491 S.W.3d 535
Mo.2016Background
- IBM sold computer hardware and software to MasterCard, which MasterCard used to provide authorization, clearing, and settlement (ACS) services for credit/debit card transactions.
- MasterCard’s systems receive transaction data, query issuing banks, return approval/denial messages, aggregate clearing data, and calculate settlement positions.
- In 2012 IBM filed a use-tax return on MasterCard’s behalf claiming the equipment was exempt under Mo. Rev. Stat. § 144.054.2 (exemption for equipment used in "manufacturing, processing, compounding, mining, or producing of any product").
- The Administrative Hearing Commission granted a refund, finding MasterCard’s activities comparable to prior cases where transmission qualified as "manufacturing."
- The Director of Revenue petitioned for review to the Missouri Supreme Court, which reviewed the exemption de novo and applied the rule that tax exemptions are strictly construed against the taxpayer.
- The Court reversed the Commission: MasterCard’s receipt, analysis, and transmission of financial data does not constitute "manufacturing" of a product under § 144.054.2, so the hardware/software sales are not exempt.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether MasterCard’s use of computers to process and transmit credit-card data qualifies as "manufacturing" under § 144.054.2 | IBM: organizing, manipulating, and communicating data produces new intangible products each transaction, so equipment is exempt | Director: transmission/analysis of information is not the alteration or transformation that "manufacturing" requires; exemptions must be narrowly construed | Held for Director: MasterCard’s activities are not "manufacturing," so no exemption applies |
| Proper scope of "manufacturing" for intangible products | IBM: Bell I/II support a broad reading that transmissions of electronic data/voices can be "manufactured" | Director: Bell decisions cannot be read to convert routine data transmission/answering into manufacturing; ordinary meaning controls | Held for Director: Courts must apply plain, ordinary meaning and construe tax exemptions narrowly |
| Whether prior precedent (Bell I/II) mandates exemption for electronic transmissions | IBM: Bell cases support treating transmitted data as a product | Director: Bell should not be extended; later cases narrow manufacturing to transformations, not mere transmission | Held for Director: Bell I/II’s expansive implications are rejected to avoid an unreasonable extension of exemptions |
| Whether legislature’s silence implies exemption for financial/computer services | IBM: statutory language can be interpreted to include intangible outputs | Director: absence of explicit statutory language for financial/computer processing indicates legislature did not intend exemption; legislature could have drafted it expressly | Held for Director: legislative silence supports denying exemption; legislature could have included such language if intended |
Key Cases Cited
- Galamet, Inc. v. Dir. of Revenue, 915 S.W.2d 331 (Mo. banc 1996) (defines manufacturing as producing an article with different use, identity, and value)
- Ben Hur Steel Worx, LLC v. Dir. of Revenue, 452 S.W.3d 624 (Mo. banc 2015) (construction activities are not manufacturing)
- Fred Weber, Inc. v. Dir. of Revenue, 452 S.W.3d 628 (Mo. banc 2015) (rejected treating paving/construction inputs as manufacturing exemption)
- Union Elec. Co. v. Dir. of Revenue, 425 S.W.3d 118 (Mo. banc 2014) (bakery producing baked goods not "manufacturing" under exemption)
- Brinker Mo., Inc. v. Dir. of Revenue, 319 S.W.3d 433 (Mo. banc 2010) (restaurant food preparation not "manufacturing")
- Southwestern Bell Tel. Co. v. Dir. of Revenue, 182 S.W.3d 226 (Mo. banc 2005) (Bell II) (held transmitted voice can be viewed as a product; Court limits its application here)
- Utilicorp United, Inc. v. Dir. of Revenue, 75 S.W.3d 725 (Mo. banc 2001) (transmission/distribution of electricity is not manufacturing)
- Lincoln Indus., Inc. v. Dir. of Revenue, 51 S.W.3d 462 (Mo. banc 2001) (statutory interpretation uses plain and ordinary meaning of words)
- Unitog Rental Servs. v. Dir. of Revenue, 779 S.W.2d 568 (Mo. banc 1989) (distinguishes repair/transmission from creating output with distinct use/identity)