Sales and Use Tax Representation
Sales tax is imposed by states for the “privilege of selling tangible personal property” (i.e., NOT real estate) and certain taxable services “at retail” (i.e., to the ultimate consumer and not “for resale”). (see [R.S.Mo § 144.020] A handful of states do not have a sales tax and currently there is no national sales tax.
Burden on buyer
While the duty to collect and pay over sales tax is imposed on the seller, the burden of the tax itself is on the buyer. In Missouri, Sellers break the law if they absorb the tax (they can sell at a price “including tax”).
Seller liable to collection
The merchant is required to collect and pay sales tax over to the state, and remains liable for the tax even if they fail to collect it. It is often difficult for the merchant to collect previously uncollected sales tax from the merchant’s customers. There may be many smaller sales; the merchant may not know how to contact the customers; or there may be a continuing relationship with the customer that the merchant does not want to jeopardize.
Sales include installment or credit sales (tax is due on sale not receipt of payment) [§ 144.010.1(9)]. Gross receipts do not include financing charges [§ 144.010.3].
Rentals and leases
Sales tax is also due on:
- rentals or leases if tax would have applied to a sale of the property [§ 144.010.3], except if the lessor purchased the property at “retail” and paid sale tax on the purchase, there is no tax on rentals [§ 144.020.8 (except motor vehicles, see § 144.070, and motor vehicle leasing companies, § 144.070.5)].
- charges and fees to or in places of amusement, entertainment and recreation, games and athletic events [§ 144.010.1(10)(a)]
- rooms in hotels and meals in restaurants [§ 144.010.1(10)(e)]
Sales and use tax laws are complex and often do not apply in the way it seems they would. Application often depends on specific facts and even slightly different facts can yield different results in seemingly similar cases even within the same state.
Sales taxes apply differently in different states
Because sales and use taxes are imposed by individual state laws and are interpreted and enforced by the individual state’s administrative agencies and courts, there can be significant differences in the provisions and implementation in different states. Businesses must use particular caution when crossing state lines as the statutes and rules differ, e.g., installation of telephone wiring is a taxable service in Arkansas but not in Missouri.
Heightened state concerns with revenue loss, including with the rise of internet commerce, results in continued state efforts to tax transactions partly within the state and to require out-of-state merchants to collect the states sales and or use tax.
Contacts of “nexus”
States can require a merchant to collect the state’s taxes if the merchant has significant connections with the state (“nexus“).
Moratorium on internet taxation
The moratorium preventing states from imposing new taxes on the internet do not impact the application of sales and use taxes to sales over the internet. Sellers who otherwise have an obligation to collect sales or use tax must also collect for internet sales, and consumers still owe use tax on items purchased over the internet.
Use tax is “complementary” to sales tax and levies a tax on the consumer or end-user for the privilege of “storage, use or consumption” within the taxing state. Use tax prevents loss of state revenue when state residents purchase goods out of state, e.g., by mail order or over the internet.
Purchasers receive a credit against use tax for any sales of use tax already properly paid so double taxation (i.e., both sales and use tax being paid) is generally avoided.
Moratorium on internet taxation
The current moratorium on internet taxation does not prevent application of use tax and the obligation of a consumer to pay use tax, even if the goods are purchased over the internet. As with sales tax, the state can require the seller to collect its use taxes if a seller has sufficient “nexus” (contacts) with the state. The threshold of required contacts is lower for a state to require a seller to collect use tax. Thus, a state can require a seller to collect use tax even where the seller does not have sufficient contacts for the state to require the seller to collect its sales taxes.
There can be other similar taxes which can have slightly different application and exemptions. E.g., Missouri has a “Highway Use Tax” for the privilege of using a vehicle on Missouri roads. An example of different application is that while distribution of tangible person property otherwise subject to sale tax by a corporation to its shareholders based on their stock ownership (i.e., on corporate liquidation) are exempt from sales or (“regular”) use tax, highway use tax normally applies to impose a tax on the recipient on the distribution of a vehicle by a corporation.
Sales and use tax exemptions and exclusions
There are many “exemptions” (specified by statute) and “exclusions” (not within the defined taxable classes) from sales and use tax.
Merchants are not taxable on their purchase of goods as a “sale for resale” to a merchant’s customers (“wholesale”).
