Is a conveyor system that moves raw fertilizer into storage bins before blending exempt as manufacturing equipment?

Plain-English summary

The Missouri Department of Revenue ruled that a custom conveyor receiving system, purchased by a fertilizer producer to move raw fertilizer materials into a new warehouse's storage bins, is not exempt from Missouri sales or use tax as manufacturing equipment.

Missouri exempts machinery and equipment "used directly in manufacturing, mining or fabricating a product" under Section 144.030.2(5), RSMo (with a parallel use tax exemption in Section 144.615(3) and a separate processing exemption in Section 144.054.2). Missouri courts apply an "integrated plant theory" to decide what counts: is the equipment necessary to production, how close is it (physically and causally) to the finished product, and does it operate harmoniously with already-exempt machinery as part of one synchronized system? The Department also applied the regulatory definition of manufacturing in 12 CSR 10-111.010(2)(E) -- essentially, a physical alteration that changes an object's use, identity, and value.

Here, the conveyor's job is to take fertilizer material dumped by a truck outside the building, haul it up and drop it into divided storage bins ("bays") inside -- keeping different raw ingredients separated until a wheel loader later retrieves them and delivers them to a mixer. The actual blending -- the step that produces a new custom fertilizer product with a use, identity, and value different from the raw ingredients -- happens at the mixer, not the conveyor. Because the conveyor only sorts and stores unblended raw materials before manufacturing begins, the Department held it falls outside the manufacturing exemption.

What this means for you

Manufacturers and processors evaluating equipment purchases

Missouri's manufacturing exemption doesn't cover every piece of equipment in your production facility -- only equipment used directly in the step that actually transforms the product. Pre-processing equipment that receives, sorts, or stores raw materials before the transformation step (mixing, blending, cutting, assembling, etc.) is a strong candidate to be classified as taxable, even if it's essential to your overall operation and physically located right next to exempt manufacturing machinery.

Fertilizer, feed, and other bulk-material blending operations

If your facility receives raw bulk materials and stores them in separate bins or bays before blending, expect the receiving/sorting/conveying equipment used before the blend step to be treated as taxable, while the actual blending or mixing equipment has a stronger case for the manufacturing exemption. Where exactly the "manufacturing" line falls depends on your specific equipment layout and process.

Accountants and tax professionals advising manufacturers

Apply the three integrated-plant-theory questions from Floyd Charcoal Co. v. Director of Revenue to each piece of equipment separately: is it necessary to production, how close is it to the finished product, and does it operate harmoniously with exempt machinery as one system? Equipment that only transports or stores unaltered raw material, rather than transforming it, tends to fail this test even when it's an integral part of the overall plant.

Common questions

Q: Isn't equipment that's essential to a manufacturing process automatically exempt?
A: No. Being essential to the overall operation isn't enough -- Missouri's integrated-plant-theory test looks at whether the specific piece of equipment is used directly in the step that transforms the product's use, identity, and value. Equipment that only stores, sorts, or transports raw materials before that transformation step generally doesn't qualify, even if the plant couldn't run without it.

Q: Would the mixer itself be exempt under this same analysis?
A: This ruling doesn't decide that question directly, but its own reasoning suggests the mixer -- where the actual blending into a "specific agricultural recipe" happens -- is where the real manufacturing transformation occurs, unlike the conveyor.

Q: Can another company with a similar conveyor system rely on this ruling?
A: No. A Missouri letter ruling binds the Department only as to the requesting Applicant, only for three years, and only while the facts and law don't change. A different equipment layout or process could produce a different result.

Citations and references

Statutes, regulations, and cases:

• Section 144.020.1, RSMo (imposition of sales tax on retail sales of tangible personal property)
• Section 144.610.1, RSMo (imposition of use tax on storing, using, or consuming tangible personal property)
• Section 144.030.2(5), RSMo (exemption for machinery and equipment used directly in manufacturing, mining, or fabricating)
• Section 144.615(3), RSMo (use tax exemption mirroring the Section 144.030.2 sales tax exemption)
• Section 144.054.2, RSMo (exemption for machinery, equipment, materials, and chemicals used in manufacturing/processing)
• 12 CSR 10-111.010(2)(E) (regulatory definition of manufacturing)
• Galamet, Inc. v. Dir. of Revenue, 915 S.W.2d 331, 333 (Mo. 1996)
• Noranda Aluminum, Inc. v. Missouri Department of Revenue, 599 S.W.2d 1, 4 (Mo. banc 1980)
• Floyd Charcoal Co. v. Director of Revenue, 559 S.W.2d 173, 177 (Mo. banc 1980)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8343

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated January 13, 2025.

