If a contractor builds a home addition under a lump-sum contract and separately invoices the homeowner for the sales tax it paid on materials, who is legally responsible for that sales tax -- the contractor or the homeowner?

Plain-English summary

The Missouri Department of Revenue ruled that when a contractor builds a real property addition under a lump-sum contract, the contractor -- not the homeowner -- is the "final user and consumer" of the materials that go into the job, and so the contractor owes sales tax on those materials when it buys them.

In the ruling, a homeowner (Applicant) hired a contractor to build a home addition under a lump-sum agreement. The contract price estimate explicitly did not include the final cost of sales tax on materials. The contractor bought the necessary materials, paid sales tax on them, and then separately invoiced the homeowner for that sales tax cost. The Department was asked whether the contractor is legally the final consumer of the materials it purchases to fulfill this kind of contract.

The Department said yes: under Missouri regulation, a contractor fulfilling a construction contract is the one consuming the materials and supplies that become part of the finished real property improvement, so the sale of those materials to the contractor is a taxable retail sale. The contractor should not charge sales tax on the lump-sum contract price itself, since that price is for real property construction services, not a retail sale of tangible personal property. But the contractor does owe sales tax on the materials at the time it buys them, and it is free to build that cost into (or pass it through in) the price it charges the homeowner.

What this means for you

Contractors and construction businesses

If you build additions or other real property improvements under a lump-sum contract, you are the final consumer of the materials and supplies you buy for the job -- you pay sales tax on those purchases just like any other retail buyer, and you do not charge your customer sales tax on the lump-sum contract price. You can still factor the cost of that materials sales tax into your contract price or invoice for it separately, as the contractor in this ruling did, but that's a business decision about pricing, not a change in who legally owes the tax.

Homeowners and other customers of contractors

If your contract itself doesn't separately state sales tax as due from you, the tax obligation on materials belongs to the contractor, not you -- even if the contractor bills you for that cost as a line item. This ruling doesn't change your responsibilities; it just confirms the state's view of who the tax legally falls on.

Accountants and tax professionals

The holding rests on 12 CSR 10-112.010(1), which treats a contractor as the final user/consumer of materials that become part of a completed real property improvement, and on the general rule that tax exemptions are strictly construed against the taxpayer with doubt resolved in favor of the tax. The ruling also cites Buchholz Mortuaries, Inc. v. Director of Revenue for the point that materials purchased for incorporation into real property are not purchased "for resale."

Common questions

Q: Does the contractor or the homeowner legally owe the sales tax on construction materials?
A: The contractor. Under 12 CSR 10-112.010(1), a contractor fulfilling a lump-sum construction contract is the final user and consumer of the materials and supplies used, so the sale of those materials to the contractor is a taxable retail sale, and the contractor pays the tax when it buys the materials.

Q: Can a contractor still bill the customer for the sales tax it paid on materials?
A: Yes. The ruling confirms a contractor is "not prohibited from factoring the cost of sales tax for materials into the lump-sum contract price." Passing that cost through (whether built into the price or itemized separately) is a pricing choice, not a change in who owes the tax to the state.

Q: Should a contractor charge sales tax on the lump-sum price of the addition itself?
A: No. The ruling states contractors "should not charge sales tax on the lump-sum contract price of a real property addition." The taxable event is the contractor's purchase of materials, not the contractor's sale of construction services to the customer.

Q: Can any other contractor or homeowner rely on this exact ruling?
A: No. This letter ruling is binding on the Department only with respect to the Applicant who requested it, only for three years from its date, and only as long as the facts and the underlying law don't change. No other taxpayer can rely on it directly, though it does show how the Department applies the "contractor as final consumer" rule.

Q: What law is this based on?
A: Section 144.020.1, RSMo, which imposes sales tax on retail sales of tangible personal property, and 12 CSR 10-112.010(1), the regulation specifically addressing contractors as final consumers of construction materials.

Citations and references

Statutes and rules:

• Section 144.020.1, RSMo (imposition of sales tax on retail sales)
• 12 CSR 10-112.010(1) (contractor as final user/consumer of construction materials)
• Section 536.021.10, RSMo (letter ruling procedure)

Case law:

• Buchholz Mortuaries, Inc. v. Director of Revenue (materials purchased for incorporation into real property are not purchased for resale)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8374

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 communication on September 30, 2025.

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

Applicant is a Missouri citizen who entered into an agreement with Contractor to purchase a home addition on their Missouri residence. Applicant and Contractor entered into a lump-sum agreement for Contractor to construct the home addition. Contractor provides a contract price estimate to Applicant in their agreement. This estimate explicitly does not include the final cost of sales tax on materials, per the terms of the agreement. To fulfill this agreement, Contractor purchases the necessary materials to construct the home addition and pays sales tax on their purchase of the materials. Contractor later sends an invoice to Applicant for the cost of sales tax paid by Contractor when purchasing the material.

ISSUE :

Are contractors the final user and consumer of materials purchased to fulfill the contractor's obligation(s) under a lump-sum agreement to construct a real property addition?

RESPONSE :

Yes, contractors who purchase materials that are used to construct additions to real property are considered the final user and consumer of such materials.

Section 144.020.1, RSMo, provides "a tax is hereby levied and imposed [...] upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state."

12 CSR 10-112.010(1) provides:

In 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. Consequently, persons selling materials and supplies to a contractor are subject to tax on the gross receipts from all such sales because the purchase is not for resale as tangible personal property.

A contractor's purchase of materials to be used in constructing a real property addition is considered a purchase of tangible personal property not for resale, which is thus subject to sales tax. See Buchholz Mortuaries, Inc. v. Director of Revenue

Sales of tangible personal property are subject to tax unless a specific exemption applies, and tax exemptions and exclusions are strictly construed against the taxpayer, with any doubt resolved in favor of the tax.

Contractors should not charge sales tax on the lump-sum contract price of a real property addition. Contractors are the final users and consumers of materials used to construct real property additions and thus owe sales tax for such materials at the time of purchase. However, a contractor is not prohibited from factoring the cost of sales tax for materials into the lump-sum contract price.

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

Sincerely,

Trish Vincent