If a county-and-city-created economic development entity hires contractors to renovate its facility using public grant money, do the contractors have to pay sales tax on the building materials they buy?

Plain-English summary

Missouri's Department of Revenue ruled that when a political subdivision hires contractors to buy building materials for a renovation project, those purchases are exempt from Missouri sales tax -- as long as they're paid for with public funds. The Applicant here is an economic development entity created by ordinance jointly by a Missouri county and city, with a board appointed by county and city elected officials. It exists to attract and grow business and to serve the economic interests of the communities it represents.

The Applicant was renovating its plant and life sciences facility to add lab space and upgrade infrastructure for the agricultural technology businesses operating there, with the goal of attracting new business and supporting local research and development. To do the work, it hired contractors, and those contractors had to buy building materials. The funding came mostly from federal and local grants, but the Applicant also had to contribute $10,000 to unlock some of the grant money and had to cover any costs above the grant amounts out of its own funds.

The Department held that because the Applicant is an instrumentality of a political subdivision, the Missouri Constitution and Section 144.062 of the Missouri statutes bar sales tax on purchases paid for out of county or political subdivision funds -- and that protection extends to contractors hired by the exempt entity, as long as the entity gives the contractor an exemption certificate. So the building materials bought for this renovation are tax-exempt, but only to the extent they're paid for with the public grant money. Any purchases funded by the Applicant's own $10,000 contribution, or by costs exceeding the grant budget that the Applicant has to cover itself, are still subject to sales tax because those aren't "funds of the county or other political subdivision."

What this means for you

Political subdivisions and their instrumentalities

If your organization is an instrumentality of a county or city -- created by ordinance, governed by a board appointed by elected officials, and serving a public/economic purpose -- your construction and renovation projects can qualify for the same sales tax exemption on building materials, even though a private contractor is doing the actual buying. The key is making sure the contractor has a proper exemption certificate covering the project.

Contractors working for government or quasi-government clients

As a contractor, you don't owe (and shouldn't collect or remit) sales tax on materials you buy for a political subdivision's construction project, provided the exempt entity gives you an exemption certificate and the purchases are actually paid for with that entity's public funds. Keep track of which purchases are funded by grants/public money versus any private contribution, since only the public-funds portion is exempt.

Mixed public/private funding

This ruling is a useful reminder that exemption follows the money. Where a project blends grant funding with an entity's own contribution or with cost overruns the entity has to cover itself, only the portion paid for out of political-subdivision funds is exempt -- the rest is taxable just like any private purchase.

Common questions

Q: Are all of the renovation project's building materials tax-exempt?
A: Not necessarily all of it. Materials paid for with the public grant funds are exempt, but any materials paid for using the Applicant's own $10,000 contribution, or costs exceeding the grant budget that the Applicant funds itself, are subject to sales tax because that money isn't "funds of the county or other political subdivision."

Q: Does the contractor need anything special to buy materials tax-free?
A: Yes. Under Section 144.062.2, RSMo, the exempt entity must furnish the contractor with an exemption certificate authorizing the tax-exempt purchases for the specific construction, repair, or remodeling project.

Q: Why is a private contractor's purchase treated as the political subdivision's purchase?
A: Because Section 144.062.1, RSMo, specifically says a sale isn't rendered nonexempt, and a contractor doesn't have to pay, collect, or remit sales tax, merely because the purchase is billed to or paid for by a contractor on behalf of an exempt entity -- as long as the purchase is actually for that entity's exempt project.

Q: Can another political subdivision or contractor rely on this ruling?
A: No. This letter ruling is binding on the Department only with respect to this specific Applicant, and only for three years from the date of the letter. It's also subject to change if the General Assembly amends the statute or if courts or administrative tribunals change how the law is interpreted, and it only applies as long as the facts don't change from what was presented. Other entities can look to it for how the Department reasons, but they cannot rely on it directly.

Q: What if the facts change after the ruling is issued?
A: The ruling itself warns that any change in or deviation from the facts as presented will render it inapplicable, and that relying on an outdated interpretation after a legal change can expose a taxpayer to additional taxes, interest, and penalties imposed from the date of the change.

Citations and references

Statutes and constitutional provisions:

• Section 144.020.1(1), RSMo (imposition of sales tax on retail sales)
• Article III, Section 39(10), Missouri Constitution (bar on sales/use tax on property paid for with county or political subdivision funds)
• Section 144.062.1, RSMo (exemption for construction/repair/remodeling purchases made for an exempt political subdivision or instrumentality)
• Section 144.062.2, RSMo (exempt entity must furnish contractor an exemption certificate)
• Section 536.021.10, RSMo (letter ruling authority)
• 12 CSR 10-1.020 (letter ruling procedure)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8391

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 4, 2026.

The facts presented in your letter ruling request and subsequent email on April 6, 2026 are summarized as follows:

Applicant is a Missouri entity created by ordinance in cooperation between a county and city of Missouri. Applicant's purpose is to attract, retain, and facilitate the growth of business; collaborating with private and public partners on regional projects to advance its mission of serving the economic interests of the communities it serves. Applicant's board is appointed by city and county elected officials.

Applicant has taken up a renovation project that requires Applicant to hire contractors to complete renovations on Applicant's plant and life sciences facility. The renovations will increase lab space and upgrade building infrastructure necessary to support the unique needs of the agricultural technology businesses operating within Applicant's facility. Modernizing the facilities will help Applicant attract new business and more effectively facilitate the research and development interests of local businesses Applicant serves.

For these renovations, contractors hired by Applicant must purchase building materials for the renovation project. Funding will come primarily from federal and local grants, though Applicant is required to contribute $10,000 to receive some grants and must also pay for any expenses exceeding grant amounts.

ISSUE :

Are purchases of building materials by contractors hired for Applicant's renovation project subject to sales tax?

RESPONSE :

No. Purchases of building materials by contractors hired for Applicant's renovation project are not subject to sales tax, because Applicant is an instrumentality of a political subdivision and the project is funded by public grants.

Section 144.020.1(1) RSMo, provides:

"A tax is hereby levied and imposed...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."

Article III, Section 39(10) of the Missouri Constitution provides:

"The general assembly shall not have power: ... (10) To impose a use or sales tax upon the use, purchase, or acquisition of property paid for out of the funds of any county or other political subdivision."

Section 144.062.1 RSMo., provides:

"With respect to exempt sales at retail of tangible personal property and materials for the purpose of constructing, repairing or remodeling facilities for: (1) A county, other political subdivision or instrumentality thereof exempt from taxation under subdivision (10) of Section 30 of Article II of the Constitution of Missouri ... such exemptions shall be allowed for such purchases if the purchases are related to the entities' exempt functions and activities. In addition, the sales shall not be rendered nonexempt nor shall any material supplier or contractor be obligated pay, collect, or remit sales tax with respect to such purchases made by or on behalf of an exempt entity due to such purchases being billed to or paid for by a contractor..."

(Emphasis added.) Section 144.062.2 RSMo., adds:

"When an exempt entity contracts for the purpose of constructing, repairing or remodeling facilities, and purchases of tangible personal property and materials to be incorporated into or consumed in the construction of the project are to be made on a tax-exempt basis, such entity shall furnish to the contractor an exemption certificate authorizing such purchases for the construction, repair or remodeling project."

Applicant is an instrumentality of the county and city.  Political entities are exempt from state and local sales or use tax on purchases or acquisitions of property paid for by the funds of the county or other political subdivision.  Purchases are exempt when made by contractors hired by exempt entities so long as they are furnished an appropriate exemption certificate.  Any purchases made using Applicant's contribution funds or purchases exceeding the public grant budget which require Applicant's private funding are subject to tax, as they are not paid for by the county funds.

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

Sincerely,

Trish Vincent