UPDATE: Missouri House votes to expand sales tax exemptions

Friday, April 18, 2014 | 7:43 a.m. CDT; updated 5:42 p.m. CDT, Friday, April 18, 2014

This story has been updated with quotes and more details about the court ruling and legislation.

JEFFERSON CITY — Pizza parlors, doughnut shops and even convenience stores all could be in line for a tax break on the food that they make and sell as a result of a measure moving through the Missouri legislature.

The bill would create a new sales tax exemption on the utilities used to produce food that is sold to customers at restaurants, bakeries, and grocery and convenience stores. The proposed tax break is intended to effectively overturn a recent Missouri Supreme Court ruling that denied a utility sales tax exemption for the food warmed and served at Schnucks grocery stores.

The Department of Revenue estimates the legislation could reduce total state revenues by between $4 million and $20 million annually.

The House passed the measure 134-12 on Thursday, sending it to the Senate. The vote occurred with almost no discussion just a day after lawmakers intensely debated and approved a measure that could eventually cut state income taxes by $620 million annually.

State Rep. Craig Redmon, who sponsored the sales tax exemption, said he views it as a way to prevent "double taxation."

Otherwise, "you're taxing on the utilities, and then you're turning around and taxing on the product when it's completed," said Redmon, a Republican from the northeast Missouri town of Canton.

Missouri law already exempts sales taxes on utilities used in the manufacturing or processing of products. A Department of Revenue regulation lists examples of what it considers "processing," specifically citing such things as the energy used by bakeries, the compressed gas used by welders and the propane used to power forklifts that are carrying raw materials between production lines.

In March, the Missouri Supreme Court ruled against a sales tax request on behalf of 40 Schnucks grocery stories. The court said the "processing" exemption did not apply to the in-store preparation of cooked foods for retail sale.

Redmon, who used to own several convenience stores that sold such things as pizza and fried chicken, said he was approached by a lobbyist for retail and grocery stores to handle the legislation assuring that grocers and restaurants can qualify for the tax break.

"At first I thought, 'Oh no, not another tax exemption thing,'" Redmon said. "But when you start saying, 'OK, this part of the business world can take advantage of it but this one can't,' that's not fair either. It should be: If they get it, we should get it."

No one spoke against the tax break when the House voted to send the measure to the Senate.

State Rep. Jay Barnes, a Jefferson City Republican who voted "no," said afterward that he didn't believe pastries baked in doughnut shops were the type of products originally envisioned for a manufacturing sales tax exemption.

State Rep. Brandon Ellington, a Democrat from Kansas City, said later that he voted "no" because the tax break "just didn't sound right."

"I'm very hesitant when it comes to corporations and tax breaks," Ellington said.

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