A Division of Associated Industries of AIM/TRIM Manufacturing Inputs Exemption
OVERVIEW:
Associated Industries of Missouri and the Taxpayers Research Institute of Missouri drafted this legislation in the 2006 legislative session and were successful in passing it in the 2007 legislative session. All energy, machinery, equipment, chemicals and raw materials used or consumed in manufacturing, mining, compounding, processing, or producing any product will be exempt from state sales and use taxes, as well as any of these items or services that are used in research and development related to one of these processes (manufacturing, mining, compounding, processing or producing any product). The new exemption will be effective August 28, 2007.
State Taxes Only
Local sales taxes will continue to apply, but in most cases, taxpayers’ sales and use tax bill will be reduced by at least 50% on these items because the state tax rate of 4.225% is usually the largest portion of the total sales and use tax rate.
Limitations Removed
Prior to passage of the AIM/TRIM Manufacturing Inputs Exemption, many of these items were only exempt if the taxpayer met certain conditions. For example, taxpayers were only entitled to the exemption for machinery and equipment if you could prove to the Missouri Department of Revenue that the purchase would result in expanded plant capacity or that the purchase replaced equipment that was already in service. The new exemption will allow taxpayers to purchase new equipment that is not necessarily replacing equipment, taxpayers will not have to show expanded plant production capacity, and taxpayers do not necessarily have to be manufacturing a taxable product.
Previous Exemptions Still Allowed
Taxpayers that were entitled to the previous exemption from state and local sales and use taxes will continue to enjoy the full exemption. Under the former law, taxpayers could purchase electricity exempt from state and local sales taxes if their cost of electricity used in manufacturing was more than 10% of their entire production costs (including labor and other overhead). Many companies could not meet this threshold. Also, taxpayer’s electricity purchases could be exempted under the former law if more than 25% of all raw materials were recycled materials. This latter provision required the manufacturer to keep records of the recycled content of raw materials and was a source of regular disputes between taxpayers and the state tax auditors.
All Energy Included
The AIM/TRIM Manufacturing Inputs Exemption will exempt from state sales and use taxes ALL energy purchases used in manufacturing, including gas, coal and any other energy sources. This is a big improvement for taxpayers because the former exemption was limited to electrical energy only. For companies that were not entitled to these former exemptions under current law, the AIM/TRIM Manufacturing Inputs Exemption will result in major tax savings.
Chemicals
Also, chemicals that are used or consumed in manufacturing, mining, compounding, processing or producing any product will also be exempt from state sales and use taxes. Under the former law, taxpayers could only claim exemption for chemicals that became a part of the finished product. Many companies will see significant tax savings from this exemption.
Raw Materials
Finally, any raw materials that are necessary to the manufacturing operation but are not present in the finished product would also be exempted from state sales tax. The former law limited the raw materials exemption to raw materials that became an ingredient or component part of the finished product. Disputes between taxpayers and tax auditors have arisen regarding the exemption of materials that were consumed in the process and did not appear in the finished product. The new AIM/TRIM Exemption should eliminate this dispute because there are no limitations in the AIM/TRIM Exemption requiring the materials to be present in the finished product. Again, raw materials that are exempted under the previous law would continue to be completely exempt from state and local sales and use taxes and the new exemption only applies to state sales and use taxes.
AIM/TRIM Working With DOR
The staff of AIM/TRIM drafted this bill and worked for two years to provide major tax savings for manufacturers and eliminate most of the red tape associated with the former exemptions. We will continue to work with the DOR to make sure this law is interpreted as it was intended and will vigorously defend a broad interpretation of the new AIM/TRIM Manufacturing Inputs Exemption.
Still Have Questions?
Please be aware that many questions may remain unanswered until close to August 28, 2007, the effective date of the AIM/TRIM Manufacturing Inputs Exemption. You may check the Taxpayers Research Institute website for information updates as they become available. You will find the information under the “NEWS” link at www.motaxpayers.com. You may also contact
