Missouri Department of RevenueLR 5205
Local Sales Tax on Drop Shipments
October 31, 2008
Dear Applicant:
This is a letter ruling issued by the Director of Revenue pursuant to Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020 in response to your letter dated September 3, 2008.
The facts as presented in your letter are summarized as follows.
Applicant is an out-of-state vendor with customers in Missouri. Applicant is registered to collect Missouri vendor’s use tax. All of Applicant’s sales to Missouri customers are directly drop shipped from Applicant’s suppliers to Applicant’s Missouri customers. Suppliers may be shipping from within Missouri or from outside Missouri. Applicant has customers that are claiming that Applicant’s sales that are drop shipped by a supplier within Missouri are exempt from state sales tax under Section 144.054.2, RSMo, but the sales are subject to local sales tax.
ISSUE 1:
Should Applicant collect and remit the local sales tax on sales that qualify for exemption under Section 144.054.2, RSMo, that are drop shipped by Applicant’s suppliers from within Missouri or from outside Missouri to Applicant’s customers in Missouri?
RESPONSE 1:
Yes, Applicant should collect and remit the local sales tax on sales that qualify for exemption under Section 144.054.2, RSMo, that are drop shipped by Applicant’s suppliers from within Missouri or from outside Missouri to Applicant’s customers in Missouri.
A drop shipment is a sale in which the seller accepts an order from a customer, places the order with a third party supplier such as a manufacturer or wholesaler, and directs the third party supplier to deliver the item directly to the customer. On delivery of the order to the customer, title to the item sold passes from the third party supplier to the seller and then title to the item passes from the seller to the customer.
12 CSR 10-113.200(1) provides, “a sale of tangible personal property is subject to sales tax if title to or ownership of the property transfers in Missouri . . . .”
12 CSR 10-113.200(3)(C) provides, in relevant part, “When an out-of-state seller delivers tangible personal property to a third-party common or contract carrier for delivery to Missouri, title transfers in Missouri.”
Section 144.054.2 provides an exemption from state sales and use taxes and local use taxes for “machinery, equipment, and materials used or consumed in the manufacturing, processing, compounding, mining, or producing of any product[.]” The exemption in this section does not apply to local sales tax.
12 CSR 10-110.621(3)(A) provides,
A taxpayer may claim the exemption for state sales and use tax and local use tax, but not local sales tax at the time of purchase. A taxpayer may not claim an exemption from local tax and then remit the tax directly to the department. It is the seller’s responsibility to collect and remit the proper amount of local tax to the department.
Applicant’s products are drop shipped from Applicant’s suppliers from within Missouri or from outside Missouri directly to Applicant’s customers in Missouri. All of Applicant’s sales to Missouri customers are subject to Missouri sales tax because title to the products always transfers to Applicant when the products are delivered in Missouri. Title of the products then passes within Missouri from Applicant to Applicant’s customers.
Section 144.054.2 provides an exemption for state sales and use taxes and local use taxes, but not local sales tax. The regulation provides that Applicant’s customer can claim the exemption under Section 144.054.2 for state sales tax. The customer cannot claim an exemption for the local sales tax. As the seller, it is Applicant’s responsibility to collect the local sales tax. Therefore, Applicant should register with the Department to collect and remit the local sales tax on its sales that are drop shipped by Applicant’s suppliers from within Missouri or from outside Missouri to Applicant’s customers in Missouri.
ISSUE 2:
Which local sales tax rate should Applicant collect on its sales that are drop shipped by Applicant’s suppliers from within Missouri to Applicant’s customers in Missouri?
RESPONSE 2:
Applicant should collect the local sales tax in effect at Applicant’s Missouri supplier for sales that are drop shipped by Applicant’s supplier from within Missouri to Applicant’s customer in Missouri.
12 CSR 10-117.100(2)(A) defines the term place of business as,
[A] place where business is transacted in Missouri and that is maintained, occupied or used, directly or indirectly, by a seller or agent of the seller. A place that is temporarily maintained, occupied or used may be a place of business if all orders received at the temporary location are immediately filled from that location.
12 CSR 10-117.100(1) provides, in relevant part, “When a transaction is subject to state sales tax, the transaction is also subject to the local sales tax adopted by the political subdivision where the seller’s place of business is located.”
The local sales tax is determined by where a product is shipped from for a product sold by Applicant and the shipping of the product originates within Missouri. Applicant’s supplier located within Missouri is the place of business for determining the local sales tax rate. Therefore, Applicant should collect the local sales tax in effect at Applicant’s Missouri supplier for sales that are drop shipped by the supplier within Missouri to Applicant’s customer in Missouri.
ISSUE 3:
Which local sales tax rate should Applicant collect on its sales that are drop shipped by Applicant’s suppliers from outside Missouri to Applicant’s customers in Missouri?
RESPONSE 3:
Applicant should collect the local sales tax in effect at the customer’s location for sales that are drop shipped by Applicant’s supplier from outside Missouri to Applicant’s customer in Missouri.
12 CSR 10-117.100(3)(A)(4) provides, “If the order is taken outside Missouri for a sale of tangible personal property subject to Missouri sales tax, the sale is subject to the local sales tax in effect where title to the item transfers to the purchaser.”
The local sales tax is determined by where title passes for a product sold by Applicant when the product is drop-shipped by a supplier outside of Missouri to Applicant’s customer in Missouri. Applicant should collect the local sales tax in effect at the customer’s location for these drop shipment sales because title passes for the product to Applicant and then to the customer at the customer’s location within Missouri.
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 Associate Counsel Amy Bartolomucci, Office of General Counsel, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573-751-0961), or me.
Sincerely,
Omar D. Davis