Court ruling, state suggest businesses may apply use, sales tax to deliveries

Businesses throughout Missouri, from flower shops to contracting companies, recently received a letter from the state Department of Revenue, warning of a potential obligation to remit tax on delivery charges.

The new warning stems from a case ruled upon by the Missouri Supreme Court. Because of the court's decision in the case Alberici Constructors Inc. v. Director of Revenue, local businesses may be expected to collect a use tax on delivery charges regardless of whether it is listed separately on a company invoice.

Before this, delivery charges itemized separately on an invoice often were not considered part of the sales transaction and therefore not subject to tax.

The case

Alberici Constructors Inc. was hired to build a cement manufacturing plant in Missouri. The company rented five cranes from three out-of-state vendors. As part of the rental agreement, Alberici was billed $15,000 for inbound delivery of the equipment, which was separately listed on the invoice to Alberici.

For the year's tax-filing period, Alberici remitted Missouri and local use taxes on the rentals and delivery charge, then sought a refund on the shipping charges -- a refund that was denied by the Administrative Hearing Commission.

The decision

Ultimately, the court ruled the shipping charges were subject to tax regardless of their placement on the invoice.

The intent of the law is to impose sales/use tax on services that are part of the sale. Taxability does not depend on whether the parties intended the charge for the service to be part of the sales price, the court held but on whether the parties intended the service to be part of the sales transaction.

And the court ruled in the case of Alberici, it was the intent of the parties to include the delivery service as part of the crane-rental transaction.

The letter

Because of the court's decision, Nia Ray, director of the Missouri Department of Revenue, sent a letter to inform business owners en masse of their potential obligation to remit sales tax on delivery charges.

In the letter, she said factors such as when the title passes to the seller, whether delivery charges are separately stated, who controls the cost of delivery and assumes the risk of loss, and whether the seller benefits financially from the delivery all are relevant to determining whether delivery is intended to be part of the sale.

"In general, if parties intend delivery to be part of the sale of tangible personal property, the delivery charge is subject to tax even when the delivery charge is separately stated," Ray stated in the letter.

But many local business owners were surprised and confused by the letter, claiming it was vague and unclear on when or whether they were required to begin charging the tax.

John Mehner, president of the Cape Girardeau Area Chamber of Commerce, said he has received inquiries about the letter since it was sent.

"A number of businesses in the area have received the letter," Mehner said, "and we're trying to get clarification on the matter."

State business associations are warning their industries of the change.

"Restaurants should begin to collect and remit sales tax on its delivery fees as soon as possible," the Missouri Restaurant Association said on its website. "MRA believes the best practice is to state the delivery charge separately on the customer receipt. Doing so will not impact the amount of sales tax collected now; however, in the future, this information could become useful."

The Missouri Propane Gas Association also reached out to its members after receiving a number of questions.

"They didn't understand what the notice from the DOR was, and the only other way they're going to find out is an audit after the fact," said Steve Ahrens, executive director of the MPGA. "We're just trying to be a little proactive."

A spokeswoman from the Missouri Department of Revenue was contacted by the Southeast Missourian on Monday for clarification of the letter and the ruling's repercussions for businesses. By Tuesday afternoon, the state agency still was unable to answer questions submitted by the newspaper.

bbrown@semissourian.com

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