Does a Montana customer owe Missouri sales tax on an item shipped from a Missouri manufacturer via UPS?

Plain-English summary

The Missouri Department of Revenue ruled that a Montana resident who bought an item from a Missouri manufacturer does not owe Missouri sales tax on that purchase.

Applicant, a Montana resident, purchased items from a Missouri manufacturer, paying by SQUARE electronic payment. The manufacturer shipped the items from Missouri to Montana using the contract carrier United Parcel Service (UPS). Neither party made any specific arrangement about who bore the risk of loss during transit, or about title transferring at some earlier point.

Section 144.020.1, RSMo, imposes Missouri sales tax on sales of tangible personal property. But that tax attaches only where a taxable sale actually occurs -- and under Missouri's regulations, that turns on where title transfers. Missouri Code of State Regulations 12 CSR 10-113.200(3)(A) provides that title transfers when the seller completes its delivery obligations, unless the seller and buyer expressly agree to a different time. 12 CSR 10-113.200(3)(B) then provides the default rule for out-of-state shipments: unless the parties agree otherwise, when a Missouri seller hands tangible personal property to a third-party common or contract carrier for delivery to an out-of-state location, title does not transfer in Missouri, and the sale is not subject to Missouri sales tax.

Here, the manufacturer delivered the item to UPS, a third-party contract carrier, for delivery to Montana, and the parties made no special arrangement about title. So title transferred in Montana -- where UPS completed delivery -- not in Missouri. Because there was no taxable transfer of title within Missouri, there was no Missouri taxable event, and the sale is not subject to Missouri sales tax.

What this means for you

Missouri manufacturers and sellers shipping out of state

If you ship tangible personal property to an out-of-state customer via a third-party common or contract carrier (like UPS, FedEx, or a freight line) and you don't have a contract term that says otherwise, title transfers where the carrier completes delivery -- not in Missouri. That means the sale generally is not subject to Missouri sales tax. If you want a different result (for example, to have title transfer in Missouri), you need an express agreement with the buyer saying so.

E-commerce and mail-order businesses

The default rule under 12 CSR 10-113.200(3)(B) applies automatically unless you and your buyer expressly agree otherwise. Payment method (here, Square) and who arranges the carrier don't change the analysis -- what matters is that a third-party carrier, not the seller itself, completes delivery to the out-of-state location.

Accountants and tax professionals determining sourcing

When analyzing whether a shipment out of Missouri is subject to Missouri sales tax, check two things: (1) was the property handed to a genuine third-party common or contract carrier, and (2) did the seller and buyer expressly agree to a different title-transfer point (such as risk of loss passing, or title transferring, at the seller's Missouri dock)? Absent such an agreement, 12 CSR 10-113.200(3)(A) and (B) place the taxable transfer of title at the out-of-state delivery point, taking the transaction outside Missouri's sales tax.

Common questions

Q: Does it matter that the buyer paid using Square?
A: No. The ruling doesn't treat the electronic payment method as relevant to where title transfers. What matters is the delivery mechanism -- here, a third-party contract carrier (UPS) -- and whether the parties expressly agreed to a different title-transfer point.

Q: What if the seller and buyer had agreed that title transfers in Missouri?
A: Under 12 CSR 10-113.200(3)(A), the parties can expressly agree that title transfers at a different time (and place) than the default rule. If they had agreed title transfers in Missouri before shipment, the sale could be subject to Missouri sales tax. Here, no such agreement existed.

Q: Would the answer change if the seller used its own delivery truck instead of UPS?
A: The regulation's default rule in 12 CSR 10-113.200(3)(B) is specific to delivery via a third-party common or contract carrier. This ruling doesn't address seller-operated delivery, so a different analysis could apply if the seller, rather than an independent carrier, transported the goods.

Q: Is this ruling binding on other Missouri sellers?
A: No. Like all Missouri letter rulings, this one binds the Department only with respect to the requesting Applicant, only for three years, and only so long as the facts and law don't change. Other taxpayers can look to it for guidance but cannot rely on it directly.

Citations and references

Statutes and regulations:

• Section 144.020.1, RSMo (imposition of sales tax on tangible personal property and enumerated services)
• 12 CSR 10-113.200(3)(A) (title transfers when seller completes delivery obligations, absent express agreement otherwise)
• 12 CSR 10-113.200(3)(B) (title does not transfer in Missouri, and sale is not taxable, when a Missouri seller delivers goods to a third-party carrier for an out-of-state destination)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8271

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 5, 2023.

The facts as presented in your letter ruling request and subsequent phone call are summarized as follows:

Applicant is a resident of Montana who purchased items from a Missouri manufacturer. The items are paid via SQUARE electronic payment and shipped from Missouri to Montana. The items are shipped via the contract carrier United Parcel Service (UPS). The parties do not make any specific arrangements as to risk of loss while in transit or for an earlier transfer of title.

ISSUE :

Does Applicant need to pay Missouri sales tax on their item shipped to Montana?

RESPONSE :

No. Applicant does not need to pay Missouri sales tax on their item shipped to Montana.

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 10-113.200(3)(A) provides that "[t]itle transfers when the seller completes its obligations regarding physical delivery of the property, unless the seller and the buyer expressly agree that title transfers at a different time." Missouri Code of State Regulations 12 CSR 10-113.200(3)(B) provides "[u]nless otherwise agreed by the parties, when a Missouri seller delivers tangible personal property to a third-party common or contract carrier for delivery to an out-of-state location, title does not transfer in Missouri and the sale is not subject to Missouri sales tax."

Here, a Missouri seller delivers tangible personal property to a third-party contract carrier to an out of state-location and the parties do not make specific arrangements regarding title. Therefore title transfers in Montana, not Missouri, and because there is no taxable event in Missouri, the transaction is not subject to Missouri 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 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