## Facts

- A newspaper publisher and an affiliated commercial printer produced a daily newspaper that was sold to the public.
- The newspaper was initially produced using a manual paste-up (“tiling”) method, in which text was printed, arranged on layout boards, photographed, and converted to film for printing.
- The businesses implemented an electronic “pagination” method in which the newspaper’s pages were assembled on computers and the resulting files were used to create the images/plates used by the press.
- From 1989 to 1993, they purchased computers and pagination-related equipment for the electronic workflow without paying Missouri sales or use tax.
- After an audit covering 1989–1992, the Director assessed sales and use tax deficiencies on the purchases.
- The taxpayers paid the assessments and sought refunds, claiming the purchases were exempt under Missouri’s machinery-and-equipment exemption for property “used directly in manufacturing,” when purchased to replace existing equipment or expand an existing plant.

## Issues

1. Whether computers and pagination-related equipment used in pre-press electronic page creation qualify as “machinery and equipment used directly in manufacturing” under the sales and use tax exemption.
2. Whether the purchases satisfied the statutory requirement that exempt machinery be acquired to replace existing machinery or to expand an existing manufacturing operation.
3. Whether particular items were too remote from production (e.g., administrative or general office equipment) to be treated as “used directly” in manufacturing.

## Decision

- The court affirmed the Administrative Hearing Commission (AHC) in substantial part and modified it in part.
- It held that most of the pagination-related equipment qualified for exemption because it was an essential, integrated part of producing the tangible newspaper sold to readers.
- It denied exemption for certain items found to serve nonproduction functions (such as administrative or general office purposes) because they were not used directly in manufacturing.
- On review, the court independently construed the revenue statute while accepting supported factual findings made by the AHC.

## Legal Principles

- For the manufacturing exemption, “used directly” covers equipment that is an integral part of an integrated production process and has a direct, immediate role in creating the product for sale.
- Manufacturing of a tangible product may include indispensable pre-press or pre-production steps, not only the final physical act of printing or pressing.
- Computerized technology performing the same functional production step as older physical methods may qualify as manufacturing machinery when it directly produces the images or layouts transferred to the final product.
- Equipment used solely for managerial, administrative, distribution, or general business purposes is not “used directly in manufacturing” and remains taxable.
- Statutory interpretation of a revenue exemption is reviewed as a question of law, while supported administrative fact findings are upheld.

## Conclusion

The court treated electronic pagination as part of the integrated manufacturing process for producing a tangible newspaper, exempting most related equipment as used directly in manufacturing while excluding items that served only administrative or other nonproduction functions.


Concord Publ'g House, Inc. v. Dir. of Revenue, 916 S.W.2d 186 (Mo. 1996)