Is an advertising company that permanently attaches billboards and other promotional items to buildings and the ground exempt from Missouri sales and use tax as an advertiser?

Subject

Promotional Items Permanently Attached to Buildings Subject to Tax

Plain-English summary

The Missouri Department of Revenue ruled that an advertising company that specializes in permanently affixing tangible promotional items -- such as billboards set in concrete -- to buildings and into the ground is NOT exempt from sales and use tax as an "advertiser."

Applicant argued it should be treated like an advertising agency, whose sales of advertising services (including standardized outdoor billboard advertising) are treated under Section 144.034, RSMo, as the sale of a service rather than a sale of tangible personal property. The Department disagreed. It explained that advertising, as defined in 12 CSR 10-103.610(2)(A), means the idea created and produced for reproduction and distribution in the media (for example, the standardized covering placed onto a billboard) -- not the billboard structure itself. Because Applicant installs the physical billboards and other permanent improvements rather than placing promotional content into the media, it does not qualify as advertising or as an advertising agency under 12 CSR 10-103.610(2)(B).

Instead, the Department concluded Applicant acts as a contractor, or possibly as a "dual operator" (a taxpayer who buys materials both for its own consumption as a contractor and for resale as a retailer), when it permanently affixes items to buildings and real property. Under Marsh v. Spradling, property that becomes annexed to land as a fixture is excluded from sales and use tax as real property. But whether Applicant owes tax -- and if so, whether it's use tax on its own purchase or sales tax it must collect from the purchaser -- is a fact-specific inquiry that turns on when title to the tangible property passes. Under 12 CSR 10-112.010(3)(A), if title passes before the item is attached to real property, Applicant doesn't pay tax on its own purchase but must collect tax on the sale price; if title passes after attachment (the general rule, absent an agreement otherwise), Applicant pays tax on its own purchase and does not collect tax on the transfer.

What this means for you

Advertising and outdoor-sign companies

If your business creates and places promotional content into the media -- for example, producing the standardized graphics that go onto outdoor billboards -- Section 144.034, RSMo, may treat your service as an exempt sale of advertising rather than a taxable sale of tangible personal property. But if your business instead installs or permanently affixes the physical billboard, sign structure, or other promotional item to a building or the ground, this ruling says that installation activity is not "advertising" -- you're functioning as a contractor (or dual operator) for that work, and sales or use tax likely applies.

Contractors and dual operators handling permanent installations

This ruling reinforces that whether you owe sales tax (which you collect from the customer) or use tax (which you pay yourself on your own purchase) depends specifically on when title to the tangible property transfers to the purchaser. Under 12 CSR 10-112.010(3)(A), title generally passes after installation is complete unless you and the purchaser expressly agree otherwise -- so in most cases you should expect to owe tax on your own purchase of the materials rather than collecting tax from the customer.

Accountants and tax professionals

When a client's business permanently affixes tangible items to real property but also claims some connection to advertising or media, look closely at what the client is actually attaching. This ruling draws a sharp line between the billboard/sign structure itself (a real property improvement, taxable based on title-passage timing under 12 CSR 10-112.010(3)(A)) and the promotional content displayed on it (potentially exempt "advertising" under Section 144.034, RSMo, and 12 CSR 10-103.610). Confirm which activity -- and which contract -- you're analyzing before applying the exemption.

Common questions

Q: Is a company that permanently attaches billboards to buildings or the ground exempt from Missouri tax as an "advertiser"?
A: No. The Department ruled that installing the physical billboard or other permanent improvement is not "advertising" under 12 CSR 10-103.610(2)(A) -- advertising is the idea or content produced for reproduction and distribution in the media, not the structure that displays it.

Q: What is Applicant treated as instead of an advertiser?
A: A contractor, or possibly a "dual operator" under 12 CSR 10-112(2)(A)-(B), when it permanently affixes tangible items to buildings and real property.

Q: Does that mean Applicant always owes use tax on its purchases?
A: Not necessarily -- it depends on the facts. Under 12 CSR 10-112.010(3)(A), if title to the tangible property passes to the purchaser before it's attached to real property, Applicant doesn't pay tax on its own purchase but must collect sales tax on the sale price instead. If title passes after attachment (the general default), Applicant pays tax on its own purchase and does not collect tax on the transfer.

Q: Why doesn't the exemption for standardized outdoor billboard advertising in Section 144.034, RSMo, apply here?
A: Because that exemption covers the sale of advertising content -- the material reproduced and distributed in the media, such as the standardized covering placed on a billboard -- not the installation of the billboard structure itself, which the Department treats as a real property improvement.

