As a contractor, I store construction supplies in my Missouri warehouse before using them at various job sites -- which local use-tax rate applies, and do I owe more once I know the installation site?

Plain-English summary

The Missouri Department of Revenue ruled on how use tax applies to construction supplies purchased by an electrical contractor and subcontractor who stores materials in a Missouri warehouse before distributing them to various Missouri job sites, where the ultimate installation location isn't known at the time of purchase.

On the first issue -- which local use-tax rate applies when the seller doesn't collect tax and Applicant self-accrues and remits use tax -- the Department ruled that the warehouse location's rate is correct, not the rate of the eventual job site. Section 144.610.1, RSMo, imposes use tax for the privilege of storing, using, or consuming tangible personal property in Missouri. Under 12 CSR 10-112.010, a contractor is the "final user and consumer" of materials and supplies used in fulfilling a construction contract that become part of a completed real-property improvement, a principle drawn from Buchholz Mortuaries, Inc. v. Director of Revenue, 113 S.W.3d 192 (Mo. banc 2003). Because Applicant, as a contractor, becomes the final consumer of the supplies at the moment of purchase and storage -- when the items go into the warehouse -- the tax rate is locked in at that point and location, regardless of where the supplies are later installed.

On the second issue -- whether Applicant owes the difference between the warehouse rate and a higher installation-site rate once a job site is determined -- the Department ruled no additional tax is owed. The supplies remain personal property only until they are physically attached to the land at the job site; at that point, title passes and the supplies become part of the real property. Because they are no longer tangible personal property once installed, there is nothing left to tax at the installation-site rate -- Applicant's use-tax liability as final consumer was already fully satisfied when the supplies were purchased and stored at the warehouse.

What this means for you

For contractors buying supplies for later installation across multiple local tax rates

If you're a contractor who stocks a central warehouse before sending materials out to job sites in different Missouri localities, this ruling confirms you can accrue and remit use tax at your warehouse's rate at the time of purchase, even though you don't yet know which job site will ultimately use each item. You don't need to track or reconcile use tax against the rate of wherever the materials are eventually installed.

For anyone tracking which use-tax rate applies to inventory

The key trigger for use tax is the point at which you become the "final consumer" of tangible personal property -- for a contractor, that's when supplies are purchased and taken into storage, not when they're installed. Once an item is affixed to real property, it stops being taxable tangible personal property altogether, since it becomes part of the real estate at that point.

For accountants and tax professionals

This ruling illustrates that use tax on contractor supplies is a one-time, point-in-time obligation tied to the location of purchase/storage, not a moving target that needs to be trued up as materials are physically relocated to different taxing jurisdictions within Missouri. There's no mechanism in this ruling for assessing supplemental use tax based on a higher-taxed installation site, because by the time installation happens, the property is no longer "tangible personal property" subject to use tax at all.

Common questions

Q: Which use-tax rate applies when I buy supplies for a warehouse but won't know the job site until later?
A: The rate at your warehouse's location applies, because that's where and when you become the "final consumer" of the supplies as a contractor.

Q: Do I need to true-up use tax once a job site is picked, if that location's rate is higher than my warehouse's rate?
A: No. Once the supplies are installed and become part of the real property, they're no longer tangible personal property, so no additional use tax is due for the gap between the warehouse rate and the installation-site rate.

Q: What if the installation-site rate is lower than the warehouse rate -- can I get a refund of the difference?
A: This ruling doesn't address that scenario. It only holds that Applicant's use-tax liability, as final consumer, is fixed at the warehouse rate at the time of purchase and storage, and no additional tax is owed afterward; it does not discuss refunds for rate differences going the other direction.

Q: Why does it matter whether the supplies are "tangible personal property" versus "real property"?
A: Missouri's use tax under Section 144.610.1, RSMo, applies only to tangible personal property. Once supplies are permanently affixed to land at a job site, title passes and they become part of the real property improvement -- taking them outside the scope of the use tax entirely.

Citations and references

Statutes and cases:

• Section 144.610.1, RSMo (imposes use tax for the privilege of storing, using, or consuming tangible personal property purchased for use in Missouri)
• 12 CSR 10-112.010, Missouri Code of State Regulations (a contractor is the final user and consumer of materials and supplies used in fulfilling a construction contract that become part of a completed real property improvement)
• Buchholz Mortuaries, Inc. v. Director of Revenue, 113 S.W.3d 192 (Mo. banc 2003) (cited for the principle that a contractor purchasing tangible personal property for a construction contract is subject to use tax as the final consumer)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8283

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 November 17, 2023.

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

Applicant is an electrical contractor and subcontractor with a supplies warehouse located in a Missouri city. Applicant stores supplies in this warehouse until they are needed at various Missouri job sites. As Applicant purchases items in advance, the location they are ultimately used is unknown at the time of purchase. When purchasing supplies from out of state retailers, if the seller does not collect tax, Applicant accrues and remits the use tax at the rate for the warehouse location.

ISSUE 1 :

Is the warehouse use tax rate the correct rate for purchases of supplies later used at various job sites?

RESPONSE 1:

Yes. The warehouse use tax rate is the correct rate for purchases of supplies.

Section 144.610.1, RSMo, imposes a use tax "for the privilege of storing, using or consuming within this state any article of tangible personal property purchased . . . in an amount equivalent to the percentage imposed on the sales price in the sales tax law in section 144.020.

Missouri Code of State Regulations 12 CSR 10-112.010 states "[i]n general, a contractor is the final user and consumer of the materials and supplies used and consumed in fulfilling a construction contract and which become part of a completed real property improvement."  Acting as a contractor, Applicant is purchasing tangible personal property subject to use tax. See Buchholz Mortuaries, Inc. v. Director of Revenue , 113 S.W.3d 192 (Mo. banc 2003).

Applicant is operating as a contractor and a contractor is deemed to be the final consumer of tangible personal property prior to the tangible personal property becoming part of the real property. As the final consumer of the supplies as tangible personal property, Applicant must pay sales or use tax on Applicant's purchase of the materials for later installation. The tax rate of the warehouse location will be the correct rate as Applicant is the final consumer at the time of purchase and storage.

ISSUE 2:

Does Applicant need to remit the difference between the warehouse use tax rate and the rate at the location of installation?

RESPONSE 2:

No. Applicant does not need to remit the difference between the warehouse tax rate and the rate at the location of installation.

The supplies Applicant purchases are considered personal property until they are attached to the land at the job site. When Applicant contracts with a job site using the supplies, the supplies are permanently affixed to the real property and title passes after installation.

Because the supplies are not tangible personal property at the time of installation, no additional sales or use tax is due on the supplies. See response 1 above explaining that contractors are deemed to be the final consumer of supplies.

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

Sincerely,

Wayne Wallingford