not-for-profit ele-        (C) A nonprofit charitable organization               shops was not to make profits, but to use any
mentary and secondary schools are exempt            operates a gift shop located within a nonprof-           income from those operations for the opera-
from tax. All sales to private not-for-profit       it hospital. The hospital serves both paying             tion of the hospitals for benefit of each hospi-
elementary and secondary schools of other           and indigent patients. All profits remaining             tal's patients whether paying or indigent.
states are exempt from tax if such organiza-        after paying for expenses of the gift shop go            Sales by the cafeterias and gift shops were
tions are exempt from a similar tax in their        to benefit the hospital. Customers of the gift           exempt from tax.
own states.                                         shop are primarily the hospital’s patients and
   (N) All sales to an interstate compact agen-     visitors and not the general public. All sales           Anheuser-Busch Employees’ Credit Union v.
cy created pursuant to sections 70.370 to           to and by the organization are exempt from               Director of Revenue, Case No. 90-001646 RS
70.430, RSMo (“Bi-State Development                 tax because its sales are limited to hospital            (A.H.C. 1992). A credit union that was a
Agency”) and sections 238.010 to 238.100,           patients and visitors and all profits are for the        member-owned and controlled not-for-profit
RSMo (“Kansas City Area Transportation              charitable purpose of the hospital, to provide           Missouri credit union organized with the pur-
Authority”) in the exercise of the functions        medical care for all who may seek its ser-               pose to encourage thrift and to educate its
and activities of such agencies as provided by      vices.                                                   members in the prudent and responsible use
compact are exempt from tax.                           (D) A Missouri contractor purchases mate-             of money was not exempt from tax as a char-
   (O) For exempt entities listed in 144.062,       rials and supplies in Missouri to perform a              itable or educational organization as its
RSMo, all sales of tangible personal proper-        construction contract in a neighboring state             activities were not charitable or educational
ty and materials, for the purpose of con-           for a public secondary school. The purchases             in nature. The credit union was also not
structing, repairing or remodeling facilities       are exempt providing the public secondary                exempt as a civic, social or service organiza-
that are related to the entity’s exempt func-       school in the other state is exempt from a               tion as sales made by or to the credit union
tions and activities, to a contractor or other      similar tax in its own state.                            were not within its civic or charitable func-
entity purchasing for the exempt entity pur-           (E) A Missouri contractor purchases mate-
                                                                                                             tions and activities.
suant to the requirements of section 144.062,       rials and supplies in Missouri to perform a
RSMo, are exempt from tax. To claim the             construction contract for a Missouri school              Benevolent and Protective Order of the Elks
exemption, the exempt entity must provide a         district. The school district is an exempt
                                                                                                             v. Director of Revenue, Case No. 92-000138
project exemption certificate to all contrac-       entity listed in section 144.062, RSMo. Prior
                                                                                                             RV (A.H.C. 1992). The Elks Club was a not-
tors, subcontractors or other entities. Such        to making its purchases, the contractor
                                                                                                             for-profit fraternal organization that received
contractors, subcontractors and other entities      obtains an authorized exemption certificate
                                                                                                             an Exemption Letter from the department of
must provide a copy of the project exemption        from the district. The contractor’s purchases
                                                                                                             revenue. The Elks operated a bar and sold
certificate to sellers when purchasing tangible     are exempt from tax because it obtained a
                                                    copy of the authorized exemption certificate             soft drinks, alcoholic drinks and snack foods
personal property or materials for such facil-                                                               to its members and guests and used these rev-
ities. See 12 CSR 10-112.010.                       prior to making its purchases.
                                                       (F) A Missouri charitable organization is             enues to pay for its costs of operation, and to
(4) Examples.                                       authorized and operates a Missouri fee office            make charitable and civic donations. The rev-
   (A) A nonprofit, fraternal benefit organiza-     for the Department of Revenue. The profits of            enues from the bar were not exempt from tax
tion supports several local youth activities.       the organization are used to purchase clothing           as the profits were not used solely for exempt
An Exemption Letter for the organization was        and books for indigent families. Purchases of            purposes and the bar was primarily operated
obtained from the Department of Revenue.            equipment and supplies for operating its fee             for fraternal and social reasons and not sole-
The organization operates a lounge that is          office are not exempt from tax as these pur-             ly to raise money for charitable and civic pur-
open to the public. A substantial amount of         chases are not for its charitable purpose. Pur-          poses.
its revenue is derived from beverage sales in       chases of clothing and books for indigent
its lounge. All revenue from the lounge is          families are exempt from tax as these pur-               Godwin v. Director of Revenue (AHC 1991).
deposited into the organization’s general           chases are for its charitable purpose.                   A city contracted with taxpayer to manage
account and is not separately accounted for.                                                                 and operate a golf course owned and main-
All operational expenses, as well as costs of       AUTHORITY: section 144.270, RSMo 2000.*                  tained by the city. The taxpayer deposited all
the local youth activities, are paid from the       Original rule filed July 31, 2001, effective             receipts from fees for use of golf carts and the
general account. Although the organization          Feb. 28, 2002.                                           course and fees for separate driving range
has an Exemption Letter, all beverage sales                                                                  and pro shop owned and operated by the tax-
                                                    *Original authority: 144.270, RSMo 1939, amended 1941,
are subject to tax as the net proceeds from                                                                  payer in a single bank account controlled by
                                                    1943, 1945, 1947, 1955, 1961.
beverage sales are not separately accounted                                                                  the taxpayer. Each week, the taxpayer remit-
for and used solely for the organization’s          St. John’s Medical Center, Inc. v.                       ted the contractual percentage of the cart and
civic activity of supporting local youth activ-     Spradling, 510 S.W.2d 417 (Mo. 1974). Non-               course fees to the city. The taxpayer retained
ities.                                              profit hospitals and a county hospital served            all the other fees. The Commission held that
   (B) A nonprofit fraternal benefit organiza-      paying and indigent patients. The hospital               all proceeds of the cart and course fees were
tion will hold a chili feed to buy public park      operated cafeterias and other nonprofit char-            exempt from tax under section 144.030.2(17),
playground equipment. All net proceeds of           itable organizations operated gift shop within           RSMo because the course was owned by the
the direct sales of chili will go to the purchase   each hospital. The cafeterias and gift shops             city and operated through a contract with the
of the playground equipment. The organiza-          served primarily staff, patients and visitors,           taxpayer. The Commission also held the fees
tion may purchase the chili ingredients and         as there was no intent to serve the general              from the pro shop and driving range were not
serving equipment exempt from tax and               public. All profits from the cafeterias and gift         exempt because these activities were the tax-
should not charge a sales tax on the chili          shops were given to the hospitals. The prima-            payer’s own enterprise and all proceeds were
sales.                                              ry purpose of operating the cafeterias and gift          retained by the taxpayer.