Q: What did the Department cite for the rule that fixtures aren't subject to sales/use tax as tangible personal property?
A: Marsh v. Spradling, 537 S.W.2d 402, 404 (Mo. 1979), which excludes real property that becomes part of the land as a "fixture" from sales and use tax as real property.

Q: Can another company rely on this ruling for its own installations?
A: Not automatically. This is a Missouri letter ruling, binding on the Department only with respect to the requesting Applicant, only for three years from its date, and only so long as the facts and underlying law remain unchanged. Because the tax outcome here is fact-specific (turning on when title passes), another business should have its own facts reviewed by a tax professional before relying on this result.

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8213

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 August 15, 2022.

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

Applicant identifies itself as an advertising company that specializes in affixing permanent tangible items to buildings and into the ground.  These items may have some type of promotional value.  These items include billboards attached to the ground with concrete.

ISSUE :

Is the Applicant an advertiser exempt from taxation when affixing tangible improvements to buildings and the ground?

RESPONSE :

No. The Applicant acts as a contractor (or possibly as a dual operator) when permanently affixing items to buildings and real property.  When acting as a contractor, the Applicant may be subject to sales and use taxes depending upon when title to tangible property shifts from the Applicant to the purchasers of that tangible property.

Section 144.020. RSMo, imposes a sales tax on the privilege of making retail sales of tangible personal property or providing certain taxable services in this state.  Section 144.610. RSMo, imposes a use tax on the privilege of storing, using, or consuming tangible personal property within this state.  Section 144.635. RSMo, requires vendors making sales of tangible personal property for use or consumption in Missouri to collect use taxes on the sales price from the purchaser.

Section 144.034. RSMo, exempts otherwise taxable sales of tangible property in instances where:

The sales of advertising by legal newspapers..., advertising agencies, broadcast stations, and standardized outdoor billboard advertising [are] considered the sale of a service and not the sale of tangible personal property.  Purchases of tangible personal property which are for use in producing advertising by the businesses listed in the preceding sentence shall be deemed to be purchases for use or consumption and not for resale.

Advertising is defined in 12 CSR 10-103.610(2)(A) to include:

[T]he expression of an idea created and produced for reproduction and distribution in the media , such as... standardized outdoor billboards... and which is designed to promote sales of a particular product or service or otherwise affect consumer behavior. [emphasis added]

An advertising agency is defined in 12 CSR 10-103.610(2)(B) to include:

[A] business... whose predominant functions as a business are the creation or supervision of the production and placement of advertising and advertising materials in the media . [emphasis added].

A contractor is defined under 12 CSR 10-112(2)(A) to be:

Any person entering into an agreement to improve, repair, replace, erect or alter real property.

A dual operator is defined under 12 CSR 10-112(2)(B) to be:

A taxpayer who purchases materials and supplies for both consumption, as a contractor, and resale, as a retailer.

The sale of real property that becomes part of the land as a "fixture" is excluded from sales and use taxes as real property.  Marsh v. Spradling , 537 S.W.2d 402, 404 (Mo. 1979).

In the case of a business acting as a contractor, or dual operator, tax is generally imposed based upon when title to tangible property transfers.  Section 12 CSR 10-112.010(3)(A) notes:

If title passes from the contractor to the purchaser before attachment of the tangible personal property to real property, the contractor does not pay tax on its purchase, but must collect tax on the sale price of the item. If title passes after the attachment, the contractor is subject to tax on its purchase of the tangible personal property and does not collect tax on its transfer of ownership or title of the item. In general, title passes after installation is complete, unless the contractor and purchaser expressly agree otherwise.

The key to qualifying as advertising, or as an advertising agency, is the placement of materials into the media (as opposed to the production of the advertising medium itself).  The media is not defined, but business allowing for the reproduction and distribution of promotional material on standardized outdoor billboards are part of the media.  In the case of standardized outdoor billboards, advertising is the standardized material that goes onto those billboards (such as the covering that go around billboards lining an interstate), not the installation of the billboards themselves.

The billboards, and other real property improvements, installed by the Applicant are not advertising because they are not the ideas created and produced for reproduction and distribution in the media.  The billboards and other real property improvements are at best the medium that other forms of advertising are reproduced and distributed through.

When permanently affixing tangible property to real property, the Applicant is acting as either a contractor, or a dual operator, depending upon the specific facts regarding the transfer of property.

Whether the installation of specific permanent improvements to real property require collection of sales and use taxes is a fact specific inquiry.  The Department notes that the imposition of taxes generally turns upon when title to tangible property shifts from a contractor to a purchaser.

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

Sincerely,

Wayne Wallingford