Does a contractor operating a federal DOE/NNSA facility, and managing a related Missouri construction project, owe Missouri sales/use tax on the tangible personal property and utilities it purchases on the government's behalf?

Plain-English summary

The Missouri Department of Revenue ruled that a contractor operating a federal facility for the U.S. Department of Energy (DOE) and its National Nuclear Security Administration (NNSA) in Kansas City, Missouri does not owe Missouri sales or use tax on purchases it makes on the government's behalf -- whether tangible personal property, utilities, or materials for a related Missouri construction project.

The contractor holds a "cost plus award fee" contract: it receives an annual fee plus reimbursement of the costs of operating the plant, and the DOE reimburses those costs. Critically, title to any tangible personal property the contractor buys passes directly from the vendor to the DOE upon delivery -- the contractor never takes ownership. The government is also the direct purchaser of utilities for its government-owned and government-leased facilities.

Section 144.030.1, RSMo, exempts from sales tax any retail sale that Missouri is constitutionally or federally prohibited from taxing. The Department relied on Olin Corp. v. Dir. of Revenue, 945 S.W.2d 442 (Mo. banc 1997), where an operator of a federal ammunition plant purchased equipment under a contract where title passed directly from vendor to the federal government upon delivery; the Missouri Supreme Court held the operator never obtained title or an ownership interest, so no taxable transaction occurred. Because the same direct-title-passage arrangement applies here, the contractor's purchases of tangible personal property for the DOE/NNSA facility are not taxable.

Utilities are treated the same way. Section 144.605.11, RSMo, defines "tangible personal property" by reference to Section 144.020.1(1) and (3), and Section 144.020.1(3), RSMo, taxes utility sales (electricity, water, gas) to domestic, commercial, or industrial consumers at 4% of the basic rate. Because utilities purchased on DOE/NNSA's behalf qualify as tangible personal property under that definition, the same government-purchaser exemption applies.

Finally, the contractor is also managing a multi-year Missouri construction project and issues Form 5060 to its subcontractors. Because of the volume of subcontractors, NNSA provided one signed Form 5060 covering the whole contract period rather than a separate form for each subcontractor. The Department confirmed this doesn't change the outcome: the contractor's and subcontractors' purchases for the construction project remain exempt for the same reason -- title passes to the government -- and both the contractor and its subcontractors should still submit Form 149.

What this means for you

Government contractors

If you purchase tangible personal property or utilities on behalf of a federal agency, and title passes directly from the vendor to the government upon delivery (rather than to you), those purchases are not subject to Missouri sales or use tax. Use Form 149, check "Other" under "Other Sales/Use Tax Exemptions," and write in "Purchase for U.S. Government." This applies even if you're reimbursed for the costs and paid a separate management fee -- what matters is who holds title, not who initiates or pays for the purchase.

Contractors managing multi-year construction projects for the government

A single Form 5060 signed by the federal agency and covering the entire project period -- rather than a separate form per subcontractor -- does not defeat the exemption. Both the prime contractor and its subcontractors should still submit Form 149 for their purchases on the project.

Accountants and tax professionals

The controlling fact is where title to the property lands, not merely who is contractually responsible for procurement or who fronts the cost. Confirm your client's contract terms establish that title passes directly from vendor to the government upon delivery before advising that this exemption applies.

Common questions

Q: Why isn't the contractor's purchase taxable if the contractor is the one buying the property?
A: Because title never passes to the contractor -- it passes directly from the vendor to the DOE upon delivery. Missouri's sales/use tax exemption under Section 144.030.1, RSMo, and the Olin Corp. precedent both turn on whether the purchaser ever obtains title or an ownership interest; here, the contractor does not, so no taxable transaction to the contractor occurs.

Q: Does the exemption cover utilities as well as equipment and materials?
A: Yes. Utilities purchased on the government's behalf qualify as "tangible personal property" under Section 144.605.11, RSMo (which incorporates Section 144.020.1(3), RSMo's utility tax provision), so the same government-purchaser exemption applies to them.

Q: Does having only one Form 5060 for the whole construction project (instead of one per subcontractor) create a tax problem?
A: No. The Department confirmed that the contractor's and subcontractors' purchases for the construction project remain exempt regardless, based on the same title-passage reasoning, and both should still submit Form 149.

