If an out-of-state seller ships materials into Missouri for a Missouri fabricator to modify before shipping them back out of state to an out-of-state customer, does Missouri sales tax or use tax apply?

Plain-English summary

The Missouri Department of Revenue ruled on a two-part question from a steel pipe and tube service center located outside Missouri (in Illinois). The seller ships material by common carrier from its Illinois facility to a fabricator in Missouri chosen by the seller's own customer, who is also located outside Missouri. The common carrier bears the risk of loss until delivery to the Missouri fabricator. The Missouri fabricator never takes legal possession of the material, but does modify or alter it. Once fabrication is complete, the customer hires a different common carrier to pick the material up from the Missouri fabricator and deliver it back out of state.

Issue 1 -- Missouri sales tax: No. Under Section 144.020, RSMo, a sale of tangible personal property is taxable in Missouri if title or ownership transfers in Missouri (12 CSR 10-113.200.1), unless the transaction is "in commerce." Under 12 CSR 10-113.200(3)(A), title transfers when the seller completes physical delivery, unless the parties agree otherwise. Here, title transferred when the common carrier picked up the material in Illinois -- not in Missouri -- so no Missouri sales tax applies.

Issue 2 -- Missouri vendor's use tax: Yes. Section 144.610.1, RSMo, imposes use tax on storing, using, or consuming tangible personal property in Missouri, but excludes property whose transportation hasn't "come to rest" in the state or that's merely passing through. Sections 144.605.10 and 144.605.13, RSMo, likewise exclude property that is only temporarily kept or used in Missouri for subsequent use outside the state. Ordinarily, that would exempt the seller's shipments, since the material is ultimately headed back out of state. But 12 CSR 10-113.300(3)(D) says the temporary-storage exclusion does not apply if the property undergoes further processing, fabrication, or modification while in Missouri. Because the Missouri fabricator modifies or alters the material, that exclusion doesn't apply here, so under Section 144.635, RSMo, the seller must collect and remit vendor's use tax on these sales -- unless it accepts a valid resale exemption certificate from its customer (available if the customer's purchase is solely for resale and the customer includes the value of all items sold in its own price).

What this means for you

Out-of-state sellers shipping into Missouri for fabrication

If you sell to a customer outside Missouri but route the goods through a Missouri fabricator, processor, or finisher before final delivery out of state, don't assume the shipment is automatically tax-free just because it eventually leaves Missouri. Sales tax may not apply if title passes to the buyer outside Missouri, but vendor's use tax can still apply because the fabrication step in Missouri defeats the usual "merely passing through" / temporary-storage exclusion.

Missouri fabricators, processors, and toll manufacturers

Even if you never take legal title to the material you're modifying, your involvement can trigger Missouri use tax obligations for the out-of-state seller who owns the goods, because further processing performed in Missouri removes the temporary-storage exclusion.

Sellers wanting to avoid collecting use tax

Consider obtaining a valid resale exemption certificate from your customer if the customer's purchase is solely for resale and the customer includes the value of all items sold in its own resale price. That can eliminate the seller's obligation to collect and remit the use tax.

Accountants and tax professionals

This ruling illustrates that Missouri's sales tax and use tax analyses are separate inquiries with different triggers: sales tax turns on where title passes, while use tax turns on whether the goods came to rest (or were processed) in Missouri, independent of where title transferred.

Common questions

Q: Why isn't this sale subject to Missouri sales tax if the goods physically pass through Missouri?
A: Missouri sales tax is triggered by where title or ownership transfers, not merely where the goods travel. Here, title transferred in Illinois when the common carrier picked up the material, so the sale itself occurred outside Missouri.

Q: If the goods are ultimately delivered back out of state, why does Missouri use tax apply at all?
A: Missouri normally excludes property that is only temporarily stored in the state before being used elsewhere. But that exclusion doesn't apply once the property undergoes further processing, fabrication, or modification while in Missouri -- which happened here at the Missouri fabricator.

Q: Does the fabricator have to pay the use tax?
A: No. The ruling addresses the seller's obligation to collect and remit vendor's use tax on its sales to its customer; the fabricator here never takes legal possession of the material.

Q: Can the seller avoid collecting use tax?
A: Yes, if it accepts a valid resale exemption certificate from its customer, provided the customer's purchase is solely for resale and the customer incorporates the value of all items sold into its own resale price.

Q: Can another out-of-state seller with a similar fact pattern 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, and only while the facts and law don't change. Another business should confirm its own facts match and consult a tax professional before relying on this reasoning.

Citations and references

Statutes and regulations:

• Section 144.020, RSMo (imposition of sales tax on tangible personal property)
• 12 CSR 10-113.200.1 (sale is taxable if title/ownership transfers in Missouri, unless in commerce)
• 12 CSR 10-113.200(3)(A) (title transfers when seller completes physical delivery, absent contrary agreement)
• Section 144.610.1, RSMo (vendor's use tax on storing, using, or consuming tangible personal property in Missouri)
• Section 144.635, RSMo (vendors selling for storage, use, or consumption in Missouri must collect use tax)
• Section 144.605.10, RSMo (defines "storage," excluding property temporarily kept for subsequent out-of-state use)
• Section 144.605.13, RSMo (defines "use," excluding temporary storage for subsequent out-of-state use)
• 12 CSR 10-113.300(3)(D) (temporary-storage exclusion doesn't apply if property is further processed, fabricated, or modified in Missouri)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8296

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 21, 2024.

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

Applicant is a steel pipe and tube service center located outside the state of Missouri. Applicant has a customer located outside of the state of Missouri wanting to purchase material. Applicant hires a common carrier to ship the material into the state of Missouri to a fabricator of their choosing. The common carrier is responsible for any lost or damaged items between the time the material was picked up at Applicant's facility in Illinois and subsequently delivered to the Missouri fabricator. The Missouri fabricator does not take legal possession of the materials at any time; however, they may be modifying/altering the product. Once the fabrication work has been completed, the customer will hire a common carrier to pick up the material from the Missouri fabricator and deliver it to the customer located outside of the state of Missouri.

ISSUE 1:

Are Applicant's sales to its customers located outside of Missouri subject to Missouri sales tax?

RESPONSE 1:

No. Applicant's sales to customers outside of Missouri  are not subject to Missouri sales tax.

Sales of tangible personal property are subject to tax pursuant to section 144.020, RSMo. Additionally, regulation 12 CSR 10-113.200.1 provides:

In general, a sale of tangible personal property is subject to sales tax if title to or ownership of the property transfers in Missouri unless the transaction is in commerce.

And 12 CSR 10-113.200(3)(A) provides:

(A) title transfers when the seller completes its obligations regarding physical delivery of the property, unless the seller and buyer expressly agree that title transfers at a different time.

According to Applicant, title to the materials transfer upon pick-up by the Common Carrier in Illinois, not Missouri. Therefore, the transaction is not subject to Missouri sales tax.

ISSUE 2:

Are Applicant's sales to its customers located outside of Missouri subject to vendor's use tax?

RESPONSE 2:

Yes. Applicant's sales to its customers outside of Missouri are subject to vendor's use tax.

Section 144.610.1, RSMo, provides:

A tax is imposed for the privilege of storing, using or consuming within this state any article of tangible personal property, excluding motor vehicles, trailers, motorcycles, mopeds, motortricycles, boats, and outboard motors required to be titled under the laws of the state of Missouri and subject to tax under subdivision (9) of subsection 1 of section  144.020 , purchased on or after the effective date of sections  144.600 to 144.745  in an amount equivalent to the percentage imposed on the sales price in the sales tax law in section  144.020 .  This tax does not apply with respect to the storage, use or consumption of any article of tangible personal property purchased, produced or manufactured outside this state until the transportation of the article has finally come to rest within this state or until the article has become commingled with the general mass of property of this state.

Section 144.635, RSMo, provides:

Every vendor making a sale of tangible personal property for the purpose of storage, use or consumption in this state shall collect from the purchaser an amount equal to the percentage on the sale price imposed by the sales tax law in section  144.020  and give the purchaser a receipt therefor.

Section 144.605.10, RSMo, defines 'storage':

[A]ny keeping or retention in this state of tangible personal property purchased from a vendor, except property for sale or property that is temporarily kept or retained in this state for subsequent use outside the state[.]

Section 144.605.13, RSMo, defines 'use':

[T]he exercise of any right or power over tangible personal property incident to the ownership or control of that property, except that it does not include the temporary storage of property in this state for subsequent use outside the state, or the sale of the property in the regular course of business[.]

Although the materials Applicant sells to its customer will eventually be used outside the state of Missouri, 12 CSR 10-113.300(3)(D) explains that the temporary storage exclusion from use tax "...will not apply if any further processing, fabrication or other modifications are performed on or to the property while in this state."

Because the materials are undergoing further fabrication work within Missouri, they are subject to use tax. Applicant ships the materials to Missouri for use by Missouri fabricators, so Applicant is responsible for remitting vendor's use tax.

However, Applicant can accept a resale exemption from its customers if their purchase is solely for resale, and if the reseller incorporates the value of all items sold in the price.

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