If an out-of-state design firm buys furniture from an out-of-state supplier and has it delivered straight to its client's Missouri location, is that furniture subject to Missouri sales tax?

Subject

Furniture Purchased from a Third-Party Subject to Tax

Plain-English summary

The Missouri Department of Revenue ruled that furniture a Missouri company (Client) purchased from an out-of-state architecture and interior design firm (Applicant) is subject to Missouri state and local sales tax -- because title to the furniture transferred to Client in Missouri.

Applicant is based outside Missouri and provides architecture and interior design services. One of Applicant's clients has a location in Missouri (though the client's headquarters is elsewhere). As part of its design services, Applicant ordered furniture for use in Client's business, buying it from a furniture company also located outside Missouri. That furniture company delivered the furniture directly to Client's Missouri location. Only after delivery did Client pay Applicant for the furniture, and Applicant in turn paid the furniture company.

Under Section 144.020.1, RSMo, Missouri imposes sales tax on retail sales of tangible personal property. The Department's regulations explain when such a sale is taxed in Missouri: 12 CSR 10-113.200(1) says a sale is subject to Missouri sales tax if title or ownership transfers in Missouri; 12 CSR 10-113.200(3)(A) says title transfers when the seller completes its delivery obligations (absent a contrary agreement); and 12 CSR 10-113.200(3)(C) says that when an out-of-state seller delivers property to a carrier for delivery to Missouri, title transfers in Missouri.

Applying those rules, the furniture company's delivery of the furniture to Client's Missouri location meant title passed to Applicant and then immediately to Client while the furniture was in Missouri. Because title transferred in Missouri, the furniture Client purchased from Applicant is subject to Missouri state and local sales tax, at the rate applicable where that title transfer occurred -- Client's location. As a result, Applicant is required to register for a Missouri sales tax account, and to file and remit sales tax returns on these sales, including a final return if it stops doing business in Missouri.

What this means for you

Out-of-state designers, consultants, and resellers arranging drop shipments into Missouri

If your business is located outside Missouri but you order goods from another out-of-state supplier and have them delivered directly to a client's Missouri location -- rather than ever taking physical possession yourself -- this ruling shows that arrangement can still create a Missouri sales tax obligation. What matters is where title to the goods transfers, not where your business or the original supplier is headquartered. Because delivery happened in Missouri, this ruling treats title as passing to you and then to your client there, making the resale to your client a Missouri retail sale that you must register for, collect tax on, and remit.

Buyers who purchase goods through an intermediary (like a design firm) for delivery in Missouri

Even though Client never dealt directly with the furniture company, and even though the furniture company itself was out of state, Client's purchase of the furniture from Applicant was still taxed under Missouri law because the goods were delivered to -- and title transferred at -- Client's Missouri location. Businesses buying through an intermediary should expect sales tax to apply to that purchase if delivery happens in Missouri, regardless of how many parties are in the chain.

Accountants and tax professionals

The key analytical step here is tracing where title transfers, using 12 CSR 10-113.200(1) and (3)(A)-(C): absent a contrary agreement, title passes upon completion of delivery, and delivery to a Missouri location (even via a third-party carrier arranged by an out-of-state seller) fixes title transfer -- and thus the taxable sale -- in Missouri. When advising a client that resells or drop-ships goods sourced from another out-of-state vendor into Missouri, confirm whether the client needs a Missouri sales tax registration, and note that the applicable local tax rate is the one at the location where title transfers (here, the client's/customer's location), not the seller's or supplier's location.

Common questions

Q: Is the furniture Client bought from Applicant subject to Missouri sales tax?
A: Yes. The Department concluded the furniture is subject to Missouri state and local sales tax because title transferred to Client in Missouri when the furniture company delivered the furniture to Client's Missouri location.

Q: Does it matter that both Applicant and the furniture company are located outside Missouri?
A: No. What matters under 12 CSR 10-113.200(1) and (3)(A)-(C) is where title transfers, not where the seller or supplier is based. Because the out-of-state furniture company delivered the furniture to Client's Missouri location, title transferred in Missouri.

Q: Who is responsible for collecting and remitting the sales tax?
A: Applicant. The ruling states Applicant is required to file a sales tax application with the Department of Revenue, then file returns and remit the Missouri state and local sales tax collected on these sales.

Q: What sales tax rate applies?
A: The applicable rate is that of the location where title or ownership of the furniture transfers -- here, the Client's location in Missouri.

Q: What happens if Applicant stops doing business in Missouri after this transaction?
A: The ruling states Applicant must file a final sales tax return and indicate on that return that it is ceasing to do business in Missouri.

Q: Can another business rely on this ruling for its own similar transactions?
A: Not automatically. This is a Missouri letter ruling, binding on the Department only as to the requesting Applicant, only for three years from its date, and only so long as the facts and underlying law remain unchanged. Any business with a similar drop-shipment arrangement should confirm its facts match and consult a tax professional before relying on this result.

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8200

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 May 16, 2022.

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

Applicant is a business located outside the State of Missouri that provides architecture and interior design services.  One of Applicant's clients is a company with a location in Missouri, but the main headquarters of the company is located outside Missouri (Client).  As part of the services Applicant provided to Client, Applicant ordered furniture that would be used in Client's business.

Applicant purchased the furniture from the furniture company, located outside Missouri.  The furniture company delivered the furniture to Client's location in Missouri.  Once the furniture is delivered to Client's location, Client pays Applicant for the furniture.  Applicant pays the furniture company for the furniture.

ISSUE :

Is the furniture Client purchased from Applicant subject to Missouri state and local sales tax?

RESPONSE :

Yes. The furniture Client purchased from Applicant is subject to Missouri state and local sales tax.

Section 144.020.1, RSMo, imposes a sales tax on retail sales of tangible personal property.  Missouri Code of State Regulations 12 CSR 10-113.200(1) provides "[i]n general, a sale of tangible personal property is subject to sales tax if title to or ownership of the property transfers in Missouri."  Missouri Code of State Regulations 12 CSR 10-113.200(3)(A) provides "[t]itle transfers when the seller completes its obligations regarding physical delivery of the property, unless the seller and buyer expressly agree that title transfers at a different time."  Missouri Code of State Regulations 12 CSR 10-113.200(3)(C) provides "[w]hen an out-of-state seller delivers tangible personal property to a third-party common or contract carrier for delivery to Missouri, title transfers in Missouri."

Applicant ordered Client's furniture from an out-of-state furniture company.  The furniture company delivered the furniture to Client in Missouri.  At the time of delivery title transfers to Applicant and then to Client.  Because title to the furniture transferred to Client when the furniture was delivered to Client in Missouri, the furniture Client purchased from Applicant is subject to Missouri state and local sales tax. The applicable sales tax rate would be that of the location where title or ownership of the tangible personal property occurs, which is at the Client's location.

Applicant is required to file a sales tax application with the Department of Revenue.  Once the application is finalized, Applicant will file a sales tax return with the Department of Revenue and remit the Missouri state and local sales tax collected.  If Applicant decides not to conduct business in Missouri after this transaction is complete, Applicant is required to file a final return, and on the return, state Applicant will cease doing business 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 Thomas A. Houdek, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 phone (573)-751-0961.

Sincerely,

Wayne Wallingford