Goods “exported” (delivered out of state) by the merchant or common carrier are not subject to sales tax. If the out of state purchaser picks up goods from a merchant’s in-state location and transports them out of state themselves or arranges for delivery by “contract” carrier (arranged and paid for by the purchaser and considered the purchaser’s agent), the purchaser pays sales tax to the merchant’s state because the sale was completed in the state.
The merchant may be liable for collecting another state’s sales or use taxes for the purchaser’s state because the sale was completed in the other state by the merchant delivering the goods there (e.g., delivery by the merchant’s own truck or other facts establishing nexus, i.e., the merchant has sufficient contacts with the purchaser state).
- property returned by customers for a full refund or credit [§ 144.010.1(3)].
- “Livestock” raised in confinement for human consumption (cattle, calves, sheep, swine, ratite birds,e.g., ostrich and emu, aquatic products defined in section 277.024, R.S.Mo , legal domestic elk, goats, horses, other equine, or rabbits) [§ 144.010.1(4), definition, & § 144.030]
- The isolated or occasional sale of tangible personal property, service, substance, or thing, by a person not engaged in such business, unless there are multiple sales exceeding $3,000 in a single calendar year [§ 144.010.1(2)].
- property sold in the course of the partial or complete liquidation of a household, farm or non business enterprise [§ 144.010.1(2)]
- trade-in allowance is excluded in computing sales tax: 1) if sales or use tax was paid on the traded article or it was exempted or excluded; and 2) a bill of sale or other record shows the trade-in allowance [§ 144.025.1]
- trade-in treatment applies to a motor vehicle, boat or trailer sold (rather than traded directly) if the seller purchases or contracts for purchase of a subsequent motor vehicle or boat within 180 days [§ 144.025.1]
- motor vehicle rebates are not included in the purchase price to determine tax due [§ 144.025.1]
- computer printouts, output and computer-assisted photo compositions, or microfilm or microfiche enabling the purchaser to obtain the desired information contained for his or her own use are a non-taxable service [§ 144.010.1(10)]
- those products and types of food for which food stamps may be redeemed pursuant to the provisions of the Federal Food Stamp Program as contained in 7 U.S.C. § 2012 are taxed at 1% [§ 144.014 ]
- manufacturing equipment and replacement parts used to manufacture goods and services to be ultimately sold at retail
- sales to the government (federal or state) or charities
- property used for 90 days outside the state before use in Missouri (persons moving to the state)
- R.S.Mo § 144.011 – “Sale at retail” does not include certain transfers of tangible personal property [Transferee’s assumption of transferor’s liabilities incident to transactions in paragraphs 1 to 6 below do not disqualify the transfer if related to the property transferred and the assumption does not have as its principal purpose the avoidance of Missouri sales or use tax. § 144.011.2]
- From one corporation to another corporation by merger;
- Incident to the liquidation or cessation of a taxpayer’s trade or business, and NOT made in the ordinary course of the taxpayer’s trade or business;
- To a corporation solely in exchange for its stock or securities or as a contribution to capital;
- To a partnership solely in exchange for a partnership interest or as a contribution to the capital;
- By a corporation to its shareholders as a dividend, return of capital, liquidating distribution or in redemption of the shareholder’s interest;
- By a partnership to its partners as a current distribution, return of capital or liquidating distribution of the partnership or of the partner’s interest;
- Reusable containers for which a deposit is required and refunded on the containers return;
- Restaurant purchases of non reusable items furnished with retail sales of food or beverage, e.g., wrapping or packaging materials, containers, trays, napkins, dishes, silverware, cups, bags, boxes, straws, sticks and toothpicks;
- Hotel purchases of non reusable items furnished to guests and included in the room charge made, e.g., soap, shampoo, tissue and other toiletrie items offered to the guests without charge;
- Transfer of a manufactured home OTHER than:
- the initial retail sale (delivery of “manufacturer’s statement of origin” or “MSO”);
- delivery of “Repossessed Title” to a state resident IF tax was NOT paid on the initial transfer;
- The first transfer after December 31, 1985, IF tax was NOT paid on any transfer before December 31, 1985; or
- Charges for initiation fees or dues to:
- Fraternal societies, orders or associations operating under the lodge system where a substantial part of the activities are devoted to religious, charitable, scientific, literary, educational or fraternal purposes; or
- Organizations of past or present United States armed forces members or an auxiliary unit or society of, or a trust or foundation for such organization, and substantially all of the members are past or present United States armed forces members or cadets, spouses, widows, or widowers, and no part of the net earnings inure to the benefit of any private shareholder or individual.
