An out-of-state government agency presented its own state's tax exemption at our Missouri location and says it shouldn't owe Missouri sales tax -- is that right?

Subject

Taxability of Purchases by Government Employees from outside Missouri

Plain-English summary

The Missouri Department of Revenue ruled that a Missouri business with branches near state borders must collect and remit Missouri sales tax from out-of-state government agencies, even when those agencies present a valid tax exemption from their own state.

Applicant operates branches in Missouri that border other states. Because of this location, government employees from outside Missouri regularly bring equipment or make purchases at Applicant's Missouri locations and present their out-of-state government tax exemptions as a basis for not paying Missouri sales tax. In one example, a Kansas Highway Department crew brought equipment to a Missouri branch for repair, presented a valid Kansas governmental exemption, and asserted it should not owe sales tax -- also claiming that other Missouri businesses do not charge it tax either.

The Department disagreed with that assertion. Section 144.020.1, RSMo, taxes sellers on the privilege of selling tangible personal property or rendering taxable services at retail in Missouri. Under 12 CSR 10-103.600(1), a sale of tangible personal property is taxable unless a specific statute exempts it, and 12 CSR 10-110.955(3)(b) specifically states that sales to other states and their political subdivisions are not exempt from Missouri tax. Missouri has no sales tax law that exempts a sale simply because the purchaser holds a tax exemption issued by a different state (citing Tulley Equipment Company v. Director of Revenue, 1987 WL 51164, at *4). So an out-of-state government agency's own exemption, standing alone, is not a basis for exemption in Missouri -- and Applicant must collect and remit Missouri sales tax on these sales unless some other, independent basis for exemption applies.

What this means for you

Businesses in Missouri border towns

If your business sits near a state line and out-of-state government agencies or their employees come to you for parts, repairs, or other purchases, don't accept their home state's tax exemption as a reason to skip charging Missouri sales tax. An out-of-state government exemption, by itself, does not carry over to Missouri -- you're still required to collect and remit tax on the sale, regardless of what the customer says other Missouri businesses do.

Repair and service shops handling out-of-state government customers

Customers like an out-of-state highway department, sheriff's office, or other government crew may genuinely believe their governmental status exempts them everywhere, since it may work that way in their home state or under reciprocity agreements between other states. Missouri doesn't recognize that automatically: unless there is some other, independent Missouri-recognized exemption for the specific transaction, the sale is taxable, and you remain responsible for collecting the tax at the point of sale.

Accountants and tax professionals

The Department's reasoning rests on the general rule that all sales of tangible personal property are taxable absent a specific exempting statute, plus the express regulatory statement that sales to other states and their political subdivisions are not exempt. When a client's customer asserts a foreign government tax-exempt status, check whether an independent Missouri exemption applies to the transaction itself -- the foreign exemption alone will not support tax-free treatment.

Common questions

Q: We sold parts and repair services to an out-of-state highway department crew that showed us its home-state tax exemption. Do we still have to charge Missouri sales tax?
A: Yes. An out-of-state government agency's own state tax exemption does not exempt its purchases from Missouri sales tax. Under Section 144.020.1, RSMo, and 12 CSR 10-103.600(1), the sale remains taxable unless there is some other, independent basis for exemption recognized under Missouri law.

Q: The customer said other Missouri businesses don't charge them sales tax. Does that change the answer?
A: No. Whether or not other sellers are incorrectly failing to collect tax has no bearing on Applicant's own obligation. The ruling addresses only Applicant's duty to collect and remit tax, which exists regardless of other businesses' practices.

Q: Is there any situation where a sale to an out-of-state government agency would be exempt in Missouri?
A: Possibly, but only if there is some other, independent basis for exemption under Missouri law -- not merely the fact that the purchaser holds a tax exemption from another state. This ruling does not identify what that other basis might be; it only confirms that the foreign exemption alone is insufficient.

Q: Can another Missouri business near a state border rely on this ruling for its own sales to out-of-state government customers?
A: Not automatically. A Missouri letter ruling binds the Department only as to the requesting Applicant, only for three years from its date, and only so long as the facts and the underlying law don't change. A similarly situated business should confirm its facts match and consult a tax professional before relying on this result.

Citations and references

Statutes and cases:

• Section 144.020.1, RSMo (imposes sales tax on sellers for the privilege of selling tangible personal property or taxable services at retail in Missouri)
• 12 CSR 10-103.600(1) (sale of tangible personal property is taxable unless a specific statute exempts it)
• 12 CSR 10-110.955(3)(b) (sales to other states and their political subdivisions are not exempt from tax)
• Tulley Equipment Company, Petitioner, v. Director of Revenue State of Missouri, Respondent, 1987 WL 51164, at *4

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8268

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 letter dated July 27, 2023.

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

Applicant is a company with branches located in Missouri that border other states. Because of this, government employees from outside of Missouri will purchase parts and repair services at the Missouri locations. The government employees provide their out-of-state tax exemptions for purchases and repairs at the Missouri locations as a basis for tax exemption.

A specific example was provided as follows:

A Hwy Dept. brought their equipment to our Missouri branch for repair. They have a valid KS governmental exemption. Customer believes they should not have to pay sales tax and claims they do not pay sales tax on other purchases or repairs completed at other Missouri companies.

ISSUE :

Is Applicant required to collect and remit sales tax from government agencies with out of state tax exemptions?

RESPONSE :

Yes. Applicant is required to collect and remit sales tax from government agencies with out of state tax exemptions.

Section 144.020.1, RSMo, imposes a 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."

Missouri Code of State Regulations 12 CSR 10-103.600(1) provides, "in general, the sale of tangible personal property is subject to tax unless a specific statute exempts it." While 12 CSR 10-110.955(3)(b) explains that "sales to other states and their political subdivisions are not exempt from tax."

Sales to government agencies of other states will not be exempt unless there is another basis for the exemption. This includes government agencies with out of state tax exemptions; there is no Missouri sales tax law that exempts sales on the basis of exemption in another state. See Tulley Equipment Company, Petitioner, v. Director of Revenue State of Missouri, Respondent. , 1987 WL 51164, at *4.

Therefore, sales to government agencies with out of state tax exemptions will not be exempt from Missouri tax unless there is another basis for the exemption.

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

Sincerely,

Wayne Wallingford