On April 18, 2023, the Supreme Court of Missouri affirmed the Administrative Hearing Commission’s (AHC) decision that replacement equipment used to provide telecommunications services was exempt from use tax under the State’s manufacturing exemption in effect in 2011 and 2012.
Like most States, Missouri exempts from sales and use tax equipment used in manufacturing or producing a product or taxable service ultimately intended to be sold at retail. Under Missouri law, telecommunications services are taxable services when sold at retail. In 2018, the legislature amended the sales and use tax statute to make clear that equipment used in the production of telecommunications services qualified for the manufacturing exemption. The amendment expressly provided that it was not intended to change the law and was only a clarification of existing law.
This case involved purchases of telecommunications equipment by Charter Communications Entertainment I, LLC (CCE I) in 2011 and 2012 (prior to the statutory amendment). The court found that the equipment qualified for the exemption as equipment used in “manufacturing” and that CCE I had sufficiently shown that its replacement equipment was “used directly” in manufacturing telecommunications services. In rendering its decision, the court found that the provision of telecommunications services constituted manufacturing because it transforms an input (the caller’s voice) into an output with a separate and distinct value from the original. It also agreed with the AHC that CCE I was not also required to establish that its replacement equipment is “substantially used” in manufacturing—relevant because CCE I used its equipment not only to provide telecommunications service but also cable and Internet service as well.
Accordingly, the court affirmed the AHC’s decision, awarding CCE I with a $1.5 million refund on use taxes paid on replacement equipment purchased in 2011 and 2012.