LR 8260
Taxability of Real Property
July 28, 2023
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 May 22, 2023.
The facts as presented in your letter ruling request are summarized as follows:
Applicant is manufacturing a large structure. It is free standing and stands proud of the main building. It is installed to a concrete foundation on a series of anchor bolts, and Applicant has provided several drawings of the structure for clarification.
Applicant is manufacturing the structure and is hiring a 3rd party to install. They then invoice the dealers directly for the supply, freight, and invoice.
ISSUE 1:
Does Applicant's structure retain its character as tangible personal property when it is embedded in the ground?
RESPONSE 1:
No. Applicant's structure changes from tangible personal property to real property when it becomes permanently affixed to the ground.
ISSUE 2:
What are the sales and use tax consequences on the sale of the structure?
RESPONSE 2:
Section 144.020.1(1) RSMo, provides:
Upon every retail sale in this state of tangible personal property, excluding motor vehicles, trailers, motorcycles, mopeds, motortricycles, boats and outboard motors required to be titled under the laws of the state of Missouri and subject to tax under subdivision (9) of this subsection, a tax equivalent to four percent of the purchase price paid or charged, or in case such sale involves the exchange of property, a tax equivalent to four percent of the consideration paid or charged, including the fair market value of the property exchanged at the time and place of the exchange, except as otherwise provided in section 144.025.
Section 144.610.1, RSMo, provides:
A tax is imposed for the privilege of storing, using or consuming within this state any article of tangible personal property, excluding motor vehicles, trailers, motorcycles, mopeds, motortricycles, boats, and outboard motors required to be titled under the laws of the state of Missouri and subject to tax under subdivision (9) of subsection 1 of section 144.020, purchased on or after the effective date of sections 144.600 to 144.745 in an amount equivalent to the percentage imposed on the sales price in the sales tax law in section 144.020.
The sales and use tax consequences on the sale of the structure will depend on when title to the structure is transferred from Applicant to the purchaser. The general rule is explained by regulation 12 CSR 10-112.010. If title passes from the contractor to the purchaser before attachment of the tangible personal 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.
If title to the structure passes from Applicant to the purchaser, or the 3rd party, before installation into real property, this is treated as a sale of tangible personal property and subject to tax when sold to the purchaser. If title to the structure remains with Applicant until after the structure has been affixed to real property, then Applicant should not charge sales tax to the purchaser, but should accrue use tax on any items stored, used, or consumed within the state.
ISSUE 3:
What are the sales and use tax consequences on the installation of the structure?
RESPONSE 3:
In general, the sale of tangible personal property is subject to tax unless a specific statute exempts. The sale of a service is not subject to tax unless a specific statute authorizes the taxation of the service.
Whether or not sales tax is charged on the installation of the structure will similarly depend on whether or not title passes from Applicant to the purchaser before or after the installation as real property. If title passes after the property is installed, then there is no sale of tangible personal property and only the sale of a service. If title passes when the structure is still considered tangible personal property, then the installation services will likely be subject to tax. 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. Here, the sale of the service would not be possible without the sale of the tangible personal property, so they are non-separable.
ISSUE 4:
What are the sales and use tax consequences on the repair of the structure?
RESPONSE 4:
The sales and use tax consequences on the repair of the structure will depend on the true object of the repair transaction. Generally speaking, repair services are not one of the specifically enumerated services taxed under chapter 144. However, repair services can also include the sale of tangible personal property. If the true object of the repair transaction is for the tangible personal property included with the service, then the entire sale price is taxable. If the true object of the repair transaction is for the repair service, than it is not subject to tax.
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 J. Ross Shelton General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.
Sincerely,
Wayne Wallingford