Mo. Code Regs. tit. 12 § 10-112.010

Current through Register Vol. 50, No. 1, January 2, 2025

Section 12 CSR 10-112.010 - Contractors

PURPOSE: This rule interprets sections 144.010, 144.020, 144.030 and 144.062, RSMo as they relate to taxation of sales and purchases by contractors.

(1) In general, a contractor is the final user and consumer of the materials and supplies used and consumed in fulfilling a construction contract and which become part of a completed real property improvement. Consequently, persons selling materials and supplies to a contractor are subject to tax on the gross receipts from all such sales because the purchase is not for resale as tangible personal property.

(2) Definition of Terms.

(A) Contractor-Any person entering into an agreement to improve, repair, replace, erect or alter real property.

(B) Dual operator-A taxpayer who purchases materials and supplies for both consumption, as a contractor, and resale, as a retailer.

(C) Real property-Land and items permanently affixed to land, such as buildings.

(3) Basic Application of Tax.

(A) Title Transfer-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.

(B) Dual Operator-When a dual operator purchases materials that are specifically identified for use in a contracting job, it should pay tax on the purchase of the materials. Dual operators should present a resale exemption certificate when purchasing materials for inventory that may be used either for resale or contract jobs. When materials are removed from inventory for use in a contracting job, the dual operator should pay sales tax if purchased in-state or use tax if purchased out-of-state based on the original purchase price of the material.

(C) Flow Through Exemptions-Certain exemptions that are based on the ultimate owner's use of an item (such as the exemption for manufacturing machinery) may flow through to the contractor selling and installing the item. To claim an exemption under these circumstances, the contractor must obtain a signed exemption certificate from the ultimate owner and provide a copy to its supplier.

(D) Flow Through Project Exemptions-A contractor, including subcontractors working for the contractor, constructing, repairing or remodeling facilities for a specific exempt entity, may purchase tax exempt tangible personal property and materials incorporated into or consumed in the project if the exempt entity furnishes to the contractor a project exemption certificate. Tangible personal property and materials that can only be used for one (1) construction, repair or remodeling job which are actually used up in performing the contract are consumed. Examples include sandpaper, fuel to run equipment and drill bits that are actually used up in the performance of the exempt contract. Items that are not consumed are hand tools, drinking water coolers, hardhats and bulldozers. For purposes of this flow through exemption an exempt entity is limited to:

1. Political subdivisions exempt under Article III section 39(10) of the Missouri Constitution;

2. Federal government and its instrumentalities;

3. Religious organizations;

4. Charitable organizations;

5. Elementary and secondary schools, public and private;

6. Higher education institutions, public and private;

7. Missouri Department of Transportation;

8. Jackson County Sports Complex Authority; or

9. Missouri Highways and Transportation Commission.

(E) No specific form is required for the "Project Exemption Certificate," per section 144.062, RSMo, but the following information must be included:

1. Name and address of exempt entity;

2. Missouri tax identification number of the exempt entity;

3. Signature of an authorized representative;

4. Location of the project;

5. Description of the project;

6. Unique identification number for the project;

7. Beginning and estimated ending date of the project; and

8. Expiration date of the project exemption certificate.

(F) Out-of-State Construction Job-Contractors purchasing tangible personal property in Missouri for use out-of-state are subject to tax on the purchase. However, contractors may purchase tangible personal property exempt from Missouri tax for use out-of-state on a construction contract with an entity authorized to issue an exemption certificate under that state's law per section 144.030.2(36), RSMo.

(4) Examples.

(A) A company that fabricates windows, doors and siding markets its product in a showroom making direct sales to consumers, and also uses its product as the contractor on construction projects nationwide. The company is a dual operator. It should issue vendors an exemption certificate for all material purchases that are fabricated into their products. All direct sales through the product showroom are subject to tax on the total price of the products sold. If the company purchases materials specifically intended for the manufacture of products to be used on a particular construction project, it should pay tax on its material purchases. However, when the company removes products from inventory and uses them on construction projects, it should accrue tax on the original cost of the materials used to manufacture the product. If the company cannot determine where it purchased the original materials, it may accrue tax at the rate where the company is located.

(B) A Missouri-based company has expanded its operations. It now fabricates for sale the manufacturing machinery to produce its products. It has also developed an earthquake proof structure that it is contracting with municipalities nationwide to erect. The company should charge tax on the sale of the production machinery. It may sell the machinery tax exempt if the purchaser issues a valid exemption certificate. The purchaser need not be the entity using the machinery. The company may accept a "flow through" exemption from a contractor.

(C) A company should accrue tax on the original purchase cost of items taken out of inventory to be consumed in the fulfillment of its construction contracts. The company does not have to self-accrue tax on materials consumed in construction contracts if the exempt entity issues a project exemption certificate (as authorized by section 144.062, RSMo). If the contract is for an out-of-state project and the out-of-state entity is authorized to issue a certificate of exemption for purchases to a contractor under the provisions of that state's laws, the company may accept an exemption certificate and not self-accrue tax.

12 CSR 10-112.010

AUTHORITY: section 144.270, RSMo 2000.* Original rule filed June 13, 2000, effective Dec. 30, 2000. Emergency amendment filed Aug. 14, 2007, effective Aug. 28, 2007, expired Feb. 23, 2008. Amended: Filed Aug. 14, 2007, effective March 30, 2008.

*Original authority: 144.270, RSMo 1939, amended 1941, 1943, 1945, 1947, 1955, 1961.