Missouri’s highest court recently issued three decisions regarding the application of sales and use taxes to materials used in construction.
Fred Weber, Inc. v. Director of Revenue
In the first case, Fred Weber, Inc. v. Director of Revenue, a manufacturer argued it was entitled to a refund of nearly $140,000 in sales taxes paid on asphalt and rock base that it sold to road-paving companies. Missouri law exempts from sales tax “any materials used or consumed in the manufacturing, processing, compounding, mining, or producing of any product.” Here, the manufacturer argued its materials were used in the process of paving roads and therefore qualified for this exemption.
Although a state administrative tribunal sided with the manufacturer, the Missouri Supreme Court unanimously reversed and reinstated the Missouri Director of Revenue’s initial decision denying the sales tax refund. The Supreme Court said the exemption only applied to “industrial-type activities” such as heavy manufacturing, not construction or maintenance of roads. The court pointed to other tax exemptions that specifically mention construction activities and held that because similar language was not used here, Missouri’s legislature did not intend to apply this exemption so broadly.
Ben Hur Steel Work, LLC v. Director of Revenue
The second case, Ben Hur Steel Work, LLC v. Director of Revenue, deals with the same sales tax exemption. Here, a construction subcontractor sought a refund of nearly $200,000 in sales taxes paid on the purchase of steel beams. Again, the Supreme Court said the exemption only applies to materials used in “large-scale industrial activities” and not construction. Additionally, the court said it was “well settled” under Missouri law that a subcontractor is considered the “consumer of materials used and purchased in the fulfillment of a construction contract,” and therefore responsible for paying all applicable sales taxes.
Alberici Constructors, Inc. v. Director of Revenue
Alberici Constructors, Inc. v. Director of Revenue, the final case, involves approximately $18,000 in use taxes paid on the rental and delivery of several cranes and a welder rented to facilitate the construction of a cement manufacturing plant. Missouri exempts from sales and use tax any “materials and supplies solely required for the installation or construction of such machinery and equipment” as is necessary to complete such a manufacturing facility.
Unlike the prior two cases, the question here was not whether the cranes and welder were being used for an exempt purpose — they were — but rather whether they constituted “materials” used in the plant’s construction. The Supreme Court agreed with the Director of Revenue, who said the rented cranes and welder were not “materials” as defined by the Missouri legislature. Even if machinery may fall within the strict dictionary definition of “materials,” the court said the fact the legislature expressly used the word “machinery” separately in the same statute indicates they must be treated as distinct categories.
S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.