Does an out-of-state business that sells and installs window coverings in Missouri have to charge its customers sales tax, and does it owe use tax on the materials it installs?

Subject

Taxability of Window Coverings

Plain-English summary

The Missouri Department of Revenue ruled that an out-of-state business that both sells and installs window coverings (blinds, shades, and shutters) for Missouri customers should NOT charge those customers sales tax -- but the business itself DOES owe Missouri consumer's use tax on the cost of the parts and materials it uses to complete each job.

Applicant is based in Arkansas, does not own, lease, or maintain any real property in Missouri, and travels into the state to fill orders. Critically, Applicant never sells window coverings without also installing them, and never performs an installation without a sale -- the sale and the installation are always one combined transaction.

Because the window coverings become annexed to the customer's real property once installed (citing Buchholz Mortuaries, Inc. v. Director of Revenue), Applicant is not selling tangible personal property to its customers, nor is it rendering a taxable service. Under Section 144.020.1, RSMo, Missouri's sales tax applies to sellers of tangible personal property or taxable services at retail -- and since Applicant does neither, no sales tax should be charged to its Missouri customers.

However, that doesn't mean the transaction is entirely tax-free. Under 12 CSR 10-112.010, a contractor is treated as the final user and consumer of the materials and supplies it uses and consumes to complete a real property improvement. Because Applicant is functioning like a contractor here, Section 144.610.1, RSMo, requires it to pay Missouri's consumer's use tax on its own cost of the parts and materials it uses on Missouri jobs, accrued at the tax rate imposed at the job site.

What this means for you

Out-of-state window covering installers doing business in Missouri

If you sell and install window coverings (or similar items that become part of a customer's real property, such as blinds, shades, or shutters) for Missouri customers, and every sale you make includes installation, this ruling indicates you should not collect sales tax from your Missouri customers on those jobs. Instead, you are responsible for accruing and paying Missouri consumer's use tax yourself on what you paid for the parts and materials, at the rate that applies at each job site. This is true even if you have no physical location, property, or lease in Missouri -- what matters is that you are installing the materials so they become part of real property there.

Contractors and installers generally

This ruling reinforces a broader Missouri principle: when tangible personal property is installed in a way that makes it part of real property, the installer is treated like a contractor -- the final consumer of the materials -- rather than a retail seller of goods to the end customer. That shifts the tax obligation from a sales-tax collection duty (charging the customer) to a use-tax payment duty (paying based on your own cost), and it depends heavily on installation being bundled with every sale, as it was here.

Accountants and tax professionals

When advising a client whose business bundles sale and installation of items that get annexed to real property, check whether any sales occur independent of installation (or vice versa) -- Applicant's facts here specifically included that there was never a sale without installation or an installation without a sale. If that pattern doesn't hold for your client, the analysis under Section 144.020.1, RSMo, and 12 CSR 10-112.010 could come out differently. Also confirm use tax is being accrued at the correct job-site rate under Section 144.610.1, RSMo, rather than at a single statewide or origin rate.

Common questions

Q: Should Applicant charge Missouri customers sales tax on window coverings it sells and installs?
A: No. Because the window coverings become part of the customer's real property once installed, Applicant is not selling tangible personal property or rendering a taxable service to the customer, so no sales tax should be charged under Section 144.020.1, RSMo.

Q: Does that mean the transaction is tax-free for Applicant?
A: No. Applicant still owes Missouri consumer's use tax on its own cost of the parts and materials used in Missouri jobs, under Section 144.610.1, RSMo, and 12 CSR 10-112.010, because it is treated as the final user/consumer of those materials, similar to a contractor.

Q: What use tax rate applies, and where is it accrued?
A: The ruling states the use tax should be accrued at the rate imposed at the job site -- i.e., the rate applicable where the installation actually takes place in Missouri.

Q: Does it matter that Applicant is based out of state and doesn't own property in Missouri?
A: No. Applicant does not own, lease, or maintain real property in Missouri and travels from Arkansas to perform the work, but the ruling's conclusions turn on the nature of the transaction (bundled sale-and-install of items that become part of real property), not on where Applicant is headquartered.

Q: Can another window-covering business rely on this ruling for its own sales?
A: Not automatically. This is a Missouri letter ruling, binding on the Department only with respect to the requesting Applicant, only for three years from its date, and only so long as the facts and underlying law remain unchanged. A different business should confirm its own facts match -- especially whether every sale includes installation -- and consult a tax professional before relying on this result.

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8224

Original ruling text

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 communication of November 1, 2022.

The facts as presented in your letter ruling request, along with research into your operations, are summarized as follows:

Applicant is an out-of-state business that sells and installs window coverings (such as blinds, shades, and shutters).  All blinds that will be sold in Missouri will also be installed by the Applicant, as there will be no sales without installation or installations without a sale.  The Applicant will not own, lease, or maintain real property in Missouri, but will travel from Arkansas to fill orders and perform installations.

ISSUE 1 :

Should Applicant be charging sales tax to Missouri customers?

RESPONSE 1 :

No.  Applicant should not be charging sales tax to its Missouri customers.

Section 144.020.1, RSMo provides "[a] tax is hereby levied and imposed...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."  Tangible personal property used by Applicant in the provisions of its services to customers are annexed to real property and become part of that real property.   See Buchholz Mortuaries, Inc. v. Director of  Revenue 113 S.W.3d 192, 193 (Mo. banc 2003).  Applicant neither sells personal property to its customers nor renders a taxable service.  Therefore, Applicant should not be charging sales tax to Missouri customers.

ISSUE 2 :

Should Applicant be paying Missouri consumer's use tax on its cost of parts and materials used in jobs in the state of Missouri?

RESPONSE 2 :

Yes.  Applicant should be paying consumer's use tax on its cost of parts and materials used in jobs in the state of Missouri.  "A contractor is the final user and consumer of the materials and supplies used and consumed in fulfilling a construction contract and which become part of a completed real property improvement."  12 CSR 10-112.010.  In relevant part, under section 144.610.1, RSMo, "[a use] tax is imposed for the privilege of storing, using or consuming within this state any article of tangible personal property."  Therefore, Applicant is required to pay use tax on its cost of parts and materials used in jobs in the state of Missouri.  The tax should be accrued at the rate imposed at the job site.

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 Legal Counsel Nathan Jefferson, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford

WW:MAS:CRF:NJ:km

LR 8224