The facts as presented in your letter ruling request, telephone conversation with the Director’s counsel, and on your company’s website are summarized as follows:

Applicant is a producer of fertilizer products as well as a service provider of fertilizer applications for agricultural    customers. Applicant is constructing a new facility to warehouse and blend fertilizers for agricultural use. The      facility will process raw fertilizer products into custom blends used in crop production, which will be sold at retail.

Applicant is inquiring as to the taxability of a custom conveyor receiving system purchased for its warehouse as manufacturing equipment or equipment for agricultural production under Section 144.030, RSMo.

Specifically, a truck dumps the fertilizer materials into the receiving system outside of the building. The system then hauls the fertilizer to the top of the building and drops it into its respective "bay," which is the space between the divider walls. This is how the ingredients are moved into the building and kept separate. A wheel loader subsequently retrieves the required quantities of raw materials from the bins and delivers them to a mixer, where the final blended fertilizer product is produced according to specific agricultural recipes. The mixer then conveys the finished products into an outbound truck.

ISSUE :

Is Applicant’s purchase of the conveyor system exempt from Missouri sales or use tax as manufacturing equipment?

RESPONSE :

No. Applicant’s purchase of   the conveyor system is not exempt from Missouri sales or use tax as manufacturing equipment.

Section 144.020.1, RSMo, imposes a sales tax “[…] upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state.”

Section 144.610.1, RSMo, imposes a use tax for “[…] the privilege of storing, using or consuming within this state any article of tangible personal property.”

Section 144.030.2(5), RSMo, exempts, in pertinent part:

Machinery and equipment, and parts and the materials and supplies solely required for the installation or construction of such machinery and equipment, purchased and used to establish new or to expand existing manufacturing, mining or fabricating plants in the state if such machinery and equipment is used directly in manufacturing, mining or fabricating a product which is intended to be sold ultimately for final use or consumption.

Section 144.615(3), RSMo, exempts from Missouri use tax “[t]angible personal property, the sale or other transfer of which, if made in this state, would be exempt from or not subject to the Missouri sales tax pursuant to the provisions of subsection 2 of Section 144.030[.]”

Section 144.054.2 RSMo, exempts machinery, equipment, materials, and chemicals used or consumed in manufacturing, processing, compounding, mining or producing any product from sales and use tax.

The Missouri Supreme Court has determined that manufacturing “consists of the alteration or physical change of an object or material in such a way that produces an article with a use, identity, and value different from the use, identity, and value of the original.” Galamet, Inc. v. Dir. of Revenue , 915 S.W.2d 331, 333915 S.W.2d 331, 333 (Mo. 1996).

The “integrated plant theory” determines what machinery and equipment is used in manufacturing. In developing the theory, the Missouri Supreme Court determined that qualifying machinery and equipment must be “used in steps or operations that are essential to and comprise an integral part of [the manufacturing] process 'and are used directly for manufacturing or fabricating a product.'” Noranda Aluminum, Inc. v. Missouri Department of Revenue , 599 S.W.2d 1, 4 (Mo. banc 1980).

'The basic questions are the following: (1) Is the disputed item necessary to production? (2) How close, physically and causally, is the disputed item to the finished product? (3) Does the disputed item operate harmoniously with the admittedly exempt machinery to make an integrated and synchronized system?” Floyd Charcoal Co. v. Director of Revenue , 559 S.W.2d 173, 177 (Mo. banc 1980).

Missouri Code of State Regulations 12 CSR 10-111.010(2)(E) also provides guidance:

Manufacturing—i) the alteration or physical change of an object or material to produce an article with a use, identity and value different from the use, identity and value of the original; or ii) a process which changes and adapts something practically unsuitable for any common use into something suitable for common use; or iii) the production of new and different articles, by the use of machinery, labor and skill, in forms suitable for new applications; or iv) a process that makes more than a superficial transformation in quality and adaptability and creates an end product quite different from the original; or v) requires the manipulation of an item in such a way as to create a new and distinct item, with a value and identity completely different from the original. Manufacturing does not include processes that restore articles to their original condition (e.g., cleaning, repairing); processes that maintain a product (e.g., refrigeration); or processes that do not result in a change in the articles being processed (e.g., inspecting, sorting).

(Emphasis added)

Applicant's conveyor system does not produce an article with a use, identity, and value different from the use, identity, and value of any original object or material. The system transports raw fertilizer material to bins before the manufacturing process begins at the mixers. Therefore, Applicant’s purchase of the conveyor system is not exempt from Missouri sales or use tax as manufacturing equipment under Sections 144.030 and 144.054, RSMo.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.   If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.   For this reason, the interpretation set forth above should be reviewed on a regular basis.   Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Senior Counsel Benjamin C. Slawson, General Counsel’s Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573-751-0961), or me.

Sincerely,

Trish Vincent