Q: Can another government contractor rely on this ruling directly?
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 while the facts and law remain unchanged. Another contractor should confirm its own contract has the same direct-title-to-government arrangement and consult a tax professional before relying on it.

Citations and references

Statutes and cases:

• Section 144.030.1, RSMo (exempts retail sales the state is constitutionally/federally prohibited from taxing)
• Section 144.605.11, RSMo (defines "tangible personal property" by reference to Section 144.020.1(1)/(3))
• Section 144.020.1(3), RSMo (taxes utility sales to domestic, commercial, or industrial consumers at 4% of the basic rate)
• Olin Corp. v. Dir. of Revenue, 945 S.W.2d 442 (Mo. banc 1997)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8293

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 February 12, 2024.

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

Applicant holds a contract with the United States Department of Energy (DOE) National Nuclear Security Administration (NNSA) to manage and operate a federal facility in Kansas City, Missouri. The contract is a 'cost plus award fee' contract where Applicant receives an annual fee in addition to reimbursement for the costs of operating the plant, and any costs are reimbursed by the DOE. Title to tangible personal property passes directly from the vendor to the DOE upon delivery. And the government is the purchaser of utilities for the government-owned and government-leased facilities in Missouri.

Additionally, Applicant is managing a multi-year construction project in Missouri. The Applicant issues Form 5060 to the applicable subcontractors. Due to the number of subcontractors engaged on the construction project, NNSA does not sign a unique Form 5060 for each subcontractor. Rather, NNSA has provided a signed Form 5060 with a period on the form through the end of Applicants' federal contract.

ISSUE 1:

Are Applicant's purchases of tangible personal property made on behalf of DOE and NNSA subject to Missouri sales and use tax?

RESPONSE 1:

No. Applicant's purchases of tangible personal property made on behalf of the NNSA and DOE are not subject to Missouri sales and use tax.

Section 144.030.1, RSMo, exempts from sales tax, in relevant part, "...any retail sale which the state of Missouri is prohibited from taxing pursuant to the Constitution or laws of the United States of America[.]"

In Olin Corp. v. Dir. of Revenue , 945 S.W.2d 442, 443 (Mo. banc 1997), Olin operated and maintained an ammunition plant for the federal government. Olin would purchase the necessary equipment and materials needed to operate and maintain the plant. Id. By contract, title would pass from the vendor directly to the government upon delivery. Id. The Missouri Supreme Court held that since Olin did not obtain title to, nor an ownership interest in, the property, no taxable transaction occurred, so Olin was not liable for the additional taxes assessed and entitled to a refund of taxes. Id. at 444.

Here, Applicant purchases the necessary equipment and materials needed to operate the federal facility in Kansas City. Title transfers to the DOE upon delivery. Therefore, Applicant's purchases of tangible personal property made on behalf of the NNSA and DOE are not subject to Missouri sales and use tax. Applicant should complete Form 149 to present to its suppliers when purchasing equipment and materials for its contract. On Form 149 under 'Other Sales/Use Tax Exemptions," check the box for "Other" and enter "Purchase for U.S. Government."

ISSUE 2:

Are Applicant's purchases of utilities made on behalf of DOE and NNSA subject to Missouri sales and use tax?

RESPONSE 2:

No. Applicant's purchases of utilities made on behalf of the NNSA and DOE are not subject to Missouri sales and use tax.

Section 144.605.11, RSMo, defines "tangible personal property" as:

[A]ll items subject to the Missouri sales tax as provided in subdivisions (1) and (3) of subsection 1 of section 144.020;

Section 144.020.1(3), RSMo, provides:

A tax equivalent to four percent of the basic rate paid or charged on all sales of electricity or electrical current, water and gas, natural or artificial, to domestic, commercial or industrial consumers[.]

The purchases of utilities therefore qualify as purchases of tangible personal property made on behalf of the NNSA and DOE.

See Response 1.

ISSUE 3:

Are Applicant's purchases, and the Applicant's subcontractors' purchases, of tangible personal property to be incorporated or consumed in the construction project subject to Missouri sales and use tax if the NNSA provided a signed Form 5060 that covers the project's initiation?

RESPONSE 3:

No. Applicant's and Applicant's subcontractors' purchases are not subject to Missouri sales and use tax. However, Applicant and Applicant's subcontractors should submit Form 149.

See Response 1 .

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

Sincerely,

Wayne Wallingford