Does an out-of-state company that leases equipment physically located in Missouri, but has no other presence in the state, have to collect Missouri use tax as a vendor?

Plain-English summary

The Missouri Department of Revenue ruled that an out-of-state company that leases equipment physically located in Missouri must register and collect Missouri use tax as a vendor -- even though it has no offices, employees, or any other physical location of its own in the state.

The Applicant is a Florida-based company with no physical locations in Missouri. It leases ground-support equipment to an air cargo company operating at St. Louis Lambert International Airport, under a six-month initial lease at $2,200 per month. Applicant asked whether it was liable to collect Missouri use tax as a "vendor" under Section 144.635, RSMo.

The Department said yes. Missouri imposes use tax on the privilege of storing, using, or consuming tangible personal property in the state (Section 144.610.1, RSMo), and a "vendor" who sells tangible personal property for use, storage, or consumption in Missouri -- including by leasing -- must collect that tax from the purchaser (Sections 144.605.14 and 144.635, RSMo). Under the Department's regulation on nexus (12 CSR 10-114.100), an out-of-state vendor must register and collect use tax once it has "sufficient nexus," meaning a "physical presence" in Missouri. That physical presence expressly includes owning or leasing property located within Missouri, regardless of who else is present in the state. The regulation's own example matches these facts almost exactly: an out-of-state taxpayer leasing machinery to Missouri customers must collect use tax on all its Missouri sales and leases because its leased property located in Missouri creates sufficient nexus.

Here, Applicant met the "vendor" definition and had a physical presence in Missouri through (1) its own leased ground-support equipment physically located in the state, even though Applicant retained title, and (2) its use of independent contractors for future maintenance and parts on that equipment. So Applicant must collect and remit Missouri use tax as a vendor.

What this means for you

Out-of-state equipment lessors

If you lease equipment (or any tangible personal property) that ends up physically located in Missouri, that alone can create "physical presence" nexus -- you don't need an office, warehouse, or employees stationed in the state. Retaining title to the leased property does not change this outcome. Once you have nexus, you must register with the Department and collect use tax on your Missouri leases and sales.

Multistate businesses assessing use-tax nexus

This ruling is a reminder that Missouri's "physical presence" test under 12 CSR 10-114.100.2(B) is broad: it covers owning or leasing property in the state, or having employees, agents, representatives, independent contractors, or brokers who reside in or regularly and systematically enter Missouri on your behalf. Using independent contractors in Missouri for maintenance or service work, as Applicant did here, is itself a separate basis for nexus.

Accountants advising remote lessors

Because the Department's own regulatory example (12 CSR 10-114.100.4(D)) tracks these facts, this ruling functions as a clear, low-ambiguity confirmation that a single leased asset physically sited in Missouri is enough to require registration and use-tax collection on all of a lessor's Missouri leases and sales, not just the one arrangement that created the nexus. The Department also points taxpayers to its online Sales and Use Tax Lookup tool (https://missouri.ttr.services/) to determine the correct rate to collect.

Common questions

Q: Does a company need an office or employees in Missouri to owe use tax as a vendor?
A: No. Under 12 CSR 10-114.100.2(B), simply owning or leasing tangible personal property located in Missouri counts as "physical presence" and creates sufficient nexus, even with no office or employees in the state.

Q: Does retaining title to the leased equipment change the outcome?
A: No. The ruling states that Applicant maintained a physical presence in Missouri through its leases of tangible personal property in the state "while retaining complete title to the property."

Q: Does using independent contractors in Missouri matter here?
A: Yes. The ruling separately notes that Applicant's use of independent contractors for future maintenance and parts on the leased equipment also supported a finding of physical presence in Missouri.

Q: Once nexus is established, does the vendor only owe use tax on the one lease that created the nexus?
A: No. The Department's regulatory example (12 CSR 10-114.100.4(D)) makes clear that once a taxpayer has sufficient nexus through leased property located in Missouri, it must collect use tax on all of its sales and leases in Missouri, not just the item that created the nexus.

Q: Can another out-of-state lessor rely on this ruling directly?
A: No. This letter ruling is 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 don't change. Other taxpayers should not rely on it but can look to it, and to 12 CSR 10-114.100, as guidance on how the Department reasons about physical-presence nexus.

Citations and references

Statutes and rules:

• Section 144.610.1, RSMo (use tax imposed on storing, using, or consuming tangible personal property in Missouri)
• Section 144.605.13, RSMo (definition of "use")
• Section 144.605.14, RSMo (definition of "vendor")
• Section 144.635, RSMo (vendor's duty to collect use tax)
• 12 CSR 10-114.100(1) (out-of-state vendor must register and collect use tax when it has sufficient nexus)
• 12 CSR 10-114.100.2(B) (definition of "physical presence")
• 12 CSR 10-114.100.4(D) (example: leased machinery located in Missouri creates sufficient nexus)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8264

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 June 22, 2023.

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

Applicant is a Florida based company that does not have any physical locations in Missouri. They lease ground support equipment to an air cargo company with offices at the St. Louis Lambert International Airport. The initial term of the lease is six months and the monthly payment is $2,200.

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 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 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.

In order to determine the proper tax rate, please access the Department's Sales and Use Tax Lookup tool at: https://missouri.ttr.services/ .

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