20                                                              CODE OF STATE REGULATIONS                                  (4/30/10)    ROBIN CARNAHAN
                                                                                                                                        Secretary of State
Chapter 110—Sales/Use Tax—Exemptions                                                                                 12 CSR 10-110


Zoological Park v. Director of Revenue            would otherwise be a governmental responsi-        receipts must remit tax on its qualifying food
(AHC 1991). The AHC held that the exemp-          bility.                                            sales at a reduced state tax rate of 1.225%
tion provided by section 144.020.2(17),                                                              plus any applicable local tax.
RSMo for charges in or for a place of amuse-      Humanalysis, Inc. v. Director of Revenue,             (C) Sales of qualifying food through vend-
ment owned or operated by a municipality          Case No. RS-85-2289 (A.H.C. 1987). Hum-            ing machines are subject to the reduced tax
includes all sales made by the municipal          analysis was a not for profit corporation          rate.
place of amusement, including sales of tangi-     qualified as a tax-exempt organization under
ble personal property.                            Internal Revenue Code Section 501(c)(3).
                                                  Humanalysis was created to conduct research        (3) Examples.
National Organization of Black Law                studies for federal, state and local govern-          (A) A grocery store sells nonfood items
Enforcement Executives, St. Louis Chapter         ments with an emphasis on social welfare.          and qualifying food items. The store will
v. Director of Revenue, Case No. RV-85-1244       Humanalysis is fully compensated on a cost         charge the regular tax rate on the nonfood
(A.H.C. 1988). The organization was a Mis-        basis by the agency that grants it money for       items and the reduced tax rate on the qualify-
souri not for profit corporation exempt from      its research. Humanalysis did not qualify as a     ing food items.
federal tax under Internal Revenue Code Sec-      charitable organization exempt from tax as it         (B) A vending machine company provides
tion 501(c)(3). Its membership criteria was       did not relieve government of the burden of        two vending machines to a business. One
very general with the only requirement that a     providing a service which would otherwise be       machine is for cold items and one machine
member have an interest in the goals of the       a governmental responsibility because it was       keeps items hot. Only the cold items are eli-
organization. Its primary purposes were to        paid for by its research service. However,         gible for the reduced tax rate. The hot items
evaluate legislation, form a network of sup-      Humanalysis qualified as a not for profit civic    are subject to the regular tax rate.
port for minorities in law enforcement, dis-      organization exempt from tax as its research
                                                                                                        (C) A convenience store sells burritos from
courage racism in the field of criminal justice   was conducted on a not for profit basis, was
                                                                                                     its freezer. The convenience store provides a
and give financial assistance to the less for-    available to the public and served the public
                                                  as it was conducted with a special emphasis        microwave so the purchaser can heat it. The
tunate. Its purposes were accomplished by                                                            sale of the burrito is taxed at the reduced rate
monitoring legislation, donating funds to         on problems regarding social welfare.
                                                                                                     because it is a qualifying food item.
local community service projects and provid-                                                            (D) A vending machine company sells
ing a social forum for those interested in the
                                                                                                     popcorn and soup in microwave pouches and
area of law enforcement. All of its activities
                                                  12 CSR 10-110.990 Tax—Sales of Food                containers. These items are sold at room tem-
were open to the public. It derived its funds
                                                                                                     perature and are heated by the purchaser in a
through dues and fundraisers. The organiza-
                                                  PURPOSE: Section 144.014, RSMo provides            microwave provided in the vending area.
tion qualified as a charitable organization
exempt from tax.                                  for a reduced tax rate for certain sales of        These items are eligible for the reduced tax
                                                  food. This rule explains when the reduced          rate.
St. John’s Regional Medical Health Center         rate applies.                                         (E) A fast food restaurant sells cold salads
v. Director of Revenue, Case No. RS-88-0054                                                          and cold soft drinks. These cold items repre-
(A.H.C. 1988). Sales made by and to a hos-        (1) In general, qualified sales of food by a       sent approximately 10% of total gross
pital’s fitness center were exempt as sales to    qualified business are taxed at a reduced state    receipts. Because the restaurant’s total food
a service organization in its educational func-   rate of 1.225% plus any applicable local tax.      sales of items prepared for immediate con-
tion. The fitness center’s various exercise       All other sales of food are taxed at the full      sumption are more than 80% of the total
programs and exercise instructors assigned to     state rate of 4.225% plus any applicable local     sales, the restaurant should charge the regular
each member taught and motivated individu-        tax.                                               tax rate on all its food sales.
als to think and act properly as it relates to                                                          (F) A convenience store sells prepared
healthy lifestyles.                               (2) Basic Application of Rule.                     cold sub sandwiches, ice cream and cold
                                                     (A) Sales of food subject to the reduced        drinks. The store also prepares and sells hot
St. Louis Calligraphy Guild v. Director of        rate include food that qualifies under the Fed-    dogs and chili. All items are sold “to go.”
Revenue, Case No. RS-86-1517 (A.H.C.              eral Food Stamp Program. This includes food        The store should charge the reduced tax rate
1987). The Guild was a Missouri not for prof-     or food products for home consumption and          on the cold items, but should charge the reg-
it chartered organization. Its purposes were      seeds and plants for use in gardens to produce
                                                                                                     ular tax rate on the hot items.
to encourage co-operation and free inter-         foods for personal consumption. Alcoholic             (G) A company sells pre-packaged ice
course among calligraphers, calligraphy           beverages, tobacco and hot food items ready        cream bars made by an unrelated ice cream
teachers, calligraphy students, craftsmen,        for immediate consumption do not qualify for       manufacturer to neighborhood families from
publishers and other in calligraphic activi-      the reduced rate. Food items refrigerated or       trucks. The ice cream truck driver should
ties, to hold competitions and exhibitions, to    at room temperature qualify for the reduced        charge the reduced rate of tax because the
further the education and appreciation of cal-    rate, even if the purchaser elects to heat the     seller does not prepare the ice cream bars and
ligraphy and to promote the improvement,          item on the business’ premises. Bakery items,      are not consumed on the premises of the sell-
advancement and excellence of calligraphy.        even if still warm from baking, are qualified      er.
Membership in the Guild was open to the           foods.                                                (H) An ice cream vendor sells soft cones
public and only limited by one’s interest in         (B) A business whose gross receipts from        and pre-packaged ice cream bars made by an
calligraphy. The Guild did not qualify to be      sales of food and drink prepared by the busi-      unrelated ice cream manufacturer at a foot-
exempt from tax, as it did not relieve govern-    ness for immediate consumption, either on or       ball game. The gross receipts from the sales
ment of the burden of providing a service that    off premises, are 80% or less of its total gross   of soft cones are less than 80% of the ice

       ROBIN CARNAHAN       (4/30/10)                        CODE OF STATE REGULATIONS                                                            21
       Secretary of State
                12 CSR 10-110—DEPARTMENT OF REVENUE                                  Division 10—Director of Revenue



cream vendor’s total gross receipts. None of
the ice cream qualifies for the reduced rate
because it is consumed on the premises.

AUTHORITY: section 144.270, RSMo 1994.*
Original rule filed June 29, 2000, effective
Jan. 30, 2001.

*Original authority: 144.270, RSMo 1939, amended 1941,
1943, 1945, 1947, 1955, 1961.




22                                                       CODE OF STATE REGULATIONS   (4/30/10)   ROBIN CARNAHAN
                                                                                                 Secretary of State

				
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