LR 8213
Promotional Items Permanently Attached to Buildings Subject to Tax
September 30, 2022
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 15, 2022.
The facts as presented in your letter ruling request are summarized as follows:
Applicant identifies itself as an advertising company that specializes in affixing permanent tangible items to buildings and into the ground. These items may have some type of promotional value. These items include billboards attached to the ground with concrete.
ISSUE:
Is the Applicant an advertiser exempt from taxation when affixing tangible improvements to buildings and the ground?
RESPONSE:
No. The Applicant acts as a contractor (or possibly as a dual operator) when permanently affixing items to buildings and real property. When acting as a contractor, the Applicant may be subject to sales and use taxes depending upon when title to tangible property shifts from the Applicant to the purchasers of that tangible property.
Section 144.020. RSMo, imposes a sales tax on the privilege of making retail sales of tangible personal property or providing certain taxable services in this state. Section 144.610. RSMo, imposes a use tax on the privilege of storing, using, or consuming tangible personal property within this state. Section 144.635. RSMo, requires vendors making sales of tangible personal property for use or consumption in Missouri to collect use taxes on the sales price from the purchaser.
Section 144.034. RSMo, exempts otherwise taxable sales of tangible property in instances where:
The sales of advertising by legal newspapers..., advertising agencies, broadcast stations, and standardized outdoor billboard advertising [are] considered the sale of a service and not the sale of tangible personal property. Purchases of tangible personal property which are for use in producing advertising by the businesses listed in the preceding sentence shall be deemed to be purchases for use or consumption and not for resale.
Advertising is defined in 12 CSR 10-103.610(2)(A) to include:
[T]he expression of an idea created and produced for reproduction and distribution in the media, such as... standardized outdoor billboards... and which is designed to promote sales of a particular product or service or otherwise affect consumer behavior. [emphasis added]
An advertising agency is defined in 12 CSR 10-103.610(2)(B) to include:
[A] business... whose predominant functions as a business are the creation or supervision of the production and placement of advertising and advertising materials in the media. [emphasis added].
A contractor is defined under 12 CSR 10-112(2)(A) to be:
Any person entering into an agreement to improve, repair, replace, erect or alter real property.
A dual operator is defined under 12 CSR 10-112(2)(B) to be:
A taxpayer who purchases materials and supplies for both consumption, as a contractor, and resale, as a retailer.
The sale of real property that becomes part of the land as a "fixture" is excluded from sales and use taxes as real property. Marsh v. Spradling, 537 S.W.2d 402, 404 (Mo. 1979).
In the case of a business acting as a contractor, or dual operator, tax is generally imposed based upon when title to tangible property transfers. Section 12 CSR 10-112.010(3)(A) notes:
If title passes from the contractor to the purchaser before attachment of the tangible personal property to real property, the contractor does not pay tax on its purchase, but must collect tax on the sale price of the item. If title passes after the attachment, the contractor is subject to tax on its purchase of the tangible personal property and does not collect tax on its transfer of ownership or title of the item. In general, title passes after installation is complete, unless the contractor and purchaser expressly agree otherwise.
The key to qualifying as advertising, or as an advertising agency, is the placement of materials into the media (as opposed to the production of the advertising medium itself). The media is not defined, but business allowing for the reproduction and distribution of promotional material on standardized outdoor billboards are part of the media. In the case of standardized outdoor billboards, advertising is the standardized material that goes onto those billboards (such as the covering that go around billboards lining an interstate), not the installation of the billboards themselves.
The billboards, and other real property improvements, installed by the Applicant are not advertising because they are not the ideas created and produced for reproduction and distribution in the media. The billboards and other real property improvements are at best the medium that other forms of advertising are reproduced and distributed through.
When permanently affixing tangible property to real property, the Applicant is acting as either a contractor, or a dual operator, depending upon the specific facts regarding the transfer of property.
Whether the installation of specific permanent improvements to real property require collection of sales and use taxes is a fact specific inquiry. The Department notes that the imposition of taxes generally turns upon when title to tangible property shifts from a contractor to a purchaser.
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 Nathan Jefferson, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.
Sincerely,
Wayne Wallingford