What does Missouri LR 8193 conclude about Plants Sold at Plant Sales are Subject to Sales Tax?

Plain-English summary

The Missouri Department of Revenue ruled that a charitable organization's spring plant sales are subject to sales tax, even though the organization is a 501(c)(3) devoted to horticultural education. The Applicant's local chapters raise money by selling donated or greenhouse-grown plants at public, farmers'-market-style events, and asked whether those sales were exempt as charitable sales or as farmers' market sales.

Missouri does exempt "[a]ll sales made by or to religious and charitable organizations and institution in their religious, charitable or educational functions and activities" under Section 144.030.2(19), RSMo. But the Department applied the Missouri Supreme Court's rule from St. John's Medical Center, Inc. v. Spradling that sales by a charity are not exempt when they compete with commercial establishments selling the same items and are open to the general public rather than serving a narrower, incidental purpose. Because the Applicant's plant sales are open to the public and compete directly with commercial plant sellers in the area, the charitable exemption did not apply.

The Department also rejected the farmers' market exemption under Section 144.527, RSMo, even though the sales physically resemble a farmers' market (plants brought to a public parking lot for the public to buy). That exemption requires that the products be produced "with the sole intent and purpose of generating a portion of household income." The Applicant's plant sales are instead run to generate funds for the organization's charitable purpose, not household income for individual sellers, so the farmers' market exemption did not fit either.

With neither exemption available, the Department concluded the plant sales fall under the general sales tax imposed by Section 144.020, RSMo on retail sales of tangible personal property.

What this means for you

Nonprofit and charitable organizations

If your organization holds public fundraising sales of goods that are also sold commercially in your area — plants, baked goods, crafts, and the like — do not assume the charitable-sales exemption automatically covers you. The exemption turns on whether the sale serves a narrow group in a truly charitable/educational activity (like a hospital cafeteria serving patients and visitors) versus being open to and competing with the general public and commercial sellers. Sales open to the public that mirror ordinary retail competition are likely taxable, even when all proceeds fund a charitable mission.

Business owners and fundraiser organizers

The farmers' market exemption is narrower than it looks. It is not available just because your event looks like a farmers' market (outdoor, public, produce/plants sold from tables). The exemption specifically requires that products be produced with the sole intent of generating household income for the seller — a test aimed at individual growers/producers, not organizations raising funds for institutional purposes.

Accountants and tax professionals

This ruling is a useful illustration of how the Department applies the St. John's Medical Center "competes with commercial establishments" test to charitable-sales exemption claims under Section 144.030.2(19), RSMo, and how it reads the "sole intent and purpose of generating household income" language in Section 144.527, RSMo strictly against fundraising sales run by organizations rather than individual producers.

Common questions

Q: Does being a registered 501(c)(3) automatically exempt an organization's sales from Missouri sales tax?
A: No. Missouri's charitable-sales exemption depends on the nature of the specific sale, not just the organization's tax-exempt status. If the sale is open to the general public and competes with commercial sellers of the same goods, it is not exempt, regardless of the seller's nonprofit status.

Q: Why doesn't the farmers' market exemption cover a charity's plant sale that looks just like a farmers' market?
A: Because Section 144.527, RSMo requires the products be produced with the sole intent and purpose of generating a portion of household income for the seller. The Applicant's plant sales were intended to fund the organization's charitable purpose, not household income, so the exemption did not apply regardless of the event's physical similarity to a farmers' market.

Q: Can other Missouri nonprofits rely on this ruling for their own fundraising sales?
A: No. This letter ruling is binding on the Department only as to the requesting Applicant, only for three years from its date, and only so long as the facts and law remain the same. Other organizations with similar fundraisers should seek their own ruling or advice rather than relying on this one.

Citations and references

Statutes and rules:

• Section 144.020, RSMo (imposition of sales tax on retail sales)
• Section 144.030.2(19), RSMo (exemption for sales by/to religious and charitable organizations in religious, charitable, or educational functions)
• Section 144.527, RSMo (farmers' market exemption; requires sole intent of generating household income)
• Section 536.021.10, RSMo, and 12 CSR 10-1.020 (letter ruling procedure)

Case law cited in the ruling:

• St. John's Medical Center, Inc. v. Spradling, 510 S.W.2d 417, 418 (Mo. 1974) (charitable sales exempt only where not intended to serve the general public)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8193

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your request received by the General Counsel's Office on April 7, 2022.

The facts as presented in your letter ruling request are summarized as follows:

Applicant is a 501(c)(3) charitable and educational organization whose exclusive purpose is horticultural education to support and to supplement the efforts of a Missouri University and its horticultural program.

Applicant's trained volunteers provide educational programming and additional information on horticultural and environmental stewardship to the residents of Missouri.  These volunteers participate in local "chapters" scattered throughout Missouri.

The majority of Applicant's efforts are "self-funded."  Therefore, fundraising by local chapters is crucial to the chapter's success.  Many chapters raise funds through "spring plant sales."  At these events, chapter members sell plants that are either donated by chapter members or produced in greenhouses maintained by larger chapters.

These plant sales mimic farmers' markets in their structure.  Plants are brought to a convenient, public location such as a parking lot.  At this location, the general public is allowed to attend the sale and make purchases.  Proceeds are managed either directly or indirectly by the chapter's council.

ISSUE:

Are Applicant's sales of plants at spring plant sales subject to sales tax?

RESPONSE:

Yes. Applicant's sales of plants at spring plant sales are subject to sales tax.

Section 144.020, RSMo, imposes a sales tax "upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state."

Section 144.030.2(19), RSMo, provides an exemption from sales tax for "[a]ll sales made by or to religious and charitable organizations and institution in their religious, charitable or educational functions and activities."

However, sales by religious and charitable organizations which compete with commercial establishments selling the same items are not exempt from sales tax.  St. John's Medical Center, Inc. v. Spradling, 510 S.W.2d 417, 418 (Mo. 1974). While the sales made by hospital cafeterias and gifts shops in St. John's Medical Center were found to be tax-exempt, the Court found that the cafeterias and gift shops in that case were "operated primarily for the convenience of hospital patients and their visitors."  Id.   "There [was] no intention to serve the general public." Id .

In contrast, Applicant's plant sales are open to the public and compete directly with commercial plant sellers surrounding the local chapter's area of operation. Unlike the cafeterias and gift shops in St. John's Medical Center , Applicant intends to serve the general public.  Therefore, Applicant's plant sales are subject to sales tax.

Despite the similarities between Applicant's plant sales and tax-exempt farmers' markets operated throughout the state, the farmers' market exemption of section 144.527, RSMo, is inapplicable to Applicant's plant sales.  Among other restrictions, the exemption of section 144.527, RSMo, applies only to events wherein "the products sold are produced . . . with the sole intent and purpose of generating a portion of household income."  Applicant's plant sales are not made with the sole intent and purpose of generating a portion of household income.  Instead, Applicant's plant sales are made with the sole intent and purpose of generating funds to further Applicant's charitable purpose.  Therefore, the farmer's market exemption of section 144.527, RSMo, is inapplicable to Applicant's plant sales.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.  If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.  For this reason, the interpretation set forth above should be reviewed on a regular basis.  Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Associate Counsel Stephen S. Krogmeier, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, (573)-751-0961.

Sincerely,

Wayne Wallingford