Section 27 Replacement Machinery and Equipment

• Library: Tax Law 2009

Section 144.030.2(4), RSMo Supp. 2007, exempts the sale of machinery and equipment—and the materials and supplies solely required for the installation or construction of the machinery and equipment—replacing and used for the same purposes as the machinery and equipment replaced because of design or product changes. In Lincoln Industrial, Inc. v. Director of Revenue, 51 S.W.3d 462 (Mo. banc 2001), the Court, in addressing the question of what constitutes “machinery” for purposes of the manufacturing machinery and equipment exemption concludes that “machinery” includes those items that are a combination of parts that work together as a functioning unit. A “design change” is a modification in the manufacturing machinery or equipment, whereas a “product change” results in a different or improved product. Floyd Charcoal Co. v. Dir. of Revenue, 599 S.W.2d 173, 179 (Mo. 1980). The machinery and equipment must be purchased for and used directly for manufacturing or fabricating a product intended to be sold ultimately for final use or consumption. Section 144.030.2(4); see also Mo. Ltr. Rul. CL 1594 (Mar. 10, 1999) (certain carbide and high speed steel cutting tools may qualify as replacement machinery and equipment).

Caselaw and administrative authority...