Note that the “highway use tax” on use of vehicles on Missouri roads under § 144.440 may apply to vehicles transferred e.g., from a corporation to a shareholder on corporate dissolution in spite of the exemption under § 144.011.
- R.S.Mo § 144.027 – Replacement of a stolen or destroyed (casualty loss) motor vehicle, trailer, boat or outboard motor:
- purchased or contracted to be purchased within 180 days of payment by the insurance company,or date of loss if no insurance;
- up to the amount of insurance proceeds plus deductible; or
- fair market value if not insured determined by the Kelly Blue Book, NADA Used Car Guide, Abos Blue Book or the average of 2 appraisals from licensed motor vehicle or boat dealers
- IF all sales or use tax was been paid on the lost unit
- R.S.Mo § 144.030 – Various (in part)
- Materials, manufactured goods, machinery and parts used in manufacturing becoming a component part or ingredient of the new personal property resulting from such manufacturing
- Materials, replacement parts and equipment purchased for use directly on, and for the repair and maintenance or manufacture of, motor vehicles, watercraft, railroad rolling stock or aircraft engaged as common carriers of persons or property
- Replacement machinery, equipment, and parts and the materials and supplies solely required for the installation or construction used directly in manufacturing, mining
- Machinery and equipment, and parts and the materials and supplies solely required for the installation or construction of such machinery and equipment, purchased and used to establish new or to expand existing manufacturing or mining or fabricating plants in the state if such machinery and equipment is used directly in manufacturing or mining
- Animals or poultry used for breeding or feeding purposes
- Electrical energy used in the actual primary manufacture or mining
- Machinery, equipment, appliances and devices purchased or leased and used solely for the purpose of preventing, abating or monitoring air or water pollution
- insulin and prosthetic or orthopedic devices … including hearing aids and hearing aid supplies and all sales of drugs … medical oxygen, home respiratory equipment and accessories, hospital beds and accessories and ambulatory aids, … manual and powered wheelchairs, stairway lifts, Braille writers, electronic Braille equipment and, if purchased by or on behalf of a person with one or more physical or mental disabilities to enable them to function more independently, … scooters, reading machines, electronic print enlargers and magnifiers, electronic alternative and augmentative communication devices, and items used solely to modify motor vehicles to permit the use of such motor vehicles by individuals with disabilities or sales of over-the-counter or nonprescription drugs to individuals with disabilities
- aircraft to common carriers for storage or for use in interstate commerce
- sales made by or to not-for-profit civic, social, service or fraternal organizations, including fraternal organizations which have been declared tax-exempt organizations pursuant to Section 501(c)(8) or (10) … in their civic or charitable functions and activities and all sales made to eleemosynary and penal institutions and industries of the state, and all sales made to any private not-for-profit institution of higher education not otherwise excluded
- sales made to any private not-for-profit elementary or secondary school
- sales of feed additives, medications or vaccines administered to livestock or poultry in the production of food or fiber
- sales of pesticides used in the production of crops, livestock or poultry for food or fiber
- sales of bedding used in the production of livestock or poultry for food or fiber
- sales of propane or natural gas, electricity or diesel fuel used exclusively for drying agricultural crops
- natural gas used in the primary manufacture or processing of fuel ethanol
- sales of handicraft items made by the seller or the seller’s spouse if the seller or the seller’s spouse is at least 65 years of age, and if the total gross proceeds from such sales do not constitute a majority of the annual gross income of the seller
- livestock sales when either the seller is engaged in the growing, producing or feeding of such livestock, or the seller is engaged in the business of buying and selling, bartering or leasing of such livestock
- grain bins for storage of grain for resale
- feed which are developed for and used in the feeding of pets owned by a commercial breeder when sold to a commercial breeder
- purchases by a contractor on behalf of an entity located in another state exempt from sales and use taxes on purchases pursuant to the laws of the state
- R.S.Mo § 144.034 – Advertising sales by:
- legal newspapers pursuant to R.S.Mo Chapter 493;
- advertising agencies;
- broadcast stations; and
- standardized outdoor billboard advertising,
are a service and not the sale of tangible personal property. Tangible personal property purchased by the advertiser for use in producing advertising are for use or consumption and not for resale (i.e., subject to sales tax).
