New MO Law Reduces Telecom Sales Tax Uncertainty

New Missouri Law Reduces Telecom Sales Tax Uncertainty over Past IBM/Mastercard Court Decision on What is Manufacturing

Before leaving office, Missouri Gov. Eric Greitens recently signed S.B. 768 [] into law, which modified two important provisions relating to the taxation of telecommunications companies.

Definition of Manufacturing: “Fixing” the Earlier IBM/Mastercard Court Decision

One of those provisions relates to sales and use tax exemptions for certain manufacturing and the use or consumption of energy for manufacturing.  The new law specifies that the term “product” includes telecommunications services and the term “manufacturing” includes the production, or production and transmission, of telecommunications service.  According to the Missouri legislature, these definitions were the original legislative intent and legislatively “fixes” the Missouri Supreme Court’s decision in IBM Corporation v. Director of Revenue, 491 S.W.3d 535 (Mo. banc 2016) to the extent that such decision was inconsistent with such definitions and certain longstanding previous court decisions.  This was a big relief to telecom companies that were faced with a lot of uncertainty on how to apply sales tax exemptions to its capital purchases.

See forthcoming additional analysis of this new law from Deloitte in an upcoming Multi-State Briefing newsletter[]

One-Time Property Tax Assessment Election

The second provision creates a new one-time property assessment election for Telecoms.  The new law will let telephone companies choose a personal property tax assessment method that speeds up the depreciation of such items as vehicles, computers and equipment.

Definition of Manufacturing

In the IBM/Mastercard decision, the Missouri Supreme Court said that IBM could not get a tax refund for software and hardware it sold to MasterCard, finding that MasterCard’s use of the products to process credit card transactions was not manufacturing under a statutory exemption, despite IBM’s longstanding reliance on previous court decisions that held that it was manufacturing.

Mastercard purchased the hardware and software from IBM, and used the equipment to authorize and process debit and credit card transactions. The process involves several steps, a customer presents credit or debit card to merchant, the merchant sends the transaction information to their bank, the bank sends that information to Mastercard, Mastercard sends the bank credit card information and the bank decides whether to accept or decline the transaction.  Mastercard summarizes amounts due from each bank and issues settlement statements, and the banks remit funds to Mastercard. IBM charged Mastercard Missouri use tax on the hardware and software used in this process.

Before the Missouri Supreme Court, IBM argued that Mastercard’s activities of transmitting approvals and disapprovals, summarizing data reports for banks, and communicating this information is the manufacturing of a new product. IBM based its arguments on two Southwestern Bell cases previously decided by the Missouri Supreme Court, in which the court ruled that equipment used to transmit voices is considered exempt manufacturing equipment.

The Missouri Supreme Court determined that, to qualify for the exemption, the equipment and materials must be used during the manufacturing, processing, compounding, mining or producing a product, and that application of its prior decisions in Southwestern Bell was too broad.  The court then reviewed the nature of the activates in question, which it construed as information analysis and transmission services, and found that the equipment did not qualify as manufacturing equipment.

“The Missouri Supreme Court had confused taxpayers, particularly in the telecommunications and data processing fields, by issuing the 2016 decision after holding through many previous decisions over more than a decade that such activities were manufacturing,” said Ray McCarty, president of Associated Industries of Missouri. “I am very proud of the hard work of members of the AIM Tax Committee who diligently sought resolution of this situation since the errant decision was rendered and am very happy that we have finally passed this important legislation. We thank Sen. Hoskins and Rep. T. J. Berry for their hard work in ensuring these industries can continue to operate as they have for many years,” said McCarty. []

One-Time Property Tax Assessment Election

Beginning January 1, 2019, S.B. 761 will allow telephone companies to make a one-time election of whether to have their property assessed in the same manner as railroads, as in current law, or in the same manner as railroads for property consisting of land and buildings and under a depreciation schedule for all other forms of property. The new law will let telephone companies choose a personal property tax assessment method that speeds up the depreciation of such items as vehicles, computers and equipment. By allowing telephone companies to choose a different way to be taxed, it is expected to drastically reduce revenue for school districts.

However, if a school district whose operating levy is at the tax rate ceiling receives less tax revenue from a specific telephone company as a result of such telephone company selecting the alternate assessment method, it may by resolution impose a fee to be paid by the telephone company until such time as the school district receives voter approval to raise its tax operating levy. The fee shall be calculated as described in the act. A school district’s receipt of such fee shall not be used in determining the amount of state aid that a district receives under the school foundation formula, in determining the amount that may be collected under a property tax levy, or for any other purpose.  The State Tax Commission will include information in its annual report on the difference in assessed value for any telephone company that is assessed under the provisions of this act. The provisions of this law will expire when no school district is eligible to collect a fee.


As this recent legislation in Missouri shows, Telecom taxation is complex and ever-changing, and the failure to stay current with these complexities and changes can be costly.


Visit to find out more details on how to stay compliant and efficient.


Jerome Nestor

Jerome Nestor, Esq., CPA, MBA-Accounting Information Systems Manager Tax & Accounting North America Wolters Kluwer Mobile: +1 847.312.5671 Email:

All stories by: Jerome Nestor

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