Does sales tax or use tax apply to Rent-to-Own payments on a portable building, and does it depend on whether the dealer is inside or outside Missouri and where the building is delivered?

Plain-English summary

The Missouri Department of Revenue ruled on how Missouri sales and use tax applies to Rent-to-Own payments on portable buildings, when a financing company funds the rental-with-option-to-purchase contracts that dealers offer their customers. Under these contracts, the renter has no ownership rights in the building until making the full number of payments specified in the agreement, and bears the risk of loss for the building at its fair market value in the meantime.

The Department addressed three scenarios, and the correct tax depends entirely on where the dealer is located and where the building is delivered:

For Scenario 1, Section 144.020.1, RSMo, taxes selling tangible personal property or rendering taxable services at retail in Missouri, and Section 144.020.1(8), RSMo, specifically taxes rental or lease charges for tangible personal property when the purchaser didn't pay tax at the time of purchase. Because an in-state dealer is renting to an in-state customer, sales tax applies to the rental payments.

For Scenario 2, the ruling reasons that because the building itself is located outside Missouri, it simply isn't subject to Missouri sales or use tax at all.

For Scenario 3, Section 144.635, RSMo, imposes use tax on all sales by out-of-state vendors where goods are shipped into Missouri. Because the out-of-state dealer is renting to a Missouri customer for delivery into Missouri, use tax (not sales tax) applies to the rental payments -- with one exception: if the portable building is already located in Missouri at the time of the rental, sales tax applies instead, per Scenario 1's reasoning.

What this means for you

Financing companies and dealers of rent-to-own portable buildings

Whether you collect sales tax or use tax on a Rent-to-Own rental payment (or no tax at all) turns on two facts for each transaction: where the dealer is located, and where the building is delivered. An in-state dealer delivering within Missouri collects sales tax; delivery of the building outside Missouri means no Missouri tax applies; and an out-of-state dealer delivering into Missouri should collect use tax, unless the building is already sitting in Missouri at the time of the rental, in which case sales tax applies instead.

Customers renting portable buildings

If you rent a portable building under a Rent-to-Own contract, whether tax is added to your payments -- and whether it's labeled sales tax or use tax -- depends on where the dealer is located and where the building is delivered, not on the fact that you don't yet own the building.

Accountants and tax professionals

This ruling is a useful illustration of how Missouri distinguishes sales tax (in-state seller, in-state delivery) from use tax (out-of-state seller shipping into Missouri) for rental/lease transactions, and confirms that a lease-to-own structure where ownership doesn't transfer until all payments are made doesn't change that analysis -- the rental payments themselves are the taxable event under Section 144.020.1(8), RSMo.

Common questions

Q: Does it matter that the renter doesn't own the portable building until all payments are made?
A: Not for purposes of which tax applies. The ruling treats these Rent-to-Own payments as rental/lease charges taxable under Section 144.020.1(8), RSMo (or under the use tax equivalent), regardless of the eventual purchase option.

Q: If a Missouri dealer delivers a portable building to a customer outside Missouri, is any Missouri tax due?
A: No. Because the building is located outside Missouri, the ruling concludes it is not subject to either Missouri sales tax or Missouri use tax.

Q: An out-of-state dealer rents to a Missouri customer -- is that sales tax or use tax?
A: Use tax, under Section 144.635, RSMo, because the out-of-state dealer is shipping the building into Missouri. The one exception: if the building is already located in Missouri at the time of the rental, sales tax applies instead.

Q: Can another dealer or financing company rely directly on this ruling?
A: No. 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 law don't change. Another business should confirm its own facts match and consult a Missouri tax professional.

Citations and references

Statutes:

• Section 144.020.1, RSMo (imposes tax on selling tangible personal property or rendering taxable services at retail in Missouri)
• Section 144.020.1(8), RSMo (taxes rental/lease charges for tangible personal property when the purchaser did not pay tax at the time of purchase)
• Section 144.635, RSMo (imposes use tax on sales by out-of-state vendors where goods are shipped into Missouri)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8300

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 March 25, 2024.

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

Applicant is a financing company collecting payments for Rent to Own contracts. Clients are dealers (“dealers”) located both inside and outside Missouri, that rent (with the option to purchase) portable buildings to their customers.  Applicant provides financing via its Rent to Own lease contracts. Customers purchase the portable buildings from the dealer and the dealer finances the transaction via its Rent to Own contract. The Rental Purchase Agreement and Disclosures document provides: “renter does not own the leased property.  Renter does not have any ownership rights in the leased property until renter has made the number of payments indicated herein.”  “[R]isk of loss: If the leased property is lost, stolen, damaged or destroyed, the Renter is responsible for the leased property at the fair market value shown above.”

ISSUE 1:

What tax should be collected on sales where an in-state dealer rents a portable building to an in-state customer for delivery inside Missouri?

RESPONSE 1:

Sales tax should be collected where an in-state dealer rents a portable building to an in-state customer for delivery inside Missouri.

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."

Section 144.020.1(8), RSMo, sets forth the amount charged for rental or lease of tangible personal property when the purchaser of the tangible personal property did not pay tax at the time of the purchase of the tangible personal property.

In this instance, an in-state dealer is renting the portable building to an customer, therefore sales tax should be collected on the rental payments.

ISSUE 2:

What tax should be collected on sales where an in-state dealer rents a portable building to an in-state customer for delivery outside Missouri?

RESPONSE 2:

No tax should be collected where an in-state dealer rents a portable building to an in-state customer for delivery outside Missouri.

See Response 1.  Here the building is located outside Missouri and therefore is not subject to Missouri sales or use tax.

ISSUE 3:

What tax should be collected on sales where an out-of-state dealer rents a portable building to an in-state customer for delivery inside Missouri?

RESPONSE 3:

Use tax should be collected where an out-of-state dealer rents a portable building to an in-state customer for delivery inside Missouri.

Section 144.635, RSMo, imposes use tax on all sales made by out-of-state vendors where goods are shipped into Missouri.  As an out-of-state dealer rents the portable building to an in-state customer, use tax must be collected on the rental by a dealer located outside Missouri for delivery to an address in Missouri.

However, if the portable building is in Missouri at the time of rental, Applicant should collect sales tax.  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 Senior Counsel, Kent L. Brown, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford