Chapter 100 MEDFA – October 13, 2017

5 benefits of Chapter 100 Avoid Paying Real Property Tax on Buildings (all or portion) Avoid Paying Personal Property Tax on Machinery and Equipment (all or portion) Avoid paying sales tax on the purchase of building materials Avoid paying sales tax on purchase of machinery and equipment Avoid paying sales tax on the lease of Machinery and Equipment/Tangible personal property from local government to the Company

Wait, what? Why would we ever give a sales tax exemption on the purchase of machinery and equipment and not want to offer an exemption of sales tax on the lease of it? Time value of money. Not having to pay sales tax all at once when you buy the equipment is still a deal, even if you have to pay it on each lease payment.

Limitations of chapter 100 Only way to accomplish personal property tax exemption Other statutes allow means for real property Requires reliance on ownership transfer and lease transaction to function (cumbersome) Statute is incredibly confusing (buy/purchase/sell/lease….)

Some Common confusion Many we may have caused…….

Authority of the local Government, Alone Avoid Paying Real Property Tax on Buildings (all or portion) Avoid Paying Personal Property Tax on Machinery and Equipment (all or portion) Avoid paying sales tax on the purchase of building materials Avoid paying sales tax on purchase of machinery and equipment

Common questions on local authority Does the local government have the authority Alone to exempt the state sales tax portion on the purchase of building materials? Yes, State, County and City – they are not decoupled Does the local government have the authority alone to exempt the state sales tax portion on the purchase of machinery and equipment?

Authority of DED, Alone Exempt the sales tax (if applicable) on the lease of machinery equipment/tangible personal property. Applies to all sales tax, state, County City

Why is there sales tax on a lease? Because the constitution (and Chapter 100) provide tax exempt authority to local governments on the purchase of items but not on the sale or lease of them. When cities and Counties sell or lease items they are treated like any other vendor and become responsible for the collection of sales tax.

When is sales tax applicable on the lease? When the machinery and equipment were purchased sales tax exempt When there is no other special sales tax exemption for the items otherwise on the books and it was purchased sales tax exempt If the city/County did not provide their sales tax exemption authority on the purchase and sales taxes were paid, there is no sales tax applied to the lease.

When is Property tax applicable on the lease? Although property of city/county is exempt from property taxation, the Mo. Supreme Court has held that the company’s leasehold interest is taxable to the extent that the economic value of the lease is less than the actual market value If lease payments under the lease agreement equal the actual debt service on the bonds, the leasehold interest has no “bonus” value and the project should be exempt from property taxation

What about building materials? Why is there no sales tax on the lease of a building if the building materials were purchased sales tax exempt? Because building materials become affixed to the real property and real property is not subject to sales tax.

Common questions Does a local government have the authority to exempt the their sales tax on the lease? No, only the state (DeD) has that authority and it is granted for all sales tax – state, county, city – they are not de- coupled.

What machinery and equipment counts? Revenue has traditionally interpreted only machinery and equipment/tangible personal property used in the main purpose or function (used in the process) of the company as applicable under chapter 100 No break rooms, Pool tables, day cares, weight rooms, tasteful (or tacky) art…….

Chapter 100 projects Types of Projects that can be financed: Industrial plants Warehouses and distribution facilities Research and development facilities Agricultural processing industries Service facilities which provide interstate commerce Office industry Commercial Facilities (not listed in Chapter 100 – Found In Constitution)

Notes on Project Types Service facilities which provide interstate commerce Have only ever been interpreted by revenue as utilities Office industry Regional, national or international headquarters Telecommunications operation Computer operation Insurance company Credit card billing and processing center

When does DED apply its Discretion on the lease? When we include it in a formal proposal When the proposal is accepted by the company prior to any announcement Prior to the approval or issuance of the bonds Prior to the purchase of the machinery and equipment/tangible personal property

When does DED apply its Discretion on the lease? Projects must be competitive Local skin in the game Be a part of an underlying chapter 100 Have above average wages or be located in a distressed or blighted area Approval must occur prior to the date it is placed into service

Application DED website Company application Estimated amount of tangible personal property Estimated sales tax exemption amount List of anticipated purchases Local Government application Copy of ordinance/resolution Application contact: Bryant Davidson, 573-522-8004

Thanks! Sallie Hemenway Director, Missouri department of economic development 301 west high street, HST office bldg, ste 770 Jefferson city, MO 65102 573-751-8497 Direct 573-522-4173 assistant