Does an out-of-state company that leases printers and copiers to a Missouri customer, and occasionally hires Missouri independent contractors to maintain that equipment, have to collect Missouri use tax as a vendor?

Subject

Taxability of Out-of-State Rental/Lease of Tangible Personal Property

Plain-English summary

The Missouri Department of Revenue ruled that an out-of-state company leasing printers and copiers to a Missouri-based client is liable for collecting Missouri use tax as a vendor, even though the company has no Missouri offices and no Missouri selling agents.

Applicant is a Texas-based business with no physical locations or selling agents in Missouri. It leases printers and copiers to a client that has locations in Missouri, and under the lease agreement Applicant retains sole title to the equipment. Applicant also occasionally hires Missouri-based independent contractors to perform maintenance work and supply additional parts for the leased equipment.

The Department framed the issue as whether Applicant is liable for collecting Missouri use tax as a vendor under Section 144.635, RSMo. The answer was yes. Section 144.605.14, RSMo, defines a "vendor" broadly to include anyone engaged in making sales of tangible personal property (including by leasing) for storage, use, or consumption in Missouri, and Applicant fits that definition.

The bigger question was nexus -- whether Applicant has enough of a connection to Missouri to be required to collect the tax. Under 12 CSR 10-114.100, an out-of-state vendor must register and collect use tax when it has "sufficient nexus" with Missouri, which exists when the vendor has a "physical presence" in the state. The regulation defines physical presence to include owning or leasing tangible personal property within Missouri, or having independent contractors that regularly enter the state on the vendor's behalf. The regulation's own example addresses this almost exactly: an out-of-state taxpayer that leases machinery to Missouri customers must collect use tax on its leases because the leased property located in Missouri creates sufficient nexus.

The Department found Applicant meets both prongs of physical presence: it leases tangible personal property (the printers and copiers) that sits in Missouri while Applicant retains title, and it uses Missouri-based independent contractors for maintenance and supplies. Because of this, Applicant is liable to collect use tax as a vendor under Section 144.635, RSMo.

What this means for you

Out-of-state equipment lessors doing business in Missouri

If you lease tangible personal property (like printers, copiers, or other equipment) to customers located in Missouri, and you retain title to that property under the lease, this ruling indicates that the mere presence of your leased property in Missouri can be enough physical presence to require you to collect and remit Missouri use tax as a vendor -- even if you have no office, warehouse, or sales staff physically located in the state.

Businesses using independent contractors in Missouri

This ruling also flags a second, independent path to nexus: hiring independent contractors who regularly enter Missouri on your behalf (here, for equipment maintenance and supplying parts) can itself establish the "physical presence" needed for use tax vendor status under 12 CSR 10-114.100.2(B). Out-of-state businesses that dispatch contractors into Missouri for service work, even occasionally, should evaluate whether that activity alone creates a collection obligation.

Accountants and tax professionals

When advising an out-of-state client that leases equipment into Missouri, check both (1) whether the client retains title to leased property physically located in the state, and (2) whether the client uses agents, employees, or independent contractors who regularly and systematically enter Missouri. Either factor can establish "physical presence" and thus "sufficient nexus" under 12 CSR 10-114.100, triggering a duty to register and collect use tax under Section 144.635, RSMo.

Common questions

Q: Is Applicant liable for collecting Missouri use tax on its leases?
A: Yes. The Department concluded Applicant is liable for collecting use tax as a vendor pursuant to Section 144.635, RSMo.

Q: Applicant has no offices or selling agents in Missouri -- why does it still have nexus?
A: Under 12 CSR 10-114.100, physical presence includes owning or leasing tangible personal property within Missouri. Because Applicant's leased printers and copiers are located in Missouri (while Applicant retains title), that alone creates sufficient nexus, regardless of whether Applicant has any office or sales staff in the state.

Q: Does using independent contractors for maintenance also matter?
A: Yes. The ruling also points to Applicant's use of Missouri-based independent contractors for maintenance and supplies as contributing to its physical presence, since 12 CSR 10-114.100.2(B) treats independent contractors who regularly and systematically enter the state on the vendor's behalf as establishing physical presence.

