Does an out-of-state HVAC/plumbing company have to charge Missouri sales tax on its installation and repair services, and does it owe use tax on the materials it uses?

Plain-English summary

The Applicant is an HVAC and plumbing company based in Arkansas whose employees travel into Missouri to install and repair HVAC and plumbing equipment for Missouri customers. The company buys its materials and equipment in Arkansas and does not pay Arkansas sales tax on those purchases. It asked the Missouri Department of Revenue two questions: should it be charging Missouri sales tax to its Missouri customers, and should it be paying Missouri use tax on the materials it uses on Missouri jobs?

The Department gave a split answer. On the first question, the answer is no — the Applicant should not charge sales tax to its Missouri customers. The Department reasoned that the tangible personal property (the HVAC and plumbing parts) the Applicant installs becomes annexed to real property and part of that real property, citing Buchholz Mortuaries, Inc. v. Director of Revenue, 113 S.W.3d 192 (Mo. banc 2003). Because the Applicant is neither selling personal property to its customers nor performing a taxable service, no sales tax applies under Section 144.020.1, RSMo.

On the second question, the answer is yes — the Applicant must pay Missouri consumer's use tax on the cost of the parts and materials it uses on its Missouri jobs. Under 12 CSR 10-112.010, a contractor is treated as the final user and consumer of materials and supplies that become part of a completed real property improvement, and Section 144.610.1, RSMo imposes use tax on the privilege of storing, using, or consuming tangible personal property in Missouri. Since the Applicant didn't pay sales tax on those materials when it bought them in Arkansas, Missouri use tax fills that gap.

In short, this is a classic real-property-contractor result: the contractor doesn't collect sales tax from its customers on installation/repair work, but it owes use tax itself on the materials that get built into the job.

What this means for you

HVAC and plumbing contractors working across state lines

If you install or repair HVAC or plumbing equipment in Missouri and the parts you install become annexed to (built into) real property, you generally should not be charging your Missouri customers sales tax on that work — you're treated as a real property contractor, not a retailer of tangible personal property or a taxable-service provider. But that doesn't mean you're off the hook: Missouri expects you to pay consumer's use tax on the cost of the materials and parts you use in Missouri jobs, especially if you didn't pay sales tax on them where you originally purchased them.

Business owners and accountants

Track where you buy your materials and whether sales tax was paid at purchase. If it wasn't (as in this ruling, where the Applicant bought materials in Arkansas without paying Arkansas sales tax), you likely owe Missouri consumer's use tax on the cost of materials used in Missouri jobs, even though you don't charge your customers sales tax on the installation/repair work itself.

Tax professionals advising contractors

This ruling illustrates the standard "contractor as final consumer" analysis under 12 CSR 10-112.010: materials annexed to real property are not resold to the customer, so no sales tax is due on the service, but the contractor is the taxable end-user of the materials and must self-assess use tax under Section 144.610.1, RSMo. This ruling only binds the Department as to this specific Applicant and only for three years from its March 25, 2022 date, so confirm current facts and law before relying on the same reasoning for a different taxpayer.

Common questions

Q: Does this mean HVAC/plumbing installation and repair work is never subject to Missouri sales tax?
A: Not automatically. This ruling turned on the fact that the parts and equipment installed become annexed to real property, so the Applicant wasn't selling personal property or rendering a taxable service. Facts matter — a different fact pattern (for example, selling equipment without installation, or providing a service the Department treats as taxable) could produce a different result.

Q: If the contractor isn't charging sales tax, does anyone pay tax on the materials?
A: Yes. The contractor itself owes Missouri consumer's use tax on the cost of the parts and materials it uses on Missouri jobs, under 12 CSR 10-112.010 and Section 144.610.1, RSMo, because it's treated as the final consumer of those materials.

Q: Does it matter that the Applicant bought its materials in Arkansas and didn't pay Arkansas sales tax?
A: The ruling doesn't say the use tax obligation depends on that fact — Missouri use tax applies to the privilege of using or consuming tangible personal property in Missouri regardless of where it was purchased. But not having paid sales tax elsewhere means there's no credit to offset the Missouri use tax due.

Q: Can other HVAC or plumbing companies rely on this ruling?
A: No. Missouri letter rulings bind the Department only with respect to the Applicant that requested it, only for three years from the ruling's date (here, March 25, 2022), and only as long as the facts and law don't change. Other taxpayers can look to it for insight but cannot rely on it directly.

Citations and references

Statutes and regulations:

• Section 144.020.1, RSMo (sales tax on retail sales and taxable services)
• Section 144.610.1, RSMo (consumer's use tax on storing, using, or consuming tangible personal property in Missouri)
• 12 CSR 10-112.010 (contractor as final user/consumer of materials annexed to real property)
• Section 536.021.10, RSMo; 12 CSR 10-1.020 (letter ruling authority and procedure)

Case law:

• Buchholz Mortuaries, Inc. v. Director of Revenue, 113 S.W.3d 192 (Mo. banc 2003)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8184

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 January 31, 2022.

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

Applicant is an HVAC & Plumbing company located in Arkansas.  Applicant provides services for the maintenance, repair, and installation of HVAC/Plumbing Equipment.  Applicant's employees travel to Missouri to service their customer base inside the state. Applicant purchases its materials and equipment in the state of Arkansas.  Applicant does not pay sales tax for those materials and equipment purchased in the state of Arkansas.

ISSUE 1:

Should Applicant be charging sales tax to Missouri customers?

RESPONSE 1:

No.  Applicant should not be charging sales tax to its Missouri customers.

Section 144.020.1, 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."  Tangible personal property used by Applicant in the provisions of its services to customers are annexed to real property and become part of that real property.  See Buchholz Mortuaries, Inc. v. Director of Revenue 113 S.W.3d 192, 193 (Mo. banc 2003).  Applicant neither sells personal property to its customers nor renders a taxable service.  Therefore, Applicant should not be charging sales tax to Missouri customers.

ISSUE 2:

Should Applicant be paying Missouri consumer's use tax on its cost of parts and materials used in jobs in the state of Missouri?

RESPONSE 2:

Yes.  Applicant should be paying consumer's use tax on its cost of parts and materials used in jobs in the state of Missouri.  "A contractor is the final user and consumer of the materials and supplies used and consumed in fulfilling a construction contract and which become part of a completed real property improvement."  12 CSR 10-112.010.  In relevant part, under section 144.610.1, RSMo, "[a use] tax is imposed for the privilege of storing, using or consuming within this state any article of tangible personal property."  Therefore, Applicant is required to pay use tax on its cost of parts and materials used in jobs in the state of 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 Legal Counsel Stephen S. Krogmeier, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, (573)-751-0961.

Sincerely,

Wayne Wallingford