United States

Missouri: Sale of Materials Used to Create Asphalt Pavement Not Exempt from Tax

Jan 26, 2015
From KPMG TaxWatch

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Recently, the Missouri Supreme Court reversed an Administrative Hearing Commission (Commission) ruling holding that sales of rock aggregate and hot mix asphalt were exempt from state level sales taxes. Under Missouri law, “materials used or consumed in the manufacturing, processing, compounding, mining, or producing of any product” are exempt from state sales tax, as well as state and local use tax. The taxpayer at issue made sales of aggregate and hot mix asphalt to paving contractors for use in producing asphalt pavement for roads, driveways, and parking lots and other surfaces. The paving contractors, through the taxpayer, requested a refund of taxes paid on the aggregate and hot mix asphalt. The Department of Revenue denied the claim. But, the Commission ruled that the paving contractors manufactured, processed, compounded, and produced asphalt pavement and were therefore entitled to the exemption. The Department petitioned the state’s high court for review.

The Missouri Supreme Court observed that the taxpayer had to prove three criteria to qualify for a refund: (1) that it sold materials used or consumed, (2) during the manufacturing, mining, processing, compounding or producing, (3) of a product. With respect to the second prong, the Commission had determined that the paving contractors were engaged in qualifying activities—manufacturing, processing, compounding, and producing—when they produced road and parking lots. The Missouri Supreme court disagreed with the definitions of these activities relied on by the Commission. Notably, the court pointed out that in previous cases, it had held that the definition of “processing” was ambiguous and therefore must be interpreted in conjunction with the other terms in the statute (e.g., mining, manufacturing, etc.). All of these terms, the court observed, had industrial connotations. As such, the court had previously held that the exemption did not extend to non-industrial activities, such as food preparation. Likewise, in the instant case, the court held that the taxpayer was not engaged in large scale industrial activities, but was engaged in construction. The court pointed out that Missouri’s tax law is replete with references to construction activity. Therefore, in the court’s view, the Legislature knew how to exempt construction activities if it had chosen to do so. Please contact John Griesedieck at (312) 665-3024 with questions on Fred Weber, Inc. v. Director of Revenue.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.