Q: Does Applicant meet the statutory definition of "vendor"?
A: Yes. Section 144.605.14, RSMo, defines "vendor" to include anyone engaged in making sales of tangible personal property (including by lease/agent activity) for storage, use, or consumption in Missouri, and the Department found Applicant meets that definition.

Q: What is the regulatory example the Department relied on?
A: 12 CSR 10-114.100.4(D) gives an example of an out-of-state taxpayer that leases machinery to Missouri customers and also sells tools and supplies online to Missouri customers; the example concludes the taxpayer must collect use tax on all its Missouri sales and leases because the leased property located in Missouri creates sufficient nexus. The Department applied that same logic to Applicant.

Q: Can another out-of-state lessor rely on this ruling for its own leases?
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. A different business should confirm its own facts match -- particularly whether it retains title to leased property located in Missouri or uses contractors who regularly enter the state -- and consult a tax professional before relying on this result.

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8216

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 September 19, 2022.

The facts as presented in your letter ruling request, phone conversation, and additional materials, are summarized as follows:

Applicant is a Texas based company that does not have any physical locations in Missouri, nor do they have any selling agents in Missouri. They lease printers and copiers to a client that has locations in Missouri. Based on the example lease provided, Applicant retains sole title to the equipment under the lease agreement. Additionally, Applicant will occasionally hire independent contractors based in Missouri, who can perform maintenance work and provide additional supplies for the leased printers and copiers.

ISSUE :

Is Applicant liable for collecting Missouri use tax as a vendor pursuant to section 144.635, RSMo?

RESPONSE :

Yes. Applicant is liable for collecting use tax as a vendor pursuant to section 144.635, RSMo.

Section 144.610.1, RSMo, states:

A tax is imposed for the privilege of storing, using or consuming within this state any article of tangible personal property...in an amount equivalent to the percentage imposed on the sales price in the sales tax law in section 144.020.

Section 144.605.13, RSMo, defines "use" as:

The exercise of any right or power over tangible personal property incident to the ownership or control of that property, except that it does not include the temporary storage of property in this state for subsequent use outside the state, or the sale of the property in the regular course of business;

Section 144.635, RSMo, provides:

Every vendor making a sale of tangible personal property for the purpose of storage, use or consumption in this state shall collect from the purchaser an amount equal to the percentage on the sale price imposed by the sales tax law in section 144.020 and give the purchaser a receipt therefor.

Section 144.605.14, RSMo, defines "Vendor" as:

Every person engaged in making sales of tangible personal property by mail order, by advertising, by agent or peddling tangible personal property, soliciting or taking orders for sales of tangible personal property, for storage, use or consumption in this state....

The Director has promulgated regulation 10-114.100 titled: Determining When a Vendor has Sufficient Nexus for Use Tax as guidance on when a taxpayer is liable for use tax as a vendor pursuant to section 144.635, RSMo.

12 CSR 10-114.100(1) provides:

In general, an out-of-state vendor must register with the department, and collect and remit use tax when the vendor has sufficient nexus with Missouri. Sufficient nexus exists when the vendor has a physical presence in Missouri.

12 CSR 10-114.100.2(B) defines "physical presence" as:

Owning or leasing real or tangible personal property within this state ; or having employees, agents, representatives , independent contractors , brokers or others that reside in, or regularly and systematically enter into, this state on behalf of the vendor.

12 CSR 10-114.100.4(D) provides a relevant example:

An out-of-state taxpayer leases machinery to various customers in Missouri. The taxpayer also sells tools and supplies over the internet to customers in Missouri. The taxpayer must collect use tax on all of its sales and leases in Missouri because its leased property located in Missouri creates sufficient nexus with the state.

(Emphasis Added).

Applicant meets the statutory definition of a vendor as provided in section 144.605.14, RSMo, and maintains a physical presence in this state through its leases of tangible personal property within this state while retaining complete title to the property, and through its use of independent contractors for future maintenance and parts for the leased property. Therefore, they are liable to collect use tax as a vendor pursuant to section 144.635, RSMo.

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

Sincerely,

Wayne Wallingford