PURPOSE: Section 144.020.1(1), RSMo, taxes the retail sale of tangible personal property. Section 144.030.2(2), RSMo, exempts materials that become a component part or ingredient of new personal property which is intended to be sold ultimately at retail. Sections 144.030.2(4) and (5), RSMo, exempt certain machinery, equipment, and parts for replacement or for a new or expanded plant. This rule explains the taxation rules for commercial printers and what elements must be met to qualify for these exemptions. This rule does not address the exemption relating to newspaper publishing contained in section 144.030.2(8), RSMo, or the exemption relating to advertising contained in section 144.034, RSMo.

1. (1) In general, sales of printed product by commercial printers are subject to tax. Purchases of materials and supplies, such as paper and ink, which become a component part or ingredient of the printed product are exempt. Other materials used by the printer may be exempt if title or ownership to the materials transfers to the customer. Purchases of machinery, equipment and parts for replacement or for a new or expanded plant are exempt if directly used in the manufacturing process. This includes printing presses and plates.
2. (2) Definition of Terms. See Definition of Terms in 12 CSR 10- 111.010 Machinery and Equipment Exemptions.

3. (3) Basic Application of Tax.

   1. (A) Sales of printed products—A business engaged in printing publications, pamphlets, catalogues, leaflets, advertising circulars, stationery and other similar products, is creating new tangible personal property and is subject to tax on the total gross receipts from its sales. No deductions are allowed for preparing copy, artwork, compositions, phototypesetting or any other services or labor that are included in the charge to produce the final product.

   2. (B) Ingredients and component parts—Purchases of material and supplies such as paper and ink may be purchased tax exempt by printers as ingredients or component parts under section 144.030.2(2), RSMo.

      1. 1. Chemicals that blend with and become part of the ink

mixture are exempt, including:

1. A. The fountain solution that blends with the ink at the

press to keep the non-image area clean of ink while printing;

1. B. Chemicals used on the rollers to keep the ink from

drying out;

1. C. Isopropyl alcohol to keep the ink wet on the rollers;

and

1. D. Ink anti-stain used to keep the ink from bleeding onto

other printed material.

1. (C) Purchases of materials, including film, used by the printer in its manufacturing process do not qualify for the sale for resale exclusion unless title or ownership to such materials is transferred to the customer. Whether title passes is based on the intent of the parties, as evidenced by all relevant facts, including written agreements, course of dealing or usage of trade and availability of the materials for future use by the customer.
2. (D) Chemicals—Chemicals to develop the film and plates are exempt if they become an ingredient or component part of materials resold to the customer.

3. (E) Supplies and Parts.

   1. 1. Perforation devices consumed in a single production

cycle are not exempt as machinery and equipment or parts.

1. 2. Perforation devices benefiting more than one production

cycle are exempt as parts of machinery and equipment.

1. 3. Blankets and necessary attachments are exempt as parts

of machinery and equipment.

1. 4. Proof paper and phototypesetting paper are not exempt

as machinery and equipment or parts.

1. 5. Mineral spirits used as a solvent to clean brushes,

overspray and equipment are not exempt as ingredients or component parts if used as a cleaning solvent separate from the ink. If mixed with the ink, then the mineral spirits are exempt as ingredients or component parts.

1. (4) Examples.

   1. (A) A commercial printer replaces an old printing press due to obsolescence, replaces a second press due to design change and then purchases a third press to expand its production. All three printing presses may be purchased tax exempt under the machinery or equipment exemptions for replacement or expanded plant.
   2. (B) A commercial printer purchases plates and film. The plate is exempt machinery and equipment. The printer’s contract with the customer states the negatives become the property of the customer. The film is exempt as a component part of the negative.
   3. (C) A commercial printer states on its sales invoice its production labor charges for artwork, layout and design services separate from the charges for the printed product. The printer is subject to tax on total gross receipts including the separately stated production labor charges.

AUTHORITY: section 144.270, RSMo 2000.* Original rule filed Oct. 11, 2001, effective April 30, 2002. Emergency amendment filed Aug. 14, 2007, effective Aug. 28, 2007, expired Feb. 23, 2008. Amended: Filed Aug. 14, 2007, effective Feb. 29, 2008.

*Original authority: 144.270, RSMo 1939, amended 1941, 1943, 1945, 1947, 1955, 1961. Ovid Bell Press, Inc. v. Director of Revenue, 45 S.W.3d 880 (Mo. banc 2001). The court held that materials used by a printer, including film used to produce plates, are exempt as materials purchased for resale if title to the materials passes to the customer as part of the printing contract. The key to determining the passage of title is the intent of the parties, as evidenced by all relevant facts, including custom or usage of trade. Walsworth Publishing Co., Inc. v. Director of Revenue, 935 S.W.2d 39 (Mo. banc 1996). The taxpayer used phototypesetting paper to produce yearbooks for schools and commercial customers. The issue was whether the phototypesetting paper qualified as equipment under section 144.030.2(4), RSMo. The court ruled that “equipment” must be a fixed asset other than land and buildings for purposes of business and accounting practices that has some degree of permanence to the business and contributes to multiple processing cycles over time. The phototypesetting paper was not equipment because it benefited only one production cycle over time. K & A Litho Process, Inc. v. Dept. of Revenue, 653 S.W.2d 195 (Mo. banc 1983). The issue was whether the sale of lithographic work was the sale of nontaxable service or the taxable sale of tangible personal property. The court found that the lithographic process was the nontaxable sale of technical professional service and that the transfer of ownership to tangible personal property was only incidental to the provision of service. The taxpayer received a color transparency from an outside source such as a printer, advertising agency or publishing house and then created a film separation and a color key that could then be used to print the transparency on paper for distribution. The color separation and the color key were merely the means of conveying the nontaxable professional technical service. Heidelberg Central, Inc. v. Director Dept. of Revenue, 476 S.W.2d 502 (Mo. 1972). The taxpayer was a commercial printer that purchased printing presses to print business forms, stationery, advertising, postcards, bulletins, calendars etc. The court held that the taxpayer’s purchases qualified for the machinery and equipment exemption in section 144.030.2(4), RSMo. The court stated that the taxpayer’s process qualified as “manufacturing.” The printer produced new and different articles from raw materials by the use of machinery, labor and skill, and it produced products for sale that had an intrinsic and merchantable value and were in forms suitable for new uses.