AIM/TRIM Proposal to Exempt Manufacturing Inputs from Sales Tax Advances

(April 13, 2007) On Wednesday evening, the Missouri Senate debated and gave initial approval to HB 327, the Missouri Quality Jobs Act. Language drafted and championed by Associated Industries of Missouri and the Taxpayers Research Institute of Missouri that would exempt all manufacturing inputs from sales and use taxes was included in the bill.

The Taxpayers Research Institute has prepared a report on the fiscal impact of the exemption based on federal data published by the U.S. Department of Commerce. The total impact to state funds resulting from the exemption would be approximately $8.5 million and the estimated statewide local sales tax impact would be approximately $3 million, according to the source data. You may find the report under the "REPORTS" tab at left.

The reason the impact is so low is that nearly all manufacturing inputs are already exempt, including nearly all raw materials, chemicals, utilities, machinery and equipment that is used in the manufacturing or production process, including those items used for research and development related to manufacturing. While nearly all manufacturing inputs are exempted, Missouri statutes and the courts have created uncertainty for manufacturers by creating complex and seemingly arbitrary thresholds and special requirements. For example, for electricity to be exempted, the cost of electricity must exceed 10% of the manufacturer's total cost of production OR the manufacturer must use raw materials that contain more than 25% recycled material content. But if gas is used instead of electricity, no exemption is allowed. For manufacturing operations that require gas or some other utility, the current exemption is useless. For taxpayers that qualify, they must constantly monitor their operations to see if they continue to qualify for the exemption.

By contrast, other states welcome manufacturers by providing a full sales and use tax exemption for all manufacturing inputs. Language similar to that proposed by the AIM/TRIM proposal is already in effect in Kansas. Because we want Missouri to attract and retain vital, good paying manufacturing jobs, this proposal makes good economic sense. By making the exemption slightly more broad than current law, the uncertainty is erased.

The AIM/TRIM manufacturing inputs exemption is also on several other bills that will be considered in the coming weeks. Check back for further updates.