Section 25 Integrated Plant Theory of Manufacturing

• Library: Tax Law 2009

Two of the manufacturing exemptions, § 144.030.2(4) and (5), RSMo Supp. 2007, require, in part, that machinery and equipment be “used directly” in producing a product. Certain jurisdictions have construed narrowly the term “used directly,” limiting the exemption to machinery and equipment performing a function involving a change of the raw material involved into a finished product and excluding machinery and equipment used either in preparation for manufacturing
or after completion of the manufacturing process. See, e.g., Canton Malleable Iron Co. v. Porterfield, 283 N.E.2d 434
(Ohio 1972); Southwire Co. v. Chilivis, 228 S.E.2d 295 (Ga. App. 1976). Other jurisdictions have adopted the much broader “integrated plant” theory of construing manufacturing exemption provisions. See, e.g., Niagara Mohawk Power Corp. v. Wanamaker, 144 N.Y.S.2d 458 (N.Y. 1955), aff’d, 139 N.E.2d 150 (1956); Ross v. Greene & Webb Lumber Co., 567 S.W.2d 302 (Ky. 1978).

Missouri courts have adopted the “integrated plant theory,” viewing manufacturing operations as integrated and not requiring the division into theoretically distinct stages of what is, in fact, continuous and indivisible. See, e.g.:

• Sw. Bell Tel. Co. v. Dir. of Revenue, 182 S.W.3d 226
  (Mo. banc 2005) (the Court also included the entire telephone system in applying the integrated plant theory)

• DST Sys., Inc. v. Dir. of Revenue, 43 S.W.3d 799
  (Mo. banc 2001) (the Court also crossed corporate lines of commonly owned corporations in applying the integrated plant theory)

• Concord Publ’g House, Inc. v. Dir. of Revenue, 916 S.W.2d 186...