- R.S.Mo § 144.070.5 – Persons, companies, or corporations in the business of renting or leasing motor vehicles, trailers, boats, or outboard motors (used exclusively for rental or lease purposes, and not held for resale) may IF approved to operate as a leasing company:
- pay the tax due at registration (and not chare on rentals); or
- in lieu thereof may pay a sales tax on the rental charged.
Facts can affect application of sales tax in particular cases
Facts in a given situation and interpretation of the sales tax laws can be confusing to taxpayers, and can result in different tax treatment in seemingly similar circumstances.
Some “services” that initially appear not to be taxable may be taxable. E.g., a series of cases has held that separate “sitting” fees charged by photographers are taxable because those services are integral to sale of the photographs that the consumer seeks to purchase.
Delivery fees may or may not be taxable depending on whether they are an integral part of the sale of taxable goods, and if not integral are separately stated. For example, delivery is integral to the purchase of mixed concrete.
Certain professionals, e.g., dentists, are by definition the “users” of items “consumed” in their practice, such as crowns and other dental appliances, so the dentist pays sales or use tax on the purchase and does not charge sales tax to their patient. [§ 144.010.1(10)]
Contractors are typically consumers of taxable goods they use to build a building or which they “permanently affix” to a building. Contractors are required to pay sales tax, and do not charge the building owner for sales tax. The items cease to be “tangible personal property” on which sales tax is charged and become part of the real property. If a cabinet shop delivers cabinets and “screws the cabinets to the wall”, the shop acts as a contractor. The shop is converting the cabinets from personal to real property and pays sales tax on its purchase of the components (wood, hardware, etc.) used to make the cabinets and does not charge the purchaser sales tax. If the customer instead picks up the same cabinet at the shop, rather than the shop installing it at the customer’s house, it is a sale of “tangible personal property”. The shop is to charge the customer sales tax, and the shop should purchase the component parts used to build the cabinet exempt from tax.
Businesses may be “dual users”, being both users and sellers of the same goods. Missouri regulations 12 CSR 10-112.010 contain an example of a taxpayer who purchases materials and supplies for both consumption as a contractor and resale as a retailer. When a dual operator purchases materials that are specifically identified for use in a contracting job, it should pay tax on the purchase of the materials. Dual operators should present a resale exemption certificate when purchasing materials for inventory that may be used either for resale or contract jobs. When materials are removed from inventory for use in a contracting job, the dual operator should pay sales tax if purchased in-state, or use tax if purchased out-of-state based on the original purchase price of the material.
If a business having inventory, part of which the business will use (rather than sell) partly within the state and partly in other states (see “export”), it must segregate the inventory for its in-state use from the inventory destined for out-of-state use, or the business will pay sales or use tax on all of the inventory. This was the result in US Sprint Communications Co. v. Director of Revenue, No. 90-001285RS (AHC August 20, 1991).
As example of different state law and interpretations in similar circumstances, in McNamara v. D.H. Holmes Co., Ltd., 505 So.2d 102 (La.App. 4 Cir.,1987), the Louisiana Appeals Court found that Holmes was liable for use tax on catalogs it had printed out of state and mailed to Louisiana residents. Despite similar circumstances in The May Department Stores Company d.b.a. Famous-Barr Co. v. Director of Revenue, 748 SW2d 174 (Mo. 1988), the Missouri Supreme Court reversed the Administrative Hearing Commission and held that use tax did not apply because the taxpayer did not exercise the privilege of storing, using, or consuming the catalogs in Missouri. The catalogs were never in taxpayer’s possession after printing was completed; they went from the printer to the post office to the addressees; nor did the catalogs come to rest in Missouri or become commingled with the general mass of property in Missouri until they were delivered to the various addresses.
Personal liability for unpaid sales tax – R.S.Mo 144.157
R.S.Mo § 144.157.1 provides that any person responsible to collect and pay over sales or use tax who willfully fails to do so is personally liable for payment of the tax. [Cf. Internal Revenue Code § 6672 making “responsible persons” personally liable for employment taxes, sometimes referred to as the “trust fund recovery penalty” or “responsible person penalty”, and R.S.Mo § 143.241 providing responsible persons are personally liable for unpaid employment taxes].
Thus, e.g., while corporations are separate entities from associated individuals (shareholders, officers, directors and employees) and the associated individuals are not liable for the corporation’s obligations (i.e., to pay tax), §