If an HVAC distributor takes and processes orders in Illinois but delivers by its own trucks to Missouri customers, and its invoice says title doesn't pass until payment is made in full, does it owe Missouri sales tax on those sales?

Plain-English summary

The Missouri Department of Revenue ruled that an HVAC distributor with locations in both Missouri and Illinois must collect and remit Missouri sales tax on sales it delivers to Missouri customers -- even though the orders are taken, approved, and processed at the distributor's Illinois locations. Despite the name of this ruling, the question wasn't about a buyer's own out-of-state purchases; it was about whether the seller had to collect Missouri sales tax on its own sales.

Missouri taxes sellers under Section 144.020.1, RSMo, for the privilege of selling tangible personal property at retail in the state, and 12 CSR 10-113.200(1) makes a sale taxable in Missouri if title (ownership) to the goods transfers in Missouri. The distributor's own invoice states that title does not pass from vendor to customer until payment is made in full. Because that full payment -- and the resulting transfer of title -- happens after delivery to the Missouri customer, title passes to the customer in Missouri, not in Illinois. That makes the sale subject to Missouri sales tax, regardless of where the order was placed or processed. The ruling also confirms this extends to sales drop-shipped by the distributor's own supplier directly to Missouri customers.

What this means for you

Distributors and wholesalers with retention-of-title invoice terms

If your invoices state that title doesn't pass until payment is made in full (a common "retention of title" or "reservation of title" clause), that clause can determine where -- and whether -- you owe Missouri sales tax, even if you take and process orders entirely out of state. Delivering the goods to a Missouri customer under those terms means title passes in Missouri, triggering Missouri sales tax collection obligations.

Businesses selling into Missouri from out-of-state locations

Taking and approving an order at an out-of-state office does not, by itself, avoid Missouri sales tax. What matters under 12 CSR 10-113.200(1) is where title/ownership actually transfers. Review your invoice terms and delivery practices with a Missouri tax professional to determine where that transfer legally occurs.

Accountants and tax professionals

This ruling turns on the interaction between a taxpayer's own invoice language (retention of title until payment in full) and 12 CSR 10-113.200(1)'s title-transfer test. Advise clients that boilerplate retention-of-title clauses, often used for credit-risk or repossession purposes, can have the side effect of fixing the taxable situs of a sale in Missouri when delivery and final payment occur there.

Common questions

Q: Does it matter that the distributor's orders were taken and approved in Illinois?
A: No. The Department found that the taxable event is where title transfers, not where the order was placed or processed. Because the distributor's invoice delayed title transfer until payment in full, and that payment/transfer occurred in connection with Missouri deliveries, the sale was taxable in Missouri.

Q: Why did the distributor's own invoice language matter so much?
A: The invoice stated title does not pass from vendor to customer until payment is made in full. Under 12 CSR 10-113.200(1), a sale is taxable in Missouri if title transfers there. Because the distributor's own terms fixed the timing of that transfer, they effectively fixed it as occurring in Missouri for these transactions.

Q: Does this also apply to drop-shipped sales?
A: Yes. The ruling specifically states the distributor should collect and remit Missouri sales tax on sales drop-shipped by its own supplier directly to its Missouri customers.

Q: Can another out-of-state seller rely on this ruling for its own sales into Missouri?
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. A different seller with different invoice or title-transfer terms should consult a Missouri tax professional before assuming the same result applies.

Citations and references

Statutes and regulations:

• Section 144.020.1, RSMo (imposes sales tax on sellers engaged in selling tangible personal property or rendering taxable services at retail in Missouri)
• 12 CSR 10-113.200(1) (a sale of tangible personal property is subject to Missouri sales tax if title or ownership transfers in Missouri)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8297

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 28, 2024.

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

Applicant has locations in Missouri and Illinois.  Applicant takes orders from customers located in Missouri at Applicant's Illinois locations.  Applicant is an HVAC distributor selling to contractors.  Almost all of Applicant's sales are made on account.  The orders taken in Illinois are approved and processed there and then delivered by Applicant's trucks to Missouri.  Applicant's invoice states that title does not pass from vendor to vendee until payment is made in full.

ISSUE:

Are Applicant's sales of their products from Illinois to Missouri subject to Missouri sales tax?

RESPONSE:

Yes. Applicant's sales of their products from Illinois to Missouri are subject to Missouri sales tax.
Section 144.020.1, 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."

Regulation 12 CSR 10-113.200(1) provides, "a sale of tangible personal property is subject to sales tax if title to or ownership of the property transfers in Missouri..."

All of Applicant's sales to Missouri customers are subject to Missouri sales tax because title to the products always transfers to Applicant when the products are delivered in Missouri. Title of the products then passes within Missouri from Applicant to Applicant's customers. Therefore, Applicant should collect and remit sales tax on sales that are dropped shipped by Applicant's supplier to customers in Missouri.

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 Senior Counsel J. Kent L. Brown, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford