Is splicing tape that a drywall manufacturer uses to bond rolls of material together during production subject to Missouri sales or use tax?

Subject

Taxability of Materials Used in Making Drywall

Plain-English summary

The Missouri Department of Revenue ruled that a high-end drywall manufacturer's purchases of splicing tape are exempt from sales and use tax, but only through a specific exemption -- and even then, only from state tax and local use tax, not local sales tax.

Applicant makes high-end drywall and uses splicing tape to bond the end of one roll of material to the next roll as it moves through production, so the line can keep running without stopping between rolls. The Department first found that this tape does not qualify for the manufacturing-equipment exemption in Section 144.030.2(4) and (5), RSMo, because it functions the same way as the tape in the Department's own regulatory example of a photo developer splicing negative film strips together to feed them through processing equipment -- that example treats such tape as a "consumable supply," not exempt machinery or parts.

However, a second, separate exemption in Section 144.054.2, RSMo, covers "materials... used or consumed in manufacturing, processing, compounding, mining or producing any product." The Department's own regulation implementing that exemption, 12 CSR 10-111.011(4)(B), uses the identical photo-developer-tape example but reaches the opposite bottom line: that tape is exempt from state tax and local use tax (though not local sales tax) as "materials used and consumed in producing a product." Because Applicant's splicing tape is used the same way, the Department applied the same result: exempt from sales and use tax under Section 144.054.2, RSMo, with the caveat that this exemption does not reach local sales tax.

What this means for you

Drywall and other continuous-roll manufacturers

If your production process uses tape, adhesive, or similar consumable supplies to splice, join, or feed raw material through your equipment (not to become part of the finished product itself, but to keep the line running), this ruling indicates those supplies are not exempt as manufacturing machinery or parts under Section 144.030.2(4) and (5), RSMo. But they may still be exempt from state tax and local use tax under the broader "materials... used or consumed in producing a product" language of Section 144.054.2, RSMo. Note carefully that even under that exemption, local sales tax can still apply -- so don't assume a clean exemption across every layer of tax.

Accountants and tax professionals

This ruling is a useful illustration of how two overlapping-sounding Missouri manufacturing exemptions can produce different results for the identical item. Section 144.030.2(4) and (5), RSMo (implemented by 12 CSR 10-111.010(4)(N)) treats consumable supplies like splicing/connecting tape as taxable, not exempt machinery or parts. Section 144.054.2, RSMo (implemented by 12 CSR 10-111.011(4)(B)) exempts the same tape as "materials used and consumed in producing a product," but only for state tax and local use tax -- not local sales tax. When evaluating a client's consumable production supplies, check both exemptions separately and track which layer(s) of tax the exemption actually reaches.

Business owners weighing similar purchases

Don't assume all "production supplies" are treated the same. This ruling turned on facts specific to how the tape was used (bonding rolls of material so the line runs continuously) and closely tracked an existing regulatory example. If your equipment or supplies work differently, the same exemption analysis may not apply, and you should not rely on this ruling for your own purchases without confirming your facts match.

Common questions

Q: Is splicing tape used in drywall manufacturing exempt from all Missouri sales and use tax?
A: Not entirely. It is exempt from state sales/use tax and local use tax under Section 144.054.2, RSMo, as a material used and consumed in producing a product. But that exemption does not extend to local sales tax, so local sales tax can still apply to the same purchase.

Q: Why doesn't the splicing tape qualify as exempt manufacturing equipment under Section 144.030.2(4) and (5), RSMo?
A: The Department's own regulation, 12 CSR 10-111.010(4)(N), gives an example of a photo developer using tape to connect negative strips so they can feed through developing equipment, and classifies that tape as a "consumable supply," not exempt parts or equipment. The Department found the Applicant's splicing tape functions the same way, so it does not qualify for that exemption either.

Q: What made the different exemption under Section 144.054.2, RSMo, apply instead?
A: That statute exempts "machinery, equipment, materials, and chemicals used or consumed in manufacturing, processing, compounding, mining or producing any product." The implementing regulation, 12 CSR 10-111.011(4)(B), uses the same photo-developer tape example but concludes the tape is exempt from state tax and local use tax as "materials used and consumed in producing a product." The Department applied that same reasoning to Applicant's splicing tape.

Q: Can another drywall or building-materials manufacturer rely on this ruling for its own tape purchases?
A: Not automatically. This is a Missouri letter ruling binding on the Department only as to the requesting Applicant, only for three years from its date, and only so long as the facts and underlying law don't change. Any deviation from the facts described in the letter -- for example, if the tape were used differently -- would make the ruling inapplicable, so another business should confirm its facts match and consult a tax professional.

Q: Does this ruling mean all production supplies used to feed material through machinery are automatically exempt?
A: No. The ruling is narrow: it applies the specific reasoning of the Department's photo-developer regulatory example to Applicant's splicing tape because the use was analogous. Other consumable supplies would need their own analysis under Section 144.030.2 and Section 144.054.2, RSMo, to determine whether they qualify.

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8226

Original ruling text

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 communication of November 16, 2022.

The facts as presented in your letter ruling request, along with research into your operations, are summarized as follows:

Applicant manufactures high end drywall.  The Applicant uses splicing tape to bond rolls of material that have been turned into finished goods to the next roll that will be worked into finished goods.  This allows the production process to "continue continuously."

ISSUE :

Are the Applicant's purchases of splicing tape subject to sales or use tax?

RESPONSE :

No. Applicant's purchases of splicing tape are not subject to sales or use tax.  The splicing tape is exempt from sales and use tax, as a material used and consumed in producing a product.

Section 144.020.1. (1), RSMo, imposes a sales tax on retail sales of tangible personal property.

Section 144.030.2(4) and (5), RSMo, exempts from state and local tax, certain machinery, equipment, parts, materials and supplies.

12 CSR 10-111.010(4)(N) offers an example demonstrating the implementation of the manufacturing exemptions in Section 144.030.2 RSMo, and notes:

A commercial photo developer... uses tape to connect negative strips so that the negatives may be fed through its automatic film developing machinery and equipment.  The... [tape constitutes] consumable supplies, not parts or equipment, and therefore are subject to tax.

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.

12 CSR 10-111.011(4)(B) offers an example demonstrating the implementation of the manufacturing exemptions in Section 144.054.2. RSMo, and notes:

A commercial photo developer... uses tape to connect negative strips so that the negatives may be fed through its automatic film developing machinery and equipment.  The... [tape is] exempt from state tax and local use tax, but not local sales tax, as materials used and consumed in producing a product.

In this instance, the splicing tape of the Applicant is treated in a manner similar to how tape is used by the photo developers from the examples in the regulation.  The regulation indicates that the tape used to feed materials through a machine are treated as supplies used in production.  The rules indicate that supplies, like tape, are not eligible for the exemptions under Sections 144.030.2(4) and (5) RSMo, but those supplies are eligible for the exemption under Section 144.054.2. RSMo.  The exemption under Section 144.054.2 RSMo, is only available for state taxes and local use tax, but not local sales taxes.  Therefore the splicing tape is exempt from sales and use taxes.

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 Legal Counsel Nathan Jefferson, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford

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