A recent Missouri Supreme Court decision that is inconsistent with prior interpretations regarding the taxability of shipping charges means sales tax audit activity may be on the rise in Missouri for any business that charges or pays for shipping fees.
Critical court ruling
In January 2015, the Missouri Supreme Court held that shipping charges for the transaction at issue in the case Alberici Constructors, Inc. v. Director of Revenue were subject to tax.
Alberici rented a crane, and under the terms of the rental agreement, the vendor delivered the crane to Alberici's job site. The vendor separately stated the shipping charges on its invoice to Alberici. Alberici self-remitted use tax on the entire contract price, including the shipping charges. Alberici then sought a refund for the use tax it paid on the shipping charges and claimed that these charges were not subject to tax because they were optional charges and were separately stated on the invoice.
The Court ruled that the shipping charges were subject to tax because these charges were for services that were part of the sale, no matter if they were optional or separately stated. The Court explained that the intent of the law is to apply sales/use tax on services that are part of the sale. The Court held that it was the intent of the parties to include the delivery service as part of the crane rental transaction. Consequently, the shipping charges were subject to use tax.
What is the potential exposure or risk?
The holding in Alberici is inconsistent with the State's historical interpretation on this issue – shipping charges were not subject to sales/use tax if they were optional and separately stated on the invoice. Additionally, the Missouri Department of Revenue's regulation for this topic has not been repealed and most practitioners would assume that it is a reliable interpretation of law.
Based on the Court's interpretation in Alberici, shipping charges related to a taxable transaction are subject to sales/use tax, regardless of the misleading guidance provided in the current regulation. The Department has been identifying this non-compliance in recent audits, and businesses are unaware of the new decision.
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