LR 8232
Taxability of Third-Party Drop Shipment
March 30, 2023
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 of January 9, 2023.
The facts as presented in your letter ruling request, as well as communications with you, are summarized as follows:
Applicant sells print and promotional items. The Applicant operates a business whereby customer designs are made printable by the Applicant, who then sends those designs to the Applicant's wholesaler. The Applicant's wholesaler prints and drop ships finished items at customer locations (including those in Missouri).
The Applicant asserts that it is an out-of-state vendor who does not otherwise have nexus in the state of Missouri [except as may be established under these facts]. The Applicant sells a manufacturer's products into Missouri. All products are drop shipped directly from a manufacturer to the Applicant's customers located within Missouri. The Applicant's sales in Missouri total less than one-hundred-thousand dollars annually.
ISSUE:
Should Applicant be collecting and remitting sales taxes on Missouri sales?
RESPONSE:
Yes. Applicant should be collecting and remitting sales taxes on Missouri sales.
Section 144.020.1, RSMo, imposes a sales tax "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."
Regulation 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..."
Regulation 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."
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.
Applicant's products are drop shipped from Applicant's suppliers 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. Therefore, Applicant should collect and remit sales tax on sales that are dropped shipped by Applicant's supplier to customers in 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 Legal Counsel Nathan Jefferson, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.
Sincerely,
Wayne Wallingford
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