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L & R Egg Co., Inc. v. Director of Revenue, State of Mo., 796 S.W.2d 624

Facts

L & R Egg Company purchases eggs from farmers, processes them, and sells them to retailers. To modernize its operations, the company installed an air door and an egg processing system without paying sales or use tax. Following an audit, the Director of Revenue assessed a use tax on the equipment, leading to the appeal.

The facts are not disputed. Appellant purchases eggs from farmers, then processes and sells the eggs to retailers. To expand and modernize operations, Appellant purchased and installed an air door and an egg processing system, but paid neither sales nor use tax on either. Following an audit, the Director of Revenue assessed a use tax on both.

Issue

Whether the equipment used to clean, oil, inspect, weigh, grade, pack, and mark chicken eggs qualifies as 'manufacturing' equipment under § 144.030.2(5) RSMo 1986, thus exempting the company from use tax.

The sole question before the Court is whether equipment used to clean, oil, inspect, weigh, grade, pack and mark chicken eggs is 'manufacturing' equipment, within the meaning of § 144.030.2(5), RSMo 1986, so as to exempt Appellant from payment of use tax on that equipment.

Rule

Section 144.030.2(5) provides an exemption from use tax for machinery and equipment used directly in manufacturing a product intended for final use or consumption.

Section 144.030.2(5) provides an exemption from use tax for: Machinery and equipment, … purchased and used … to expand existing manufacturing … plants in the State if such machinery and equipment is used directly in manufacturing … a product which is intended to be sold ultimately for final use or consumption.

Analysis

The court analyzed the definitions of 'manufacturing' and determined that the processing performed by L & R Egg Company did not constitute manufacturing. The court noted that the fundamental use of the eggs remained the same—consumption—before and after processing, and that the equipment merely cleaned and packaged the eggs without changing their fundamental nature.

Regardless of the definitional variation used, the processing through which appellant puts the eggs which it obtains from the farmers cannot be called 'manufacturing' in any ordinary sense of the word.

Conclusion

The court affirmed the decision of the Administrative Hearing Commission, concluding that the egg processing equipment did not qualify as manufacturing equipment exempt from use tax.

Decision affirmed.

Who won?

Director of Revenue; the court upheld the assessment of the use tax, finding that the egg processing did not meet the criteria for manufacturing.

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