Missouri Denies Sales Tax Refund Claim on Goods Shipped Outside the State
A company’s shipping terms can have an impact on sales tax compliance requirements, as they recently did for a Missouri display manufacturer.
By Jess Johannesen, SALT senior associate
When a vendor engages in an interstate sale transaction by shipping or delivering goods to a purchaser in another state, which state’s sales/use tax laws apply to the sale (i.e., assuming a vendor has nexus in both states, which state’s tax is he required to collect and remit)? Does the state consider factors such as shipping terms, execution of contracts, where actual title to the goods passed or where the goods were delivered? We generally view the purchaser’s state as the taxing state since that is where the goods are delivered.  However, states may look at other factors to determine where the sale took place. A recent Missouri Supreme Court case provides insight on how Missouri determines whether sales of tangible personal property are subject to Missouri sales tax. 
The taxpayer is a Missouri corporation that designs and constructs trade show exhibits and displays for companies both within and outside Missouri. When shipping the exhibits and displays, the taxpayer would transfer the display components to a common carrier for delivery to the trade show location. Upon review of the taxpayer’s “display order” form that sets out standard terms and conditions for the purchase of displays, the portion of the display order outlining the delivery expenses details that: (i) delivery will be F.O.B. manufacturer, (ii) all transportation, handling, and insurance costs incurred in delivery will be charged to the purchaser, (iii) the taxpayer/seller may arrange for, and prepay, transportation, handling, and insurance with the understanding that these charges will be subsequently invoiced to the purchaser, and (iv) expenses for any special crating or handling required are borne by the purchaser. 
The taxpayer initially collected and remitted Missouri sales tax on the exhibits and displays that it sent to its in-state and out-of-state customers, but the taxpayer filed for a refund of the sales taxes paid on the displays that it shipped for customer use outside of Missouri. The Supreme Court held that the taxpayer was not entitled to a refund of the sales taxes paid on the displays shipped outside of Missouri. The Court explained that Missouri exempts sales made “in commerce between this state and any other state,” and that prior courts have interpreted that exemption to not be related to the ultimate destination or original source of the goods but rather to apply only to transfers of title in commerce. Thus, the only relevant question to the Court was where title to the displays transferred to the purchaser. The only evidence that the taxpayer had related to passage of title was the display order. Since the delivery terms provide that “[d]elivery will be F.O.B. manufacturer,” the transfer of title occurs at the time of delivery to the common carrier which occurs at the taxpayer’s Missouri location. Furthermore, the delivery terms that indicate that the purchaser is liable for all transportation, handling and insurance costs, as well as any special crating or handling. Therefore, once the displays are provided to the common carrier, the taxpayer’s obligations have ceased, and all costs and risks are borne by the purchaser. Accordingly, no matter where the displays are destined to be used, the sale in this case is consummated in Missouri and is subject to Missouri sales tax. 
Taxpayers need to be aware of the impact that their shipping terms may have on sales tax compliance requirements or they risk collecting the wrong state’s tax or not collecting any tax at all. HA&W’s SALT team can assist you in understanding your state sales and use tax compliance obligations, and we will continue to monitor any significant developments in this area and report on them in future issues of the newsletter.
Contact Jess Johannesen, SALT senior associate, at firstname.lastname@example.org or Jeff Glickman, partner-in-charge of HA&W’s SALT practice, at email@example.com for more information.
 For example, Georgia’s regulation on interstate sales provides that Georgia tax does not apply to deliveries “of tangible personal proprety to a common carrier or the U.S. Post Office for delivery outside the State.” Ga. Comp. R. & Regs. 560-12-2-.54(2)(c).
 VisionStream, Inc. v. Director of Revenue, SC94441, 06/30/2015.
 F.O.B. terms are defined under Missouri’s Uniform Commercial Code, which is relied on principally by the court in this case for determining where title transfers. “F.O.B.” means “free on board” and constitutes the point of transfer of title. Typically “F.O.B. Shipping Point” indicates that title transfer occurs when the seller has delivered the goods to the carrier (i.e., at the point of shipment), and “F.O.B. Destination” indicates that title transfer occurs at the place where the goods have been delivered to the purchaser.
 It is worth noting that typically the F.O.B. terms or other conditions of sale are not taken into account when determining whether a sale of tangible personal property is included in the numerator of the sales factor for income tax apportionment purposes.
Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding this matter.