What does Missouri LR 8186 conclude about Taxability of Interlock Devices and Interlock Service Fees?

Plain-English summary

Missouri LR 8186 answers two questions for a company that rents court-mandated alcohol ignition interlock devices to individuals. The Applicant leases the devices from a third-party supplier without paying sales tax on that lease, then rents the devices to individuals convicted of intoxication-related driving offenses, charging a monthly rental fee plus separate fees for installation, monitoring, and removal.

On the device rental itself, the Department ruled that Missouri state and local sales tax does apply. Under Section 144.020.1(8), RSMo, tax is owed on rental receipts unless the lessor already paid tax when it purchased or leased the property. Because the Applicant did not pay tax when it leased the devices from its supplier, it must collect and remit sales tax on the monthly rental it charges to individuals.

On the installation, monitoring, and removal fees, the Department reached the opposite conclusion: those charges are not subject to sales tax. The Department relied on 12 CSR 10-103.600(3)(A)(2), which excludes separately stated service charges from the taxable sale price when the purchaser isn't required to pay the service charge as part of buying tangible personal property. Because the Applicant separately stated each of these fees on its invoices, they escape tax even though they relate to the same rented device.

The ruling is a useful illustration of how Missouri treats bundled rental-plus-service transactions: the tangible property rental is taxable, but cleanly separated service labor charges are not, as long as they are genuinely broken out on the invoice rather than folded into a single lump-sum charge.

What this means for you

Businesses that rent equipment and also charge for related services

If you rent tangible personal property and also perform services tied to that property (installation, maintenance, monitoring, removal, etc.), keeping those service charges separately stated on the invoice can keep them out of the sales tax base under 12 CSR 10-103.600(3)(A)(2), even though the rental charge itself remains taxable. Bundling everything into one fee risks pulling the whole amount into the taxable rental price.

Businesses that lease equipment from a third-party supplier before re-renting it

Whether your own re-rental is taxable can hinge on whether you paid tax when you leased or purchased the property upstream. Under Section 144.020.1(8), RSMo, if tax was already paid at that earlier step, the later rental receipts are not taxed again; if it wasn't paid, the subsequent rental is taxable. Track and document tax paid (or not paid) at each step in the supply chain.

Accountants and tax professionals

This ruling turns on two distinct rules working together: (1) the general rental-of-tangible-personal-property tax under Section 144.020.1(8), RSMo, with its built-in credit/exemption where tax was already paid upstream, and (2) the separately-stated-service-charge carve-out in 12 CSR 10-103.600(3)(A)(2). Both issues were decided on the specific facts presented (leasing arrangement, invoicing practice), so confirm a client's facts match before extending this reasoning.

Common questions

Q: Is the monthly rental fee for the interlock device taxable?
A: Yes. Because the Applicant did not pay Missouri sales tax when it leased the devices from its third-party supplier, its rental receipts from individuals are subject to Missouri state and local sales tax under Section 144.020.1(8), RSMo.

Q: Are the installation, monitoring, and removal fees taxable?
A: No, as long as they are separately stated on the invoice, as the Applicant's were. Under 12 CSR 10-103.600(3)(A)(2), a separately stated service charge that the purchaser isn't required to pay as part of buying tangible personal property is not part of the taxable sale price.

Q: Would the answer change if the fees were bundled into one lump-sum charge?
A: The ruling doesn't address that scenario directly, but its reasoning depends specifically on the fees being "separately stated on the invoice." A single bundled charge covering rental and services together would not satisfy that condition and could be treated differently.

Q: Can any other taxpayer rely on this ruling?
A: No. Under Section 536.021.10, RSMo, and 12 CSR 10-1.020, the ruling binds the Department only as to the requesting Applicant, only for three years from the March 25, 2022 date of the letter, and only so long as the facts and law don't change.

Citations and references

• Section 536.021.10, RSMo (authority to issue letter rulings)
• 12 CSR 10-1.020 (letter ruling procedure)
• Section 144.020.1, RSMo (sales tax on tangible personal property and enumerated services)
• Section 144.020.1(8), RSMo (tax on rental/lease of tangible personal property, with credit if tax already paid upstream)
• 12 CSR 10-103.600(3)(A)(2) (separately stated service charges excluded from taxable sale price)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8186

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 received by the Department on February 16, 2022.

The facts as presented in your letter ruling request and after a discussion with Senior Counsel Thomas A. Houdek are summarized as follows:

Applicant is an out-of-state corporation that installs alcohol ignition interlock devices (Device) into individuals' vehicles as mandated by the Missouri courts for intoxication-related traffic offenses.  The Device is a breath-testing device connected to the vehicle's ignition that prevents the vehicle from operating if alcohol in the individual's breath exceeds concentration limits in the breath sample provided.  Information stored in the Device includes, but is not limited to an event log, storing such data as test taken, alcohol concentrations, vehicle starts, and vehicle stops.

Applicant leases the Devices from a third party supplier.  Applicant does not pay tax on the rental of the Devices from the third party supplier.  Applicant then rents the Device to the individual required by the Missouri courts to install the Device in the individual's vehicle.  Applicant charges the individual a monthly rental fee for the Device.  Applicant does not sell the Device.

Applicant charges the individual for various services required to be performed on the Device.  Those services are:

Installation Fee - Applicant charges the individual renting the Device a fee to install the Device in the individual's vehicle.  The Installation Fee is separately stated on the invoice.

Monitoring Service Fee - the Monitoring Service includes downloading the information to a computer and then uploading the information contained on the Device to a database that is reviewed by the state agency required to review the testing information.  The information downloaded includes, but is not limited to an event log, storing such data as test taken, alcohol concentrations, vehicle starts, and vehicle stops.  When the Monitoring Service is performed, Applicant also recalibrates the Device.  In the future, Applicant may charge a separate recalibration fee to the individual for recalibrating the Device.

The Monitoring Fee is separately stated on the invoice and is charged monthly.  Individuals may rent the Device without the Monitoring service after the court mandated monitoring ends.

Removal Service Fee - Applicant charges the individual a fee for removing the Device from the individual's vehicle.  The Removal Fee is separately stated on the invoice.

ISSUE 1 :

Is Applicant's rental of the Device to the individual subject to Missouri state and local sales tax?

RESPONSE 1 :

Yes.  Applicant's rental of the Device to the individual is subject to Missouri state and local sales tax.

Section 144.020.1, RSMo, imposes a sales tax on sales of tangible personal property and certain enumerated services.  Section 144.020.1(8), RSMo, provides:

A tax equivalent to four percent of the amount paid or charged for rental or lease of tangible personal property, provided that if the lessor or renter of any tangible personal property had previously purchased the property under the conditions of sale at retail or leased or rented the property and the tax was paid at the time of purchase, lease or rental, the lessor, sublessor, renter or subrenter shall not apply or collect the tax on the subsequent lease, sublease, rental or subrental receipts from that property.

When Applicant rents the Device from the third-party supplier, Applicant does not pay tax.  Because Applicant does not pay tax on the Device rentals from the third-party supplier, Applicant's rental of the Devices to individuals are subject to Missouri state and local sales tax.  Applicant must collect and remit Missouri state and local sales tax on its rentals of Devices to individuals.

ISSUE 2 :

Are Applicant's installation, monitoring, and removal fees charged to individuals subject to Missouri state and local sales tax?

RESPONSE 2 :

No.  Applicant's installation, monitoring, and removal fees charged to individuals are not subject to Missouri state and local sales tax.

Section 144.020.1, RSMo, imposes a sales tax on sales of tangible personal property and certain enumerated services.  Missouri Code of State Regulations 12 CSR 10-103.600(3)(A)(2) provides "[i]f the purchaser is not required to pay the service charge as part of the sale price of tangible personal property, the amount paid for the service is not subject to tax if the charge for such service is separately stated."

When Applicant charges individuals the installation, monitoring, and removal fees, Applicant separately states those charges on the invoices.  As the fees are separately stated, the installation, monitoring, and removal fees are not subject to Missouri state and local sales tax.

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 Thomas A. Houdek, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, (573)-751-0961.

Sincerely,

Wayne Wallingford