Missouri Department of RevenueLR5981
November 6, 2009
Dear Applicant:
This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of Regulations 12 CSR 10-1.020, in response to your letter dated September 17, 2009.
The facts as you presented in your letter ruling request and telephone conversation with Legal Counsel John Griesedieck are summarized as follows.
Applicant sells various monitoring systems, such as nurse-call systems, fire alarm systems, and controlled-building-access systems, to various commercial purchasers. Applicant is not commercially domiciled in Missouri but does employ salespersons who seek new accounts in Missouri.
When Applicant sells a customer one of its systems, it offers an optional maintenance agreement. According to the terms of these maintenance agreements, Applicant will perform any service or maintenance that is required on the systems for the period specified. Applicant will also repair or replace any parts that may suffer from exhaustion, wear and tear, or obsolescence. Applicant does not separately bill its customers for the repair or replacement of any part. All parts that Applicant uses in fulfillment of the maintenance agreements are purchased from out-of-state vendors.
Applicant will also occasionally sell just the maintenance agreement, when the customer has already purchased the system from another seller. Similarly, Applicant may be required under the maintenance agreements to repair or replace parts, but Applicant does not separately bill the customer for the cost of these parts.
ISSUE 1:
Is the charge for the optional maintenance agreement subject to sales tax?
RESPONSE 1:
No. The charge for the optional maintenance agreement is not subject to sales tax.
Missouri Code of Regulations, 12 CSR 10-103.600(1) explains that:
The sale of a service is not subject to tax unless a specific statute authorizes the taxation of the service. When a sale involves both tangible personal property and a nontaxable service, the sale of the tangible personal property will be subject to tax, and the service will not be subject to tax, if the sale of each is separate.
Maintenance agreements are not one of the enumerated taxable services under Section 144.0202, RSMo.
Therefore, the sale of an optional maintenance agreement is not subject to sales tax, provided that the charge is separately stated on the customer’s bill.
ISSUE 2:
Does Applicant have to remit use tax on parts used in the performance of a maintenance agreement?
RESPONSE 2:
Yes. Applicant must remit use tax on parts used in the performance of a maintenance agreement.
Section 144.610.1, RSMo, imposes a tax upon the privilege of storing, using or consuming within Missouri any article of tangible personal property.
Applicant uses parts that are purchased from vendors located outside of Missouri in the performance of the maintenance agreements. The maintenance agreements themselves are not subject to sales tax. Also, Applicant’s clients are not separately billed for the parts used in fulfillment of the maintenance agreements. Therefore, Applicant is required to remit use tax on the parts it uses in the performance of the maintenance agreements.
ISSUE 3:
What local use tax applies to the parts used in the performance of the maintenance agreements?
RESPONSE 3:
The local use tax that applies to the parts used in the performance of the maintenance agreements is the location where the parts are first delivered in Missouri.
Missouri Code of Regulations, 12 CSR 10-117.100, states:
When a transaction is subject to state use tax, the transaction is also subject to the local use tax adopted by the county or municipality where the tangible personal property is first delivered in Missouri.
The proper location for reporting local use tax is where the parts are first delivered in Missouri.
This letter ruling is binding upon the Department of Revenue with respect to 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 John Griesedieck, General Counsel’s Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573-751-0961), or me.
Sincerely,
Alana M. Barragán-Scott