Missouri Supreme Court affirms title transfer sourcing rule
Missouri sales tax applies to F.O.B. manufacturer shipments
TAX ALERT |
On June 30, 2015, the Missouri Supreme Court issued its decision in VisionStream, Inc. v. Director of Revenue, affirming the Administrative Hearing Commission's decision that Missouri sales tax applied to sales of goods shipped to customers in another state because title to the goods transferred in Missouri.
The taxpayer, VisionStream, designs and produces trade show exhibits and displays for both Missouri customers and customers located outside the state of Missouri. The trade show exhibits are delivered to their clients by third party common carriers and the client is billed shipping charges either by VisionStream or directly by the third party carrier. VisionStream had originally charged, collected and remitted Missouri sales tax on sales to customers located outside of Missouri, but later requested a refund on the ground that these transactions were exempt under Missouri Revised Statutes section 144.030.1, which provides that sales made in commerce between Missouri and any other state of the United States or a foreign country are not subject to sales tax.
The Missouri Department of Revenue denied the refund request, determining that the sales were rightly treated as Missouri sales because title to the goods in question transferred in Missouri. The department based this finding solely on the fact that VisionStream's blank order forms provide that sales to out-of-state customers are shipped F.O.B. manufacturer, which is VisionStream's Missouri location. VisionStream appealed to the Administrative Hearing Commission, which upheld the department's decision after VisionStream failed to introduce any additional facts to invalidate the department's reliance on the blank order forms. VisionStream appealed to the Missouri Supreme Court, arguing that (1) its blank order forms provided a right of refusal on delivery and, therefore, could not be construed as providing for F.O.B. manufacturer, and (2) the department was bound by 12 CSR 10-113.200(3)(B), which provides that, unless otherwise agreed, transfer of title will be deemed to occur at the location of the purchaser.
On appeal, the Missouri Supreme Court first considered the sufficiency of the facts and determined that the Administrative Hearing Commission properly concluded that VisionStream's shipments to out-of-state customers were done F.O.B. manufacturer. In reaching this conclusion, the court indicated that it found VisionStream's argument for reliance on the right of refusal on delivery was unpersuasive given that the blank order form expressly provided for F.O.B. manufacturer. Having concluded that the parties to the transactions agreed that transfer of title would be F.O.B. manufacturer, the court then made short work of VisionStream's argument regarding the application of 12 CSR 10-113.200(3)(B), and, following its prior decision in House of Lloyd Inc. v Director of Revenue, upheld the decision of the Administrative Hearing Commission.
The decision of the Missouri Supreme Court follows established Missouri law, but should be closely considered because the state's change of title rule can result in multiple taxation without a clear mechanism for relief. For example, if a Missouri seller sells goods to an out-of-state customer on a F.O.B. manufacturer basis and ships those goods to the customer for ultimate use in the customer's state, which applies an ultimate destination test, the following could result:
- Missouri would require the seller to collect and remit Missouri sales tax pursuant to the VisionStream decision
- The customer's state would require the seller to collect and remit its sales tax or assess the customer use tax on the goods purchased
- Neither state would offer a credit for sales tax paid to another state because both states would claim the right of first taxation.
Accordingly, sellers that ship goods from Missouri to customers outside of the state should review their contractual terms to ensure they are charging the appropriate tax and should consider changes to their contractual language to reduce the risk of multiple taxation.