Carfax Loses Missouri Supreme Court Case on Sales Tax Exemption

Last Updated on December 7, 2022

Taxpayer (Carfax) was unable to sway the MO Supreme Court that purchases of equipment used to produce vehicle history reports (VHRs) should be exempt from sales tax.

Although Missouri has very liberal sales tax exemptions on equipment used in manufacturing, the September 2022 case further defined those exemptions. The Court held that the equipment in question did not constitute manufacturing because it did not transform an input into an output with a separate and distinct use, identity or value.

The case stemmed from a MO sales & use tax audit of records and levied $106,000 in taxes over the disputed exemption of equipment purchases. Initially, the Missouri Administrative Hearing Commission agreed with the taxpayer, but the Director of Revenue appealed that decision where the MO Supreme Court decided in favor of the State.

Per the Missouri Department of Revenue website, here are the eligibility requirements for manufacturing exemptions:

The Missouri Department of Revenue will issue a state sales tax exemption to a manufacturing company for:

• Electrical energy*
• Gas, whether natural, artificial, or propane*
• Water*
• Coal*
• Energy sources*
• Chemicals
• Machinery equipment
• Materials

*For utilities, a utility study must be performed to determine qualification for the exemption, and deemed “exempt” if 10% of the energy exceeds the total cost of production OR actual percentage is calculated.

The Sales/Use Tax Exemption Certificate must be given to the seller by the purchaser. The items listed above may be exempt if they are:

• Used or consumed in the manufacturing, processing, compounding, mining or producing of any product; or
• Used or consumed in the processing of recovered materials; or
• Used or consumed in research and development related to manufacturing, processing, compounding, mining, or producing any product

Although this was part of an audit, a 2019 ruling allows for Missouri taxpayers to file refunds for up to 10 years of overpaid sales and over-accrued use tax. Refunds are filed directly with the State.

TaxMatrix is a leading sales and use tax recovery and audit defense firm serving Missouri and other states. The company performs these services on a success basis and provides free process improvement training and exemption